If you are familiar with the world of start-up creators, you’ve almost certainly heard of blitzscaling, considered as the be-all and end-all for up-and-coming unicorns. Popularised by Reid Hoffman, the co-founder of LinkedIn, blitzscaling consists in growing a business as fast as possible, to the detriment of profitability, in order to dominate the market and outrun the competition.
Beneath its apparent modernity, blitzscaling actually corresponds to an old war ideology which has little to do with the normal running of a healthy business. Blitzscaling is a reference to blitzkrieg, or ‘lightning war’, a strategy theorised by the Wehrmacht on the eve of the Second World War and put into practice as soon as the war broke out in 1939. The idea is not to consolidate positions, but to advance as rapidly as possible into enemy territory in order to destabilise any form of counter-attack.
Generating profitability is not a concern, the priority being growth at any cost.
When transposed to the business sector, this military doctrine explains, for example, the confrontation in the quick commerce sector between 15-minute grocery delivery companies, such as Gorillas and Flink (Germany), Glovo (Spain), Yango Deli (Russia), Dija and Zapp (UK) or Getir (Turkey). All these companies draw on the model of GoPuff, which was founded in 2013 in the USA and now operates in more than 1,000 American and European cities, for a current valuation exceeding $15bn. GoPuff also acquired Dija, while Gorillas went on to become one of the fastest unicorns in history, reaching a valuation of more than €1bn in just 9 months.
In a similar move to home delivery players, such as Uber Eats or Deliveroo, self-service scooter rental companies like Lime or Dott, mattress distributors Tediber and Emma, or the taxi platforms Uber and Bolt, quick commerce companies are caught up in a frenzied race for growth. The idea is to raise as much capital as possible in order to open as many branches as possible and at a frantic speed. Generating profitability is not a concern, the priority being growth at any cost. The implicit hypothesis is that profit will come naturally once the market has been conquered.
This is unfortunately far from certain. Designing a structurally profitable business is a completely different ball game to funding frenzied growth with the support of outside investors, and burning cash to buy up market share in no way constitutes a sustainable business model. We are thus seeing the emergence of sickly monsters, such as Uber, whose billions in losses should have led to the company’s bankruptcy a long time ago.
Given these conditions, how has blitzscaling become so popular?
On the one hand, you have entrepreneurs whose aim is not to build a healthy company, but to sell their business to buyers, or to small shareholders if the stock market becomes a potential opportunity; profitability will end up being the problem of these future owners. On the other hand, you have a surplus of ready cash and investors who are prepared to trust in success stories, as long they can have their cut too.
In the end, from a strictly strategic point of view, creating a structurally unprofitable business is a subversion and blitzscaling is nothing more than a speculative bubble fuelled by sales at a loss; as with all collective hallucinations, the awakening may be painful.
This review was previously published in French by Xerfi Canal.
This post gives the views of its author, not the position of ESCP Business School.