The Rise And Fall Of Blitzscaling!
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- Опубликовано: 6 июн 2022
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Blitzscaling is what you do when you need to grow really, really quickly according to Reid Hoffmann the Founder of LinkedIn, and Elon Musk’s former partner at PayPal. Blitzscaling is high-impact entrepreneurship, it’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale.
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"Its totally free so there is no reason not to try it out."
Blitzscaling in action.
Why new thumbnail?
@@g1y3 p-57 mustangs are more of an economical plane when compared to the b-52. thus it fits that a channel about economics would be concious of this and change it.
You are out of focus. Badly out of focus.
@@samuel.andermatt 👀
Protip, bro: If you're sitting off-center, your camera will attempt to focus on something in the middle of the frame. Green comfy chair won this round.
Haha
McHatin bro! You focus on lovin...
@@gorankovacevic673 criticism isn't hate
THAT CHAIR IS AN INSTITUTION OF THIS CHANNEL.
Unless you have something a bit more clever that can focus on a face.
Patrick is a genius hedge fund manager, he knows a crisis is coming so he sold his decent microphone in order to boost his cash position and as soon all stocks drop he'll be able to buy entire companies... This my friends is how you build generational wealth!
To build Generational wealth that makes it through the third generation, pick out who your kids and grand kids are very carefully. Most families lose it all in 3 generations.
@@Foolish188 that's because most families care about audio quality and don't sell their microphones at the right time. This is what the Rockefellers knew how to do through the years, they always knew when to sell their mics, stick it to their RUclips viewers so they can "make it rain" later, after the economy recovered. But the Rockefellers are old news, it's the Boyle's turn to rise and it's not just #hisgeneration, not #3generations it's #allgenerations
Heard that loud and clear.
@@Foolish188 you need a family office trust setup so the ugly ducklings can’t take down the whole family. You gotta cut the weak out of the wealth it’s not a charity
And his camera!
I feel like it's very telling that the most common and popular modern business trend is basically "Why don't we just skip the whole business entirely and just speedrun a monopoly?"
Not necessarily. But everyone wants to run a fortune 500 company and doesn't care how many VC idiots they need to screw over to get there. Likewise, VCs are just predatory lenders who think they can have the next Bill Gates in their pocket by lending him money early.
Well, it's a high scale business strategy, when you have literally hundred of millions to invest, there are limits to how fast you can grow it, it really shows the limits of capitalism, and that no amount of money is ever enough.
Of course it's never about delivering value to customers, just capturing value streams and rent seeking
if you think this is new then you definitely have never heard of the 19th century
I can remember in high school and college basic biz classes when purposely losing money to drive out competitors then raising prices was considered a predatory practice subject to intervention from government.
Thats how it is in theory but Amazon proved that you just need to get bigger and everything will fly
Oh, the good old anti-trust days.
That is why you include boatloads of donations to any potential regulators. Primarily Democrats. Republicans are philosophically opposed to regulation, so all you need to do is plaster the Dems with money. Problem solved!
I remember when government wasn’t bought out by companies
@@LTDLetsPlays Wealth and power have always been inextricably linked.
It's that old joke "we're losing money for every unit but we'll make it up by volume"
When you think about it, it's pretty messed up that these companies' business models center around creating a monopoly at all costs.
As a business owner. Creating a monopoly is the end goal
it should be outlawed
Yes, outlaw success. Great idea.
@@strauss7151 Anti-trust laws are supposed to prevent the removal of competition. Monopolies will spend money either selling at a loss, going to court, or lobbying the government, in order to put potential competition out of business.
@@strauss7151 success to them, suffering to you
Uber and Lyft's competitors include their own drivers. The last time my son took a Lyft to the airport (25 miles) the driver gave him a business card and told my son that he could call him directly and get a better price. I would guess that people who need to use a taxi service on a daily basis might cut a side deal with the driver.
absolutely! the drivers can pick and choose who they work for lol. And drivers are a HUGE operational bottleneck and expense!
For that to work, you'd need hundreds of direct numbers, and those drivers would have to be near you. Part of what makes these apps work is that they source hundreds of drivers, all near you at the time of your need, and it gives you a quick way to achieve your goal, which is to get into a ride, and get somewhere. The chances that specific driver can fill your needs is why this has never worked before. Drivers will either need a broker to find customers, or customers will need a broker to find drivers. A direct relationship is doomed to failure based on the inconvenience of it all.
