Is Blitzscaling dead? | Inc.com

Public markets are down. New York’s Nasdaq, home to many of America’s most renowned tech stocks, has fallen more than 25% this year. European tech companies have also been hit hard. Since the start of the year, Just Eat and Deliveroo have lost around 60% of their market capitalization.

In response, many once-hyped high-growth companies are trying to cut cash burn and are cutting staff. Berlin-based Gorillas, which raised nearly $1 billion just a few months ago, recently announced it would lay off some 300 employees. Lime announcement it would lay off 13% of its staff.

In this tech rout, late-stage investors like Tiger Global and SoftBank, which have a reputation for also backing blitzscalers pursuing unproven business models, lost billions. world tiger suffered a loss of $17 billion and Soft Bank by a loss of $26 billion. Their investment strategies have always been questioned by industry veterans who suspected that many of the large-scale portfolio companies would never become profitable. Today, these late-stage investors, who have invested billions in blitzscalers, are being watched even more by their own investors and slowing their pace of investment.

As these late-stage investors slow their investment pace, early-stage investors are also struggling to find follow-on investors for their large-scale portfolio companies. The impact reverberates from the advanced stage to the seed stage. What does this mean for you as a founder? Is blitzscaling dead? What is the right growth strategy for you?

Blitzscaling is not dead. He did not die for the following reasons:

1. Flash scaling remains a valid growth strategy for companies that must win in the face of strong competition in large, winner-takes-all markets. In these markets, companies facing strong competition must prioritize speed over efficiency to capture market share and stay ahead. For example, the founders of Airbnb, Dropbox, LinkedIn, PayPal, Slack, Spotify and Stripe have successfully applied this very aggressive growth strategy. But blitzscaling is by no means the right strategy for every founder. The opposite is true. Reid Hoffman and Chris Yeh, authors of Flash scalingpoint out that lightning scaling means ignoring many normal business rules and comes with an abnormally high risk of failure. They say it loud and clear that it only makes sense to blitzscale if the speed of market entry is the critical strategy to achieve massive results.

2. According to Preqin, venture capitalists have raised nearly $500 billion in dry powder this year alone. This money must be deployed. And I have no reason to believe that it won’t be deployed in promising startups that dominate huge markets at scale.

3. Venture capital fund returns are characterized by the power law that only a small number of investments will generate the majority of the fund’s returns. For a venture capital fund portfolio to succeed, investors need to focus on finding those very few companies that will stand out. As the above examples of successful blitzscalers demonstrate, companies that successfully blitzscale can become such remarkable performers. They will also be sought in the future.

But – and it’s a big but – given the overall macroeconomic environment, the war in Ukraine, high inflation, rising interest rates, a potential economic slowdown and the tech debacle , venture capitalists have already become more selective and reluctant to invest in high-growth companies that scale at scale and pursue unproven business models. My insights and discussions in the industry ecosystem indicate that the investment focus has shifted from hypergrowth companies to companies that grow both quickly and efficiently.

For you as a founder, this means the following:

1. Unless you’re targeting a huge win-win market, and unless market dynamics force you to prioritize speed over efficiency, you shouldn’t blitzscale. Instead, you should rapid scale.

2. If you scale rapidly, you first validate the business model and then accelerate growth based on a strong, high-growth foundation determined by a broad target market, product-market fit, a product-channel fit, a strong unit economy and a scalable technology infrastructure. .

Scaling quickly is more cash efficient, requires less funding, and therefore results in less dilution of your founding shareholder base. If you rapid scaleit may take you a little longer, but the likelihood that you can raise funds in the current situation and ultimately succeed in building an extremely valuable business is significantly higher.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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