Class 1 Notes Essay — Reid Hoffman, John Lilly, Chris Yeh, and Allen Blue’s CS183C Technology-enabled Blitzscaling course

Here is an essay version of my class notes from Class 1 of Stanford University’s CS183C — Technology-enabled Blitzscaling — taught by Reid Hoffman, John Lilly, Chris Yeh, and Allen Blue. Errors and omissions are my own. Credit for good stuff is Reid, John, Chris Yeh, and Allen’s entirely.

I also took inspiration of turning my notes into an essay from Blake Masters who wrote these fantastic essays about Peter Thiel’s CS183 class.

The video of the class, has just been published. (My notes are below)

The slides of the class, have just been published. (My notes are below)

I. The Classic Mythos of Silicon Valley

The classic mythos of Silicon Valley is that startups are what make Silicon Valley special.

The classic story of Silicon Valley is:

  • You start working on an idea in your garage (or dorm room)
  • The team is a group of technical founders
  • You create a new product (the app)
  • You raise funding for your new product
  • You reach product market fit and it’s off to the races

This story is partially true. It’s important to get the founding team right, get the initial product correct, and get your funding right; however, this story misses out on many of the important aspects of building an enduring company.

II. Problem with the Classic Mythos

The main problem with this story is now startups are abundant in Silicon Valley, in the U.S., and in the rest of the world — Europe, Latin America, Asia, etc. Now it’s possible to assemble a team, raise capital, and build a product anywhere in the world.

However there is a disproportionate number of transformational companies which are based in Silicon Valley, why is that?

If you look at companies that are worth $10B+, all of them except for 2 come from Silicon Valley (Alibaba and Tencent are the exceptions).

If you look at the top 10% of all unicorn companies (companies worth more than $1B on paper) — 50% of them are from the SF Bay Area. If you look at the top 60% of all unicorn companies — 47% of them are from the bay area.

Given there are only 7M people in the bay area — why is there such a concentration of transformational companies in this region? Something very different is going on in the SF Bay Area vs. other places where startups are being created.

The theory and basis of this class is that Silicon Valley is special because we have a lot of experience and operational knowledge about scaling companies — which is coined as Blitzscaling by Reid Hoffman and Chris Yeh.

III. Goal of the Class

The goal of the class is to document and share the knowledge of Blitzscaling to the participants in this class and to the rest of the world. (these classes are being recorded and will be shared online).

There is no step-by-step playbook on how to scale a company but there are strategies which have been learned and used by the individuals who have scaled companies. In this class they will bring in top individuals around the different levels of scaling to share the lessons learned.

IV. Networks

One of the other big themes that will be covered is the concept of networks. This includes the networks of people, talent, skills, universities, companies, investors, and all of the inter-relationships between these networks.

For example in Silicon Valley and particularly at Stanford University there is a huge diversity of people who have built and scaled many long lasting companies. Examples include: Frederick Terman, Hewlett and Packard, Andy Bechtolsheim, Aneel Bhusri, Sergey Brin, and more.

V. The Levels of Scale

Here is how Reid, John, and Allen broke down the different levels of scale.

A 3–4 person startup is very different from a 15 person company and both of these are very different compared to an organization with 100's of employees. At each level of scale the company experiences operational changes.

VI. Key Questions Across the Various Levels of Scale

A few of the key questions across each level of scale include:

For example at Workday, one of the founders Aneel Bhusri personally interviewed all of their new employees from 0 to 500 employees because culture was critically important to them. However this starts to become very difficult to do from 500–1,000's of people, at this scale you have to take a different approach to scaling hiring and culture.

A second example is while you are small your competition is mostly other startups. However as you scale your revenue and customer base, then your competition switches from other startups to the industry leaders.

VII. How Scale Affects the Functions of Your Company

There is no one size fits all approach but rather the goal of the class is to provide you with a chessboard of how to think about moving from one level of scale to the next level of scale — and also when to scale in the first place.