Did the same thing and had a couple on-the-call drivers who I could pay half the price as I would for Uber and they'd still make more that way.
This doesn't actually make that much sense. If Ubers "service" is access to interested drivers and ya know not EMPLOYING drivers then a driver selling the same service to a customer is above board. Side stepping regulation aside if Uber actually relied on forcing it's drivers to not work for themselves but work for themselves for Uber I'd be raising some serious questions as an investor if thats the only value they bring.
@@patrickturner6082 I'll let you in on a secret, you can do this on RUclips as well! All independent contractors can do this. Yet if you're employed your contract can stipulate a non-compete and you can be sued for working for another employer or yourself in the same line of work. Better just learn multiple skills.
When I hear this kind of analysis,
it makes silicon valley seem like an experimental social engineering lab,
rather than a place to do business.
it really is. And a lot of it is just people getting very expensive lessons on basic economic concepts
Exactly
Thats what late stage capitalism is, race to monopoly because money is fake
@@thisconnectd interesting take
That’s exactly what it is…
Blitzscaling trying to grow huge and then go for profitability is like a bait and switch. It's part of why the gig work economy is so brutal. probably why so many if not all of these companies hate the workers fighting for better compensation as well as insurance protections/worker benefits.
The entire idea of a gig economy was broken from the start. I remember when Uber was hailed as car sharing when it first came out and my first thought was it's just a taxi service.
@@corail53
It's not a taxi company. It's an unlicensed, unregulated taxi company. Uber doesn't have to buy commercial insurance or pay for deprecation.
When the company is blitzscaling it offers great compensation so it can attract as many gig workers as it can so it can quickly capture the market. However, when it has a market locked up, it starts to scale back the compensation. In addition after an initial peak, the demand for the service might fall down so the area might be oversaturated with service (eg too many Uber drivers for too few customers) so the gig workers find themselves working longer for less pay. At that point, economics would dictate the the gig workers quit and move on but many are too invested in it and stick it out too long. certain areas might just not be profitable in the long run and you end up with a race to the bottom
@@klobiforpresident2254 No that is not true. Uber buys commercial insurance just like every other corporation with sizable P&C assets and liabilities. They don't, however, provide personal lines insurance.
@@ProtatoFarmer69 this is accurate. They’re insured by Flo at Progressive in most states .
Becoming profitable is never the intention of blitzscaling. It's to steal enough customers from established companies to scare them into buying the startup. This is called an "exit". If profitability were the main goal startuppers would not want to give up the company they worked so hard to build.
Another reason blitzscaling should be illegal. The funding is being used to be an extortion racket against established companies.
@@aikafuwa7177 blitzscaling is just a consequence of capitalism having to many investors without anywhere to put their money. Also not "established companies" as in large monopolies or oligopolies but a handful of competing firms. It either serves as discovery for large companies to buy or it serves to destroy competition for consumers in new markets.
@@duuet5614 Nah that is Florida. All the scammers are there in Florida.
@@aikafuwa7177 venture capital pump and dump. FUD has changed
@@Furiends The only reason why people want to invest is because the FED prints money. The economy is getting naturally more efficient which should lead to deacreased prices which is by definition deflation. Deflation would mean that hiding money under a pillow is the best investment you could make. Problems with capitalism are never caused by free market, they are always caused by the government
worth mentioning that the hardcore scaling of borders and barns & noble probably had a more significant effect against local private bookstores than amazon did.
then amazon destroyed borders and barns & noble.
yeah it stinks. efficiency and effectiveness always wins out in the end. I grew up right down the street from a barnes&noble. not gonna lie, I enjoyed walking in there from time to kill an hour or so looking around.
Furthermore, local bookstores could actually seize niche opportunities on Amazon to reach a broader market.
Bookstores by definition should be niche businesses where you go to get advice on a specific genre or topic, not soulless generic book supermarkets.
IDK those stores are American whilst the rapid disappearance of physical bookstores has happened internationally.
Here in the UK the large chain bookstores WHSmith's and waterstones haven't done any such rapid scaling since the 90's.
Waterstones have been sold multiple times and only has 300 stores, meanwhile WHSmith's seem to be relying less and less on book sales keeping only a small selection (despite inventing the ISBN and formerly being a major player).
It seems atleast here in the UK Bookstores have died out for the exact same reason Computer game stores, Record stores and Home video stores have (with them now being dominated by secondhand stores such as CEX that are essentially pawn brokers not traditional shops).
