Use Blitzscaling To Develop A Theory Of Scale For Your Investments

In a recent conversation with my friend and co-author, Reid Hoffman, a legendary investor who placed early bets on such iconic companies as Facebook and Airbnb, I asked him to walk me through his thought processes as he was considering those deals and how the principles of Blitzscaling, deduced and distilled into book form many years later, played a role in what originally drew him to make these investments which many consider to be among the greatest of all time.  

Have a listen to the full interview in the embedded video, or read on for the highlights. 

• If you're thinking about blitzscaling from the point of view of investing,  you need to break it down into all the different elements of a venture
• You might want to break it down at different stages, depending if you're at Series A Series B, Series C, or Series D plus.
• Betting on a founder, like Chris Urmson of Aurora, who is the technical guy who built Waymo, and is now building the next version technology stack in the same domain, is an attractive thing given that a technology stack in any business is a moving thing. Chris has deep relationships with partners and customers in the space from prior activities.
• If you're investing in a platform, you have to have a successful go-to-market within a certain timeframe or a later iteration of the platform will be the one that succeeds. 
• Capital helps scale, but so do the prior relationships of the founder in the relevant industry or domain.
• How can you know when something's a scalable investment? When you have a scale plan. When you have evidence and a theory about how the scaling plays out.
• If the business begins to to create a kind of network effect, that can be a predominant thing.
• When evaluating distribution (one of the growth enhancers in the blitzscaling framework) it's important to keep in mind that distribution comes in different forms. Distribution can come in the form of virality and from leveraging an existing network.
• You can develop a theory of scaling by using the blitzscaling framework, and then you're looking for signs to convince yourself that this investment has as much or better chance of achieving success in the critical variables the framework outlines. 
• When you're looking at a Blitzscaling thesis in an investment, you like too see tailwinds and traction that are accelerating into a rocket ship motion.
• But part of investing in blitzscalers involves make those decision early, at the Series A level.  
• Investing in new forms of platforms, which almost by definition have network effects, helps with blitzscalability. W're in a networked first, mobile first kind of world.
• Blitzscaling is when you can't be taken from behind. You might be taken by a platform shift or something else. But someone can't run your playbook and can't run a Blitzscaling playbook to catch you. Because you've actually already established your network, you've already established your position.
• Often you're looking at a whole bunch of companies with a similar use case, trying to develop your theory of scale. How do you know which one will take home first prize? 
• At series A it's like, "Hey, I got a theory." It starts becoming not just art, but also science about like, okay, what are the analytics that guide you in terms of how you put in capital to prioritize speed?
• One sign can be looking to see if other successful investors in a relevant domain have made a bet on who think will win. When they place a bet that the economics of putting in capital to prioritize speed over efficiency to accelerate you to the network that you want so that you're then valuable at the other side.
•  How do you know that you're targeting a market that has a established position afterwards?  When super smart investors, come in and lead and or participate in those rounds for it that's a good sign.
• So there's kind of an arc of Blitzscaling investing. A science of Blitzscaling really shows that there are numerous different ways to create great value.
• Number One is what we've implicitly been discussing, which is the science of Blitzscaling allows you to evaluate these companies. Where you have in mind specific theories. So that's why it's a science as opposed to just guesswork because it's all about those experiments, hypotheses and proof.
• It's really helpful to have a framework that helps you identify the great companies so you can invest in them.
• Even when you have a theory of scale, it's almost always a blend of theory and data. In the beginning  it's mostly theory, but even with theory, you can measure by going put and talking to smart people, applying the theory of it, etc. Going "Hey, do you think that the market will play out this way?" "Do you think that product will play out this way?"
• You do this because you need to have a sense of what you would need to believe so that you can later see data--from market engagement, revenue data, from customers, engagement analysis-- to test that belief in various ways
• That allows you to say " I think we could do "X" and then I think we'd be able to measure this, and we then we may be on this path.

We've developed blitzscaling into a framework supported by a series of tools that can be used by investors to improve their ability to develop the kind of "theory of scale" that Reid talks about.  Members of our community have access to our "Blitzscaling for Investors" course that goes over the basics of the framework, while members of our exclusive Blitzscaling Investors Network have the exclusive opportunity to work with me and my partners at Blitzscaling Ventures twice a month to gain our blitzscaling insights into the deals they're evaluating, as well as those we are looking at.