WIRED and Executive in Residence and faculty member at Columbia Business School, Leonard Sherman, published a great look today at the implication of substantial rounds of investment going into young companies. The idea behind the intent, known as Blitzscaling, is to fuel such innovations substantially enough that they can establish a global market share and competitive advantage quickly enough (critics argue, by way of capital alone), that they theoretically won’t (or can’t) fail.
It goes without saying, the downside of blitzscaling on which I think we can all agree, is that it brings to life substantial and impactful companies that may not have worked out all the kinks; shining the spotlights we’ve experienced in recent years on founders, teams, cultures, or innovations that we might not all think have the best intentions in mind. Regardless, it happens and thus the question, is ‘Blitzscaling’ choking innovation?
Maybe ‘Blitzscaling’ is Choking Innovation and Wasting Money
Popularized by LinkedIn founder Reid Hoffman and Wasabi Ventures Global Partner Chris Yeh in the book of the same name, Blitzscaling, is explored as the “lightning-fast path to building massively valuable companies.”
“VC investments last year set an all-time record in the US ($132 billion) and globally ($342 billion). Moreover, deal sizes have been steadily growing across all stages of venture development. The median gestation period from seed to IPO has lengthened from 3.2 years in 2000 to nearly a decade at present.”
Are VC’s stifling entrepreneurship? My latest article in Wired makes the case. https://t.co/ebHKbrZIIx
— Len Sherman (@lenshermanCBS)
As I read Sherman’s article, I couldn’t help but chew on the question from different points of view. I’m not here going to elaborate on Sherman’s thoughts, his perspective is well thought and worth a read directly. I wanted to take a moment to explore the implication and offer a different perspective.
In fairness, and complete accuracy, there are two sides to the coin; Blitzscaling is sensational and it intrigues people so it’s an idea ripe for speculation and criticism. But does it really stifle innovation and waste money or does it defer it and enable future potential? I’d argue both.
In favor of criticism of Blitzscaling
Bigger bets on fewer things does stifle completely new ideas. Such focus is rather like Corporate Innovation or University R&D… bigger budgets and brands on the line means risk are taken more methodically and opportunities less certain are shelved or ignored rather than explored and pivoted. Globally, we’re still in era of catching up with the *average* degree of internet experience on the U.S. coasts – that means investors are favoring more assurance and confidence in investments – capital can’t be certain that the people, regional partners, mentors, etc. *really* know how things work so they make safer/bigger bets.
Whether it wastes money or not is debatable. Innovation is high risk. New business is high risk. By definition, venture capital investment requires a tremendous amount of lost capital. This is why is seeks far greater than average outcomes (to the chagrin of many); it has to make up for the investments lost — but investments necessary in our economy because that fuels new ideas, experience, and even technologies that get re-purposed.
And yet, the Impact of Blitzscaling
The idea that it’s choking innovation is incomplete. It’s a tough notion to swallow but the word blitz likely draws from the use of it in WWII and how the Allies stormed with overwhelming force. The horrific implications of war and destruction should be no means be belittled but it’s the other implication that also has merit: economies pushed into overdrive and rebuilding efforts that spun new eras of prosperity and technology.
While it blitzscaling stifles new entrepreneurship and the fuel for countless new ideas, it does do three other things:
1. It completely transforms industries and economies. Startups don’t change our world, disruptive companies do. Startups MIGHT (don’t misunderstand my point!); but startup is a stage, not a company. Startups have the potential to change the world. It takes a well funded and substantial company to actually do it. See: AOL, Google, Facebook, Uber, Salesforce, etc.
Smaller bets = more variety and potential in innovation
Bigger bets = more impactful innovation
2. Bigger bets establish innovative companies and while those companies end up innovating slowly, they are from where future innovators come.
The average age of successful entrepreneurship is 40. People trying out startups for 20 years before they get it right. These are people who cut their teeth at innovative companies earlier in their career. You’ve heard of the PayPal mafia? Did you know that the CEO of LinkedIn, hundreds of VCs, and executives involved in Groupon, Change.org, and more, all started out at good old Yahoo? There is a conventional wisdom in innovation that you don’t learn entrepreneurship at a University (in fact, we can point to many huge ventures a result of people dropping out of college); you get your “startup MBA” (if you will) by getting a job in innovation and seeding your future from there.
Smaller bets = enable present innovators to try
Bigger bets = enable future innovators when more likely to succeed
3. Bigger bets create wealth and corporate resources. From where will the capital for today’s startups come? With whom will today’s startups partner? With whom will today’s startups exit?
Kapor Capital, one of the world’s leading social impact investment groups, is largely a result of Uber. Big bet made that resulted in untold opportunity for others.
How many of you plan to get acquired by AOL or Yahoo? No one, right? We’ve moved on, and it’s newer major companies, the result of big bets, that provide opportunity for present startups to consider meaningful corporate partnerships or exit paths.
Startups and early entrepreneurship are not merely the result of Venture Capital!
We all need companies in our spaces, companies that enable for us mentors, angel investors, experience team members, partnerships, and bigger customers so that our work and risk as entrepreneurs is recognized and rewarded more promptly than that fat check that might, in months, come from a venture capital firm placing a small bet.