These are products that are easy to buy and sell online, either due to the convenience of digital downloads, the wide selection and low pricing of delivered products or of course Piracy which effects these markets far more than others and even though piracy is less of an issue now, this is due to convenient online services not because people went back to buying instore.
So whilst I'm sure that the scaling of chain stores in the US hastened the decline of mom and pop shops just as supermarkets carrying more books, music, game and movies hurt independent shops in the UK the decline was inevitable regardless as these are some of the industries most vulnerable to internet disruption.
It's a lot like how Blockbuster killed many independent video rental stores however even if Blockbuster didn't exist they would've gone bust regardless.
@@thestockfother Amazon won by dumping too.
Slightly off topic, but I thought the movie You've Got Mail; where Tom Hanks bookstore chain destroyed Meg Ryan's family owned bookstore, could have had a sequel made where their child founds an Amazon like company that destroys Tom Hank's chain.
Nation states used to stop this type of behaviour (eg. loss leaders to wipe out the competition) by ruling it Anti- Competitive - the problem is as these firms are super-national/cross-border these regulations tend not apply as they are seen as startups within each countyr they move into.
Most of these are US based and the US does have strong anti-trust and anti-monopoly laws but weirdly not one single government agency has gone after them yet.
The problem is that the regularors have been bought out by big money long ago.
The US Federal government used to be the best in the world at enforcing anti-trust law but we seem to have stopped caring once everybody realized just how much more "money" could be made in the fake virtual economy as compared to the real economy.
Also, the nation states that feel they own one of these companies think it's better that their attack-nerds eat the foreign competition rather than the other way round. Short sighted of course since this type of company feels no national allegiance.
@@corail53Regulations is irrelevant if there is no will to enforce
The top executives at these types of companies are making huge fortunes all the while, so even if these companies implode eventually, there's no incentive not to just keep going with other startups over and over again.
Correct. They make tens of millions when it fails and make billions when it is successful
Blitzkrieg and Blitzscaling both risk epic failure at the point where momentum outruns sustainment.
but they're not playing with their own money, so they don't give a ...........
@@Dwightstjohn-fo8ki big H with the stache wasnt playing with his life - until the Red Army was blasting his bunker's doors in.
It's not like there's a final boss USSR that's waiting to destroy them,as long as they conquer the market enough to the extent no other competitors can rise up,they are more or less safe to figure out what to do next.
Like when you run downhill so fast you can't keep up with your own legs.
@@CalvinHikes thats such a funny but apt way to put it
These businesses don't understand that customers are going to abandon them as soon as they raise prices to try to become profitable. This is something every mom&pop business knows: if you get customers used to a certain price for a certain thing, that's the value they expect and they will balk at paying more. It's why everyone says don't start a business and try to undercut your competition just to get clients. These start up people just live in a completely different world and it's kind of impressive how long they manage to coast along on their own hype. It fascinates me.
Yes they will balk but they'll also have become dependent on the service. A certain percentage will seek out alternatives but most will stay with the company because it's what they know and are already in the system.
@crazy808ish I somewhat agree with you but I think it really depends on the price hike, and it depends on the service. For example, those hire bike companies went out of business really quickly after they started charging what they were worth. And if there is an upcoming recession people are going to be tightening their belts.
@@crazy808ish You are mistaken, most will seek out alternatives while a small percent will stay. I don't think anyone will buy anything from amazon when a store is willing to sell at the same or less price.
@@vivekp4854 I would. Free and fast shipping to my door? Fast payment with my info already there? Tracking? Reviews? Easy returns? Absolutely. It would have to be a good bit more expensive for me to go through the trouble of ordering from a store.
The business never has to make a profit and the founders and investors know it... I work in the startup scene as a consultant. As long as you get great seed rounds, you already paid yourself 100k+ salaries for years, once you reach a high evaluation for the startup, you do an IPO and sell it to the public. Investors get out, made their money back, founders profited from both sides. New management has to downscale and fire staff to remove costs, since the profitability was never there and try to make it a somewhat valuable company.
Delivery hero is an example for the IPO phase (going down now)
Gorillas, Flink and other grocery deliveries are still going for the evaluation
Netflix, tesla (I will stand by this one) etc. examples for the down phase of trying to make it profitable
So this is basically the tech-bro version of underctting your competition to create a monopoly?
