Thinking Big: a Scalable Business Model

1. Business Models / Strategy
EIA Growth Day
12 July 2016
Jeff Abbott

2. Who is this guy? The startup of me.
• Jeff Abbott
• General Partner, Wasabi Ventures
• Director of Technology Transfer and International Programs
• Former
• Director of Arizona State University acceleration program
• Small company CEO
• C-level startup exec
• Digital marketing entrepreneur
• Director of eCommerce and digital transformation at GE
• Director of Corporate Strategy Jack Daniels
• And 40 other jobs
• History and International Management degrees
• Co-author of two cross-cultural management books
• Has lived in UK, Mexico, Brazil
• Speaks Spanish, Portuguese. Has studied German, French and Italian.
• @jeffreydabbott

3. Questions I was asked to address:
• How to validate and scale your business model?
• What are the critical success factors of a globally scalable business model?
• How to scale a business model in a sustainable way?
• How to manage risks?
• Which key indicators affect the growth of your business?
• Which business models today are innovative and more likely to succeed?
• How to beat competition?
• Plus whatever else I want to talk about, I assume .

4. It is an honor for me to be
here with you

5. How does the startup world work?

6. So what business models are VCs looking for?

7. A Tale of Three Legends
Don Valentine, Sequoia
Bill Draper, Sutter Hill & Draper Richards Dick Kramlich, NEA

8. You probably know their investments...
Don Valentine, Sequoia
Bill Draper, Sutter Hill & Draper Richards Dick Kramlich, NEA

9. “Only one thing matters….”
Great Market
Great Technology Great Team

10. Market Attractiveness
• Size
• 10% of a $1B Market = $100M/year = IPO, baby
• Openness
• Don’t bother creating a new desktop OS
• Willingness to try new things
• Financial services firms will do anything for an advantage
• Successful analogous startups
• If Yahoo, then Google; if MySpace, then Facebook

11. The Killer App
• A major pain (especially in the wallet)
• Aspirin, not vitamin (VMware, Uber)
• A new crack (cocaine, not plumber)
• Viral and/or addictive (Facebook, YouTube)
• An affordable indulgence/convenience
• Same, but not the same (Macbook)
• Magic
• Like nothing that came before (iPod/iPhone/iPad)

12. Unique Qualifications
• Relevant, successful prior experience
• Team has the complete set of required skills
• The first…the leading…the only…
• Relationships with key market players

13. Is this BMC thing really all you need to know?
The BMC is but one of many strategic frameworks. It’s supposed advantage is it’s speed.
However, as with most things that happen too fast, it oversimplifies and assumes you know a great deal.

14. The long and winding road…..
Source: Disciplined Entrepreneurship, by Bill Aulet
of the startup process is non-linear
And has a past, present, and
future

15. You are here, looking for a business model.
Is that the same as a strategy?

16. Is a business model like ancient war?
• In Oliver Stone’s classic movie Wall Street, the financier Gordon Gecko
schooled his protégé in the aphorisms of Sun Tzu, the ancient Chinese
military philosopher.
• The point was clear. Business is war, an ancient game with eternal
truths and the essence of strategy is a methodical, time-tested
approach.
• Superior planning, matched with flawless
execution, is the key to domination of the
competitive environment.
A short lesson in the history of business strategy…

17. Are business models like GM or Mercedes?
• When Alfred Sloan conceived the modern corporation at General
Motors he based it on hierarchical military organizations. Orders
flowed downwards and your rank determined your responsibility.
• Perhaps not surprisingly, business strategy started to look more like
military planning, with thick books filled with reams of market
intelligence, tactics and procedures.
• Middle management’s primary function was to “execute the plan”
and compensation reflected performance against predetermined
objectives.

18. Or like chess?
• Strategy always includes some reference to chess.
• Whether it’s chess imagery such as a board or a collection of
pieces, or the insertion of a term like “endgame” or
“checkmate,” you can be sure it’s in there somewhere.
• And why not? Chess is the ultimate game of strategy. All of the really smart
James Bond villains played it.
• Starting with the same pieces in the same position, you need to outwit your
opponent, thinking several moves ahead. Surely, there is no better
metaphor for business strategy and developing business models.
• Except, there never has been a demonstrated link between good chess
strategy and good business strategy.