Almost all of the startup information out there is focused on the first level of scale — building your mvp, iterating, trying to find product market fit, etc. Much of this won’t be covered in this class.

VII. Key Considerations of Blitzscaling

  1. When do you Blitzscale? What speed you should be operating at is a judgement call you need to make. For example it doesn’t make sense at all to have an idea and jump straight into scaling. If you hit the afterburners when you aren’t ready — that’s a sure way to have your company die.
  2. Once you scale you start to move from generalists to specialists. In the beginning the first 5 people do everything — especially if you move through pivots you need people who will learn things quickly and can do anything. As you scale you will hire more specialists to help you get operational efficiency in specific areas.
  3. As you scale you move from:
    1. Everyone in the same room who are all doing.
    2. People who are managing people and people who are doing.
    3. Execs who are focused on scaling the organization, managers, and people who are doing.
  4. Need to preserve innovation while scaling. Innovation doesn’t happen just in the startup phase and then you scale, the organization needs to constantly innovate. For example, come up with new product lines, ways to make storage of data more efficient, new infrastructure, etc.
  5. Preserving adaptation vs. operational excellence — Moving fast means you will have operational wastage.
    Example- Paypal was growing 2–5% of their userbase and transactions per day—and at one point had 20K customer service emails per week and growing. Customers were angry and calling 24 hours a day. In 2 months they went from 0 to 200 customer service employees, learned as they went along, and ended up having to churn many of those employees. The tradeoff was the need for speed vs. operational excellence.
  6. Global reach — LinkedIn started off in 12 countries — only added countries when people wrote in and wanted their country added.
  7. Capital requirements — Either have a good revenue model that you are reinvesting into operations — or raise money through funding. Right now in this environment there is a big tension on how much to grow vs. keeping burn rates stable. How much money do you lose on each transaction vs. how much would you spend to win the market.

IX. LinkedIn Example of Blitzscaling

Allen Blue shared a personal account of the different stages of LinkedIn’s growth and how things changed at each stage. I particularly liked the pictures he shared on the # of LinkedIn users vs. the # of LinkedIn employees.

X. The “Family Stage”

The family stage —Is the stage where small teams are building a product to get product market fit

The things which are critically important in this stage are:

  • Is your product good?
  • Does anyone care about your product?
  • Can you hire at all? How do you convince something to join you vs. Facebook/Uber/Airbnb/etc? How do you get employees to care?
  • How can you pay people with very limited runway?
  • TLDR: product product product, people people people, and how can you pay people.

The things which are not important in this stage are:

  • Board of directors
  • Analytics, metrics, and dashboards — Just have the basics
  • Strategy (vs. action)
  • Everything else

In a startup there are always fires burning. The key in this stage is to know which fires are important to fix and which ones can keep burning. You have to focus on the things which are the most critical only.

For example analytics, dashboards, and data management will not matter at all if no one cares about your product. Getting people to care about your product is much more important than metrics (at this stage).

One key insight is — trying to get anyone to use and care about a new product is really hard. Once you find the product that starts to work at all then you can worry about the systems to manage that product.

One of John Lilly’s favorite essays on this stage is Paul Graham’s essay on Do things that don’t scale.

When you are first starting out, your whole team needs to do things such as:

  • talking to each user
  • literally holding their phone
  • downloading the app for them
  • showing them how to sign up and use it
  • doing this for 100's of users.

These activities won’t scale but they are critically important to getting your first 100's of users.

For example a story was shared in class about Airbnb. When they were first starting out the founders found potential customers on Craigslist, literally walked door to door in NYC talking to each potential customer, showed them how to post their rooms, and would take pictures of their houses for their customers.

Having both the founders and the early team do activities like these, gives you a good sense of what your customers actually look and feel like.

XI. Reading Material for the “Family Stage” of Growth

  1. Do things that don’t scale
  2. Startup Advice, Briefly
  3. Why Silicon Valley Works

This was an awesome first class and I am really looking forward to the next one. I’ll post the second lecture notes here after our next class.