Yeah, it looks like predatory pricing with a fancy name.
it never succeeds, thats why these joke companies are always going broke or outright bankrupt after 5 years
Blitzscaling: delivering worthless services to customers who can’t or won’t pay, as quickly as possible 👍
Not to worry they are all heading towards buy now pay later in which people will just default and the companies still won't get paid.
Some of these has been good to use as a customer because they lowered the price to ridiculous amounts. But of course their failure ends up fucking everyone years later.
@Swarmpope I am wondering the same thing myself! I guess the only guy who wins is the uber driver who takes me home from the airport during "peak pricing" for $120 (normally $40-50). grrr
@@MorganBrown Uber raises that price because you’re in an auction with corporate business travelers who don’t care what the price is, their company pays the bill. They also don’t want you to know that you’re in an auction.
Don't forget driving competition out of business before raising prices.
The blitzkreig parallel is kind of interesting also because Germany overstimated and over promoted their supply lines and mechanization capabilities just like high growth companies over stimate their capacity and growth potential and in the end, Germany had the rude awakening of seen their supply lines over extended (see Stalingrad), just like companies realize their path to profitability is longer and more difficult than expected.
The germans were also lead by an insane lunatic who thought he and he alone was a genius strategist and could not do wrong. Just like Tesla and SpaceX
@@wouldntyouliketoknow9891 exactly!!! 🤣
Even if they didn't over extend their supply lines, they would lose. The UK alone was out producing airplanes than Nazi Germany, some of them 4 engines, and the US outproduced the rest of the world, combined. Also, 85% of their logistics was horse carriage driven.
The Nazis tried to take on the US, without a single aircraft carrier. It was never going to work.
Germany moved against Russia at a walking pace. It may have started more of a blitzkrieg, but Stalingrad was a full year after the invasion of the USSR started. I wouldn’t really call the battle of Stalingrad the result of a blitzkreig.
Patrick gets more relaxed as the economy tumbles into the absurd. He's got a ticket to earth 2.0
funny thing is both Regal and AMC just launched their own movie ticket passes after MoviePass died, which tells me how well negotiating would have worked with them
It continues to be my opinion that with giant TVs speaker systems and streaming that going to the movies is already an outdated system. They can't really offer people something different than they can get much cheaper at home.
@@CalvinHikes Yeah, because plenty of people want high fidelity sound/video but don’t want it frequently enough to make those extremely expensive personal investments. There’s the target demographic.
@@CalvinHikes I mean, I have a pretty decent home theater system, nothing SUPER fancy or super high end but 5.1 Surround system from Klipsch, Onkyo Amp, and a 80 inch 4k tv with HDR and . . . Yeah it's still not the same thing for SOME movies.
I mean, it's great, don't get me wrong, but not for everything.
Uber Eats is trying to make money? For years I've been signing up as a new user to get their new user $30 credit and getting free food. This is really, really bad for me. 😢
wish they'd told me earlier before I swindled thousands in free food... little transparency would be nice next time uber :)
Maybe it should be turned into a taxpayer funded government service.
@@seneca983 Indeed, think of the children. I don't have any but if I've worked it out so have young people.
@@byroncanty8986 I know, right? Imagine how much we've helped push up their valuation due to new user growth. Without people like us it would just be valued as a delivery service.
@@thomas316 You've being used, sir. You should contact them and demand proper compensation for the valuation you created for them.
Reid Hoffman's talent is his ability to articulate and impress investors to gather money for building LinkedIn. He then becomes a VC and used those connections to convince Microsoft to buy LinkedIn. His life is all set.
exactly lol. its money changing hands - thats it. all this malarky about value creation... oh.jeeez. wake up folks.
This bait and switch happened to me with Lime bikes a year back. Went from about 1$ to 5$ a ride overnight when the company decided it had to show it could be profitable.
I used to see Lime bikes all over my neighborhood. Haven't seen a single one in a very long time.
@@maryhadda8420 are they all in the river? I've seen busted and broken Limes all over back alleys
@@maryhadda8420 one of my home batteries are actually made from their batteries
If you got the know-how, there are still scooters/bikes readily available on city auctions to convert or strip
Blitzscaling, NFTs, crypto, Chinese real estate - all investments built on hoping someone comes to pay you more than you put in for a negative value product before the whole thing collapses in on itself.