19. Are they about vision?
• Many strategies start with a vision.
• Herb Kelleher at Southwest Airlines had a vision that air travel could compete
on price with ground travel. His main objective was to become “THE low cost
airline” and decisions were based on that.
• Often, a vision has a shelf life. It works for a while and then outlives its
usefulness.
• Jack Welch’s idea was that every General Electric business should be number
one or two in its category, or abandoned. It drove company strategy for a
while, until it became clear that the evaluation had as much to do with
category definition as it did with true success.

20. Are they a game?
• According to Game Theory, all games have the following:
• Rules, which govern conduct of the players
• Pay-offs, such as win, lose or draw
• Strategies, which influence the decision making process.
• Firms face strategic choices governing their ability to achieve desired pay-
off, including:
• Decisions on price and output, such as whether to: raise, lower, or hold
• Decisions on products, such as whether to: keep existing products or develop new
• Decisions on promotion, such as whether to: spend more, less or same
• Firms could derive a range of possible pay-offs from their strategy choices,
including:
• More profits for shareholders, Greater market share, Improved chances of survival, Getting rid of a
rival

21. Are they about Industry Economics?

22. Are they about co-opetition?
• Cooperation and competition
• Relationships don’t have to be win-lose
• Companies may compete for suppliers and customers, but there are
also providers of complementary products and services
• Occurs when companies collaborate in areas of business where they
do not believe they have competitive advantage, and can share
common costs.
• Brandenburger and Nalebuff, Yale.

23. Does culture play a role in them?

24. Are they shaped by the tools we use?
• Before the printing press, people gained understanding of life through
oral tradition
• Marshall McLuhan believed that “the medium is the message.”
• He wrote in 1964:
• Today it is the instant speed of electric information that, for the first time,
permits easy recognition of the patterns and the formal contours of change
and development. The entire world, past and present, now reveals itself to us
like a growing plant in an enormously accelerated movie.

25. Are they like a Multiplayer Online Game?
• Game strategies are embedded in the business strategies of those who play them.
• You start out as an entry-level player with some raw talent that needs development. You
are given simple tasks and receive small rewards for completing them. As you go further,
the tasks become more difficult and you find that you need to collaborate effectively
with other players in order to achieve your objectives.
• Eventually, you realize that if you want to get ahead in the world, you need to join a
guild, which gives you access to additional resources, opportunities for collaboration and
expertise. Sometimes, in order to develop, you need to take time off from your quest to
develop your skills further.
• You never actually win.
• The objective is, through constantly adding to your skill
set and social network, to amass the maximum amount
of power and influence.
• Sound familiar?

26. Are they about audacity, purpose and
disruption?
• Mark Zuckerberg went to an investor meeting with a hoody and was
described as ”immature.”
• Henry Blodget said this in a reply on Business Insider. “Mark Zuckerberg
doesn’t give a crap about you. He cares about his product, not you or your
business or “returns.” He views you as a source of liquidity for his
employees and existing investors. He’s only taking the company public
because he has to.”
• As Zuckerberg wrote in a letter to prospective shareholders “We don’t build
services to make money; we make money to build better services.”
• And the thing is, they’re probably right. Strategy today is no longer
methodical, but emergent; requiring collaboration in order to build the
skills and resources to fulfill quests of purpose, meaning and, if the game is
played very well, immortality.

27. Do they affect others and the world?
• “Technologies that are simultaneously familiar and alien evoke a sense of dread. In the
same way, when our data doesn’t match our understanding of ourselves, the uncanny
emerges.”
• Facebook’s Emotion-driven-engagement experiments. Amazon’s shopping algorithms.
Our connected world is producing so much data that it is beyond human cognitive
abilities and machines are going to be part of making sense of it all. So the real question
is what will we do and what should we — the technology industry and we the people do?
• “There is an increasing realization of the pain brought about by all these changes,
especially the number of industries being disrupted and the many jobs that have been lost
and will never come back. We hope that, as in the past, new industries will give rise to
exciting new jobs,” writes Irving Wladawsky-Berger, a veteran technologist who worked
for IBM, “But, no one knows for sure. It’s important that we collaborate across disciplines,
– technology, business, social sciences, humanities, – to better understand and anticipate
where the journey might take us.”
• And that is exactly the problem — no one really wants to take that humanistic approach.

