Chris Yeh, the tech entrepreneur, startup mentor and author, invites you to imagine yourself at the head of a company that’s on the brink of dizzying growth — a 50-fold increase in employees, and 300 times revenues — within the next three years. And he asks: “Would you be excited or scared?”
One can assume that Jeff Bezos chose “excited.” Because Yeh was referring to Amazon.com, which saw its revenues explode between 1996 and 1999, on the path to posting the world’s second-highest market value — $777.8bn — last year.
The story of Amazon’s stunning growth, involving years of consecutive quarterly losses, has been told many times. Going by traditional business practice, however, it seems an unlikely one. How could a company rise so fast without crashing and burning? And why have so many other publicly traded tech companies — 10 of which are based in Silicon Valley — managed to duplicate Amazon’s example? For that matter, what’s so magical about that particular part of the world, with its contained geography and population of just 7 million?
Yeh argues that speed is the very reason for the success of those unicorns. He is the co-author, with venture capitalist Reid Hoffman, of Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies. The key word in the title, coined by the authors, underscores their belief in the need for companies to take big chances if they want to achieve their full potential in the marketplace.
“It’s the ability to scale that sets Silicon Valley apart,” Yeh said at a recent meeting of the San Francisco Roundtable of the Council of Supply Chain Management Professionals. In some cases, that means sacrificing efficiency and attention to short-term problems in order to get big fast.
The very nature of startups and the modern-day tech world demands that approach, Yeh believes. Most if not all tech-oriented markets today are governed by a “winner-take-all” dynamic, he said. Being the victor in a cutthroat world “is worth paying any price.”
Yeh isn’t saying that every young company is suited for that pace of growth, “which is not for the faint of heart.” Several factors must exist for it to be feasible, including substantial market size, massive distribution capability, good gross margins (red ink or not, “You need to make money,” he says), and strong “network effects,” whereby “increased usage of a product or service boosts the value of that product or service for other users.” Yeh cited Airbnb as a prime example of that phenomenon.
When “blitzscaling” becomes appropriate, certain ingrained truths about management must fall by the wayside. In his book, Yeh lays out nine counterintuitive rules that violate old notions about the need for efficiency and minimization of risk. They include being willing to “embrace chaos”; hiring individuals who are right for the moment, not necessarily those with experience running much bigger companies; tolerating “bad” management, which doesn’t necessarily adhere to ideas of proper communication, order and morale boosting; launching a product that “embarrasses” you, instead of waiting too long to unveil the “perfect” version, and “letting fires burn.” That last bit of advice involves choosing between addressing crises that are an annoyance for the moment, and those that threaten to destroy the company if allowed to rage unchecked.
Yeh’s message was underscored at the S.F. Roundtable event by a panel of tech executives. Bindiya Vakil, chief executive officer of Resilinc, a creator of software to manage supply-chain risk, described the plight of startups lacking the staff to support big accounts. Sometimes that shortfall results in mistakes that need to be brushed aside.
“At some point, you have to let fires burn,” Vakil said, echoing Yeh. “As CEO, you not only break all the rules, but you have to make your team comfortable about doing it.”
At the same time, companies have less time than in the past to get things right. In the 1950s, Vakil said, the average lifespan of a company was 60 years. Today it’s between 15 and 20 years, and continuing to shrink.
Craig Cuffie, chief procurement officer with Salesforce.com, pushed back against the idea of breakneck growth without relief. Scaling up isn’t just about the physical supply chain, he said; it’s about the individuals who are managing it as well. “You wear people out when you’re growing that fast,” he said. “They’re just tired.” Still, Cuffie acknowledged that Silicon Valley companies today are playing under a different set of rules.
Vakil addressed the tensions that arise from pitting speed against chaos. “Blitzscaling in isolation is missing the point,” she said. “You need the proper tools and technology. We use them to make sure that all of our information is in a central place, then manage by exception.”
Cuffie agreed that current technology allows companies to sidestep at least some of the pitfalls that come with scaling up rapidly. Yet he has personally experienced the anxiety of keeping pace with a company that’s on a steep growth curve. At Salesforce, he was hired to create a supply chain where none existed. Part of the work involved activation of a full material requirement planning (MRP) system in just three months.
Often a startup will come under intense pressure from investors to grow the company quickly, beyond what the founder is comfortable with. But in today’s world of lightning-fast markets, going slow might not be an option.
“The reality is,” said Vakil, “if you’re not growing, you’re dead.”