Cryptos still early filled with shitcoins but the real ones with actual utilization are still in the works as the sharding process is coming in the next year or two. as the real projects are working than announcing during this bear market .and the form of nfts ofc atm are absolute ass but the creativity along with ai generated art from prompt engineering in itself is unique. But as of today the us government just edit:(propose) a crypto regulation bill to incorporate crypto into the traditional finance system
@@redshooter5889 Cryptos that can serve any use as currency would be useless as investment and vice versa. Patrick did a video on them not that long ago.
@@critterfritter69 true in traditional markets but i was thinking on ethereum blockchain and how they plan on bridging different blockchain networks to layer 2 and their current workings on zkevm rollups. Still i know it’s all speculation, but the use of amm liquidity pools to provide liquidity to other users while also earning stake interest is an interesting parallel to a banks savings account
Just describing a bigger fool scam
@@dogetaxes8893 well I still believe in crypto and if that makes me a fool for believing in technology so be it. I was describing a dex
Fantastic take on Blitzscaling - however, I think that business model was a beneficiary of years of ultra cheap money. Rising interest rates, soaring inflation and de-globalisation is making investors much more cautious - so I suspect this business model is dead. Investors want safety, cash flow and profits now.
One can always hope. But if someone offers you full market monopoly within a decade with a very convincing style, it will always be difficult to resist.
Things is none of those monopolies have emerged, because these companies cannot safeguard themselves from the same tactic. Investors may be catching on. Then again there's always a bigger fool, er, fish.
@@Nick-ue7iw
Monopolies were mostly dismantled by societies to protect themselves.
Cheap money isn't going anywhere - because it can't.
Cash flow = Subscription Service Model. Another perversion of capitalism. Companies won’t allow you to own anything. Blackrock will rent you a house. Hertz and Sixt+ will rent you your car, Freshly will “rent” you your food, software will all be a cloud service as entertainment already is.
"The first model is of course boring, and the second model has become the dominant Silicon Valley business model over the last twenty years" I swear this statement gives insight into so much that goes wrong in investment these days lol
You are correct. The investment environment is so distorted that it is hard to invest in anything rationally especially if it’s your own hard earned cash. It is easy to gamble with borrowed money (margin) or someone else’s money (hedge funds). I have stayed out since 2008, hoping for return to normalcy to get even a more distorted environment
As Mansour mentioned above, it's easy to play stupid games with other peoples money.
Just like real blitz tactics, once youve taken substantial ground, now the scramble begins to figure out how to actually hold it
Not breaking the law can limit growth. - Patrick Boyle 2022
The law was corrupt, anyway. Those sort of laws are ways for politicians to get money for themselves and their political campaigns.
Every Swiss banker will say thats true.
the main issue is that blitz scaled businesses use debt as income as it’s untaxed. whereas profit is always taxed and therefore is a bad thing to do. from their perspective
The best way to do it is to have an idea so stupid no one else wants to compete, instant monopoly!
well, there is none...
This is why I invest in boring stuff like toothpaste, food, toilet paper, and oil. Simple to understand, people always need it, and SoftBank doesn’t invest in it. I’m up slightly this year rather than being Cathie Wood.
good investing analogy tbh ngl.
risk vs reward my friend!!!!
In think you might need to look into the NY Taxi licences. Because the 1 million price tag for those, might have been another bubble, fuled by leverage from gray market lenders.
Not that I want to defend Uber, but in this case they just popped something, that might not have been sustainable anyway.
I don't know that much about it, just some articles from the NYT and a video from Vice from back in the day.
Now consider how crooked NY officials are. They literally sold the rights to monopoly to the highest bidder and than backstabed those bidders by letting uber ignore the law.
In a number of jurisdictions, not just New York, the right to operate a taxi was transformed from a consumer protection mechanism into a tradeable asset. Regulated fares where steadily increased and the formula for fixing them started to include the cost of the right to operate. This produced a system with ever increasing costs to consumers and ever increasing values on the licenses to operate a taxi. It was a government created monopoly gouging consumers and the public were pissed off. When Uber came along it looked like a knight in shining armour coming to the rescue. Most people did not realise how badly Uber treated its drivers and that Uber was unprofitable.
@@brucetownsend691 it wasn't. Uber just bribed everything in order for it to look that way. It was pure bribes. That's all. Same model, different boss. I was in the taxi business. Everyone knew it
@@brucetownsend691 Yeah, the proper solution is a proper review and reboot of the regulatory apparatus, IMO.