28. Are they about you and your choices?
• What you care about
• What inspires you
• What kind of person you want to be
• What kind of work you are good at AND like to do
• How you like to work and work with others
• How you like to spend your days
• The kind of world you want to live in
• Your legacy
A job, business model or strategy that doesn’t align with you is not a good business
model for you. Although there’s nothing wrong with trying many things along the
way to finding out what you need to feel fulfilled.

29. Yes.

30. He who cannot draw on three thousand years is
living from hand to mouth -- Goethe
• Knowing and understanding what has transpired in the past gives one a
sense of perspective, and one is able to draw on recorded fact and
experience.
• A person who knows only the present or a very limited portion of the past
has little perspective.
• Knowledge of the past enables us to overcome strategic poverty, as well as
cultural and spiritual poverty. A person who lives from hand to mouth has
little time for the heart, the mind, and the soul, questions which have been
explored during the last 3000 years.
• If we do not know who we are, and where
we have come from, it is harder to direct
where we are going.

31. Where you came from…...
And where you’re going.
Seek to understand where you are….
Past
Present
Future

33. What certain visionaries have said about the future

34. What certain visionaries have said about the future (2)

35. The Future of Mobility
It is possible to see your startup in the
context of time
Example: The Evolution of Mobility

36. The future can also be predicted professionally using a variety of tools

37. Develop an innovation toolkit to improve your
business model
A single framework will not always be enough

38. Conclusions

39. Future megatrends that create startup opportunities

40. Example: Demographics of 65+
Favorable market for neurological care

41. Business Model Canvas summarizes
There needs to be an internal logic to all of the entries because they are interconnected.

42. How to scale a business model?
Blitzscaling. Wut?

44. The mythos of Silicon Valley is
that startups are what make it
really special.

45. The classic story:
• a garage (apartment or dorm room)
• technical founders
• new product (the app!)
• capital
• product-market fit: off to races

46. That’s partly true. Startups are
critical.

47. The problem with the classic story
• Now start-ups are abundant
• In Silicon Valley
• In the US
• In many countries —
• Asia, Europe, Global

48. Silicon Valley is still different
• It still produces many industry transforming companies.
• So by themselves, startups are not only what makes this place, and
this way of doing things, really special.
• Silicon Valley is special because it enables companies to get very
large, very quickly.
• Not just to start up, but to scale up.

52. Why the intense concentration?
(of startups in Silicon Valley)
Why does it persist?

53. Everyone talks about scaling.

54. Notes
• Scaleups depend on networks — of talent, capital, users, etc— that exist outside
the organization itself. Networks in Silicon Valley work very well, and amplify
what startups are trying to do. We have a 60-year lead on places like New York —
just look at the names on all the buildings on campus.
• The reason we see so much blitzscaling is that we live in the Networked Age.
• The key themes we’ll talk about over and over:
• Networks
o Positive feedback loops
o Distribution advantage
o Organizational, Revenue, and Customer scale
• The types of scale interrelate; while you may want to minimize the organizational
scale, as you increase revenue and customer scale, you will be forced to increase
the size of the organization.

55. What we’re talking about is a type of
scaling that’s very particular to
technology & Silicon Valley startups.

56. The special sauce is that scaleups
here depend greatly on networks
(capital, talent, users, etc) that exist
outside the startup itself.
The network age: speed, global
markets, global competition

57. So: Blitzscaling
1. Networks
2. Positive feedback loops
3. Distribution advantage
4. Organization Scale, Revenue Scale, Customer scale

58. Important Questions
• What’s the role of the founder? CEO? Team? Board?
• How does hiring change as you scale? Who? How? Onboarding?
• How do you find product-market fit? How do you know? How
evolves?
• How should you think about competition? Other threats?
• What’re the key decisions & questions you should be asking? When?
• How should you think about partnerships & business development?
• How does your strategy change as you grow?
• How do you think about global — markets, competition, scale?

