The most fundamental idea to blitscaling is to design an innovative buisness model. Real value creation comes when innovative technology enables innovative products with innovative business model.

Back in the dot-com boom, a large number of internet businesses failed due to the fact that they copy pasted existing business models into the novel online medium. Startups like Netscape Navigator, that relied purely on tech innovation without a proper business model went bust.

Key Growth Factors

These 4 factors enable growth while blitzscaling:

1. Market Size

Albeit obvious, to build a massive company, identify and work only with ideas that serve a large market. A large market has not just a large number of potential customers but also effective channels to reach these customers.

Its also interesting to account for how technological and price improvements can bring in new customers. As Aron Levie (founder of Box), said *“Sizing the market for a disruptor based on the incumbent market is like sizing the car industry off how many horses there were in 1910” *.

2. Distribution

Surprisingly, a good product with great distribution will always beat a great product with good distribution. A successful distribution usually works through:

A. Leveraging Existing Networks : Instead of investing in ad campaigns use existing networks, for example PayPal used eBay by adding a “Pay with PayPal” button to listings.

B. Virality : This can be organic–occuring during the course of using the product–or incentivized by giving a reward. Drop box used both, users sharing files with non-users(organic), basic account holders get extra 500MB if they refer(incentivized).

3. High Gross Margin

Gross margin is the sales minus the cost of the goods sold. Many tech businesses have high gross-margins by default, since the cost of duplicating software is essentially zero. In contrast ‘Old businesses’, have low gross-margins and Amazon as well has a low gross-margin.

Remember even though gross margins matter to the seller, they are irrelevant to the buyer. Also, operational challenges scale based on revenue or unit sales volume, not gross margin.

4. Network effects

This effect is the most powerful, becuase it sustains the growth. A product is subject to network effect when increased usage by any user increases the value of the product or the service. This can be seen in Facebook, Uber, Airbnb, LinkedIn and many more. The 5 categories of Network Effects are:

A. Direct Network Effects : Increased usage leads to direct increase in value. (Facebook, Whatsapp, Instagram)

B. Indirect Network Effects : Increased usage encourages consumption of complementary goods. (Adoption of iOS/Android encourages app builders)

C. Two-sided Network Effects : Increased usage of one set of users increases the value to a complementary set of users. (Marketplaces like Uber,eBay,Airbnb)

D. Local Network Effects : Increase in usage by a small subset of users increases value for connected user.

E. Compatibility and Standards : Use of a product allows it to set the standard. (MsWord being the dominant document file destroying WordPerfect and OpenDocument)

Growth Limiters

1. Lack of Product/Market Fit

The lack of Product/Market Fit will make growth expensive and difficult, you will be stumbling and floundering while blitscaling. Only blitzscale after you have identified your P/M fit.

The fundamental question you need to answer is whether you have discovered a non-obvious market oppotunity where you have a unique advantage or approach, which will allow you to be ahead of your competitors.

2. Operational Scalability

You can be limited not just by technical scalability, but also by human limitations on scalability. By increasing the number of people in your team, you are increasing the number of relationships you need to track exponentially, not linearly. You can avoid this by using as few people as required(Whatsapp), or by outsourcing certain elements(Airbnb). Whatsapp kept a freemium model to avoid sales, & marketing people. And Airbnb outsourced its room photography to a list of contractors, to avoid hiring someone to do the same job.

Even companies like Twitter faced Technical Scaling problems which lead to the famous fail whale error. Luckily Twitter was able to fix their problems, but sites like Friendster could never recover from their scaling problems.

• Read Part 3 if you want to see what pushes Innovation in Business Models! *

• For Part 1, read it here! *