59. Notes
• As you scale an organization, the answers to the key questions keep
changing with the orders of magnitude of scale.
o For example, competition doesn’t matter much when you’re
starting out, but when you’re an established business it can be
critical.
• If you don’t win the current game, you won’t get a chance to win the
next game. But you can look ahead….
o Aneel Bhusri and Dave Duffield interviewed every Workday
employee until 500 — this wasn’t scalable, but acted to preserve the
culture

60. Organizational Stages During Scaling

61. Characteristics of Organizational Stages

62. The Linkedin Scaling Story

64. Notes
• The LinkedIn Story
o We did not blitzscale at the beginning. We spent two years in Stage 1.
o Family: We had a single idea — if you could build a professional network
with reputable relationships inside it, it would have a thousand useful uses.
Everyone we hired was someone we had worked with before. Every single
moment of every day was focused on what was going to be valuable to the
user. We released in May 2003, and immediately began learning what
product-market fit meant for us. We had a theory, but what we found was
that it was different. “It was immediately obvious that recruiters were
going to love this sh*t.” However, we had to build a critical mass of people
for recruiters to search. 500,000 users

65. OS1: Key Functions
1. Product
2. Product-market fit
3. Role of founder
4. Hiring & company culture/values
5. Staying solvent/financed

66. OS1: Important, but not as key
1. Board of Directors
2. Analytics & dashboards
3. Strategy
4. Everything else

67. Notes
• “If you’re not embarrassed by your first product release, you’re
probably going too slow.” (Reid Hoffman)
o This is all about the importance of speed
o For young consumer internet companies, you need to get things out
and fix them along the way…but if you keep doing that at Stage 4 or
5, you’ll die.
• Most startup content is focused on OS1; we’re trying to help you
think about how to fill out the entire board so that you can
successfully grow
• There is a key inflection point between OS2 and OS3, and again
between OS3 and OS4

69. • o Tribe: We had to build out the operations — customer service, sales,
and general & administrative functions. 2,000,000 users
Notes

71. • o Village: 13,000,000 users. We needed to build a great product for
recruiters, but we also needed to find a fit for other professionals. We
broke our organization up — from 1 R&D organization to 5. One
focused on growth, one focused on revenue, three focused on new
markets. That required new leadership. We brought in a CEO, Dan
Nye, from Intuit. He built out our sales organization and processes.
We also had to bring in product and engineering leadership.
Notes

73. • o City: 100,000,000 users. In 2009, we started blitzscaling. We had to
bring all these people in to take advantage of the growth we had
achieved to date, and now we needed to raise the bar on everything.
A lot of customer growth was coming in from overseas. We brought in
a new CEO, Jeff Weiner, and the very first thing he did was to prepare
us to blitzscale. For example, we had never written down our
corporate culture. We were too small to worry about it. We doubled
in size every year from 2009 to 2014. We also had to change our
technology strategy at this point — we now had hundreds of
developers, and needed to focus more on productivity. We IPOd so
that we could start making acquisitions.
Notes

75. Notes
• Nation: 300,000,000 users. Now, we have as many employees
working outside the US as inside the US. 8,500 employees, $2 billion
in revenues.

76. CONCLUSIONS
• There’s no clean path that gets you from one thing to the next, but we want you to be aware of the need
to change.
• We want you to see how companies change and what they need to do to succeed at those changes.
• Family: Key Functions
o Product
“There are very few product geniuses who can think it, build it, release it, and it just works.”
o Product-market fit
o Role of founders
o Hiring & company culture/values
How do you get people to care?
o Staying solvent/financed
• Other things may be important, but you don’t have time for them.
• “There are fires still burning when you go home. You have to know which ones you can leave burning, and
which you can’t.” Know what’s important, and ignore the rest.
• “Letting fires burn is key, but they have to be the right fires.”
• “You (today’s students) are in a much better position to blitzscale. Many of the things you don’t want to
focus on are now available off the shelf. The bad thing is, the same applies to all of your competitors.”

77. Finding Product Market Fit

78. “Do Things That Don’t Scale”
• Recruit users manually. For a startup to succeed, at least one founder will have to
spend a lot of time on sales and marketing. (10%)
• Fragile: people compare new startups to established ones. Don’t!
• Delight: take great measures to acquire user sand make happy.
• Insanely Great: focus on quality of execution to a degree that in everyday life
would be considered pathological. Like Steve Jobs.
• Contained Fire: focus on a deliberately narrow market
• Build: fabricating things yourself turns out to be valuable for hardware startups.
• Consulting: do it for feedback vs for money
• Manual: do things by hand if not ready to automate
• Big: big launches and partnerships no substitute for continual daily effort
• 2 Vectors: what you will build, plus the unscalable things you do to get users

79. Finding Product Market Fit

80. Mozilla
• Founded 1998, minimal traction until 2004. Then in 2005, Firefox took
off. Mozilla had built a fast, reliable browser right when IE was
becoming unusable.
• If we had tried to hit the accelerator earlier, it wouldn’t have worked.
• “When you’re starting to blitzscale, it’s uncomfortable all of the time.
You’re not doing anything well, just trying to keep the wings on the
plane.”

82. General Observations
1. When Blitzscale? (Preparation, Judgment)
2. Generalists to Specialists
3. Doers to Doer-Manager to Managers to Execs
4. Scale and innovation
5. Choice on adaptation vs. operational excellence
6. Global reach
7. Capital requirements
8. Speed is relative - but competition is global
9. Up-market and down-market

83. The Key Functions of the Organization
• People
• Product
• GTM
• Tech
• Strategy
• Operations
• Finance
• Management
• Hiring
• New Functions (e.g. Corp Dev, which is useless for OS1 and critical for OS5)

84. When to blitzscale?
• You generally don’t try to blitzscale right away.
• You need to apply judgment and intelligence to win a 10-year game.
• If you try to hit the afterburners before your business and company is
ready, you’ll miss a turn and die.

85. Generalists to specialists.
• When you have a couple of founders, the founders do everything.
• Non-founders need to be flexible as well; people who can learn
quickly, deal with uncertainty
• As you scale, you hire specialists with specific functions
• Doers to Doer-Managers to Managers to Execs
• The primary focus of the Executive is the organization — how it works,
how it’s structured

86. Scale and innovation
• Innovation isn’t just for startups. You have to keep innovating as you
scale — both in terms of product and organization
• The choice between adaptation vs. operational excellence
• Sometimes, you need to focus on adaptability rather than efficiency
• PayPal: We were growing between 2–5% per day. By the second week, we
were 20,000 customer service emails behind. 24 hours a day, you could pick
up the phone and talk with an angry customer. The objective was to solve the
problem right away, rather than to find the most efficient solution. We set up
a customer service center in Omaha, and hired 200 people in a month. Within
three months, we had churned through 70% of those employees. Not
efficient, but necessary.

87. Global reach
• When we launched LinkedIn, there were 15 companies in the
“Country” dropdown. We would add countries as people complained.
“I had no idea the Faroe Islands were a country!”

88. Capital requirements
• You almost always have to have access to a lot of capital to blitzscale
• You can blitzscale even in down markets; blitzscale is a relative rate
• Currently, there is a major tension between unit economics (how
much do you make or lose on each transaction) and winning the
market (what proportion of the market do you control)
• “There is no *one* story.” Every company passes through these
phases in a different way.

89. Is blitzscaling relevant to hardware?
• “Bits” are becoming more important to “atoms.” Tesla isn’t an electric
car, it’s a software care
• There are differences — you need to have a much lower error rate
than for software

90. Do you need to move faster than other startups
that aren’t competitors?
• You don’t focus that much on your competitors anyways; the focus is
on owning the market opportunity.
• Competition matters if it gets in the way of that goal.
• The goal is scale; the slower you grow, the longer it will take to get to
scale

91. References:
• https://medium.com/@chrisyeh/
• Disciplined Entrepreneurship, Bill Aulet
• Do Things That Don’t Scale, Sam Altman
• Geert Hofstede, Culture’s Consequences: Comparing Values, Behaviors,
Institutions, and Organizations Across Nations. Second Edition, Thousand Oaks
CA: Sage Publications, 2001
• CS183-Blitzscaling
• http://om.co/2014/07/08/with-big-data-comes-big-responsibility/
• http://www.digitaltonto.com/2012/the-changing-game-of-strategy/
• http://www.digitaltonto.com/2011/the-truth-about-strategy/
• http://www.forbes.com/sites/gregsatell/2013/09/14/the-evolution-of-
strategy/#5ea48895470a