Bad regulations suck, no regulations also suck. Our only option is to be engaged enough to demand good regulation.
It's unfair, but that's the way it works if you don't want to live in a crappy world.
Its unfair when a business working at a loss, practicing dumping, living off of "rounds of investment", uses this to iverthrow other smaller profitable businesses
The problem with those businesses is that they assume stable or growing economies in long time scales
And very cheap money
@@goatface6602 I mean cheap is relevant. At the end of the day if you are leveraged and your investments do not return a profit that will ruin you. A loan is a loan at the end of the day
@@tnsrs2719 Not if it's almost zero interest, which is the New York game they all played: money at an interest rate you and I would never get no matter our credit rating.
@@Dwightstjohn-fo8ki true
I watch your stuff when I need to be cheered up. It just makes me smile.
Companies on this size level are a bit destabilizing. Companies like Uber calling employees contractors create a systemic problem. Taxi's might need competition but their is still a cost benefit analysis. At some point it's draining money from society and some real problems happen.
The problem is society doesnt get a surname, so nobody cares about it until they realized society's problem is everyone's problem.
Calling Amazon WebServices a side hustle is a slightly hot take...
Isn't AWS responsible for the majority of their profits and is by far the most profitable sector of Amazon?
Yeah, he did a video extensively covering this I think.
It started out as a side hustle that ended up being even more profitable than the main hustle lol
@Ryan Howe %revenue does not equal %profits.
@Ryan Howe It is ... (Page 12) s2.q4cdn.com/299287126/files/doc_financials/2022/q1/Q1-2022-Amazon-Earnings-Release.pdf
At this moment AWS is where the money is. They could close everything else that they had higher profits.
They even make losses selling stuff outside the US. They only make money with the shop in the US.
So true. I used to wonder why it's so hard to raise money for companies that actually try to make money. Now I know. It's a lot of insanity.
Blitzscaling: for an economy where you can only make a profit if you are a monopoly.
No mention of Twitter. Oh well, John Gruber covered it a decade ago with this prescient quote:
Twitter's business plan, such that it is, has always been something along the lines of “Get big and popular, then just flip the switch and start making money when we feel like it”. There is no switch. -- John Gruber, Daring Fireball
I think there is a switch. They spend an enormous amount of money on customer acquisition (mostly just by improving their services), and if they slowed down, they could become profitable.
@@owendavies8227 I think that was certainly true about Amazon for a lot of years before it became bottom-line profitable, but not so much for Twitter. I do wonder how much profit Twitter could generate if it focused itself on that as its top priority. I think the short-form messaging nature of Twitter hurts it with respect to its opportunities for advertising revenue.
@@CarlWithACamera Well, we're finding out in real time if Twitter can be made 'profitable' right now. My bet is on 'no' but the jury's still out. I figure we'll have a definitive answer by the end of the year.
The pinch of irony with the straight face make your videos funny - enjoying it a lot, because you deliver valuable and well researched information. Thank you!
He's informative and funny as Fock
I always thought it was illegal to compete in bad faith to drive out competition only to increase prices once there are no alternatives.
No this is't the case saddly
@@ThePapaja1996 I am pretty sure it is covered under anti competitive behavior in NZ and Aus laws. Price competition can be good for the consumer which is why its often not followed up but it is something.
The second half of your scenario should *theoretically* fall under anti-trust legislation. In practice, anti-trust as currently interpreted is kind of a joke in the internet age because (in the US at least) it's focused on preventing consumer harm, not counteracting incumbents relying on network effects to undercut new entrants.
It always depends on how you define “competition”. For example, Uber’s competitor set might be traditional taxis as well people driving themselves in their own car. See Peter thiel’s book, zero to one.
@@generalharness8266 If there are laws like that in Australia they are not enforced. Prices are going up for produce and energy because of companies essentially acting as cartels.
Monopolies used to exist in the past, and eventually collapsed over time. The difference today is the new monopolies have almost full control over our privacy, communication and other very personal aspects of our lives. In such an environment monopolies can be far more dangerous than they used to be.
Said monopolies also collapsed almost entirely because of regulations or outright pissing off rukers at the time, it's rarely something that happens without external factors and controls.
yes digital monopolies vs analogue!!!!
I would argue that Blitzscaling started with Microsoft. Once Microsoft set its sights on a particular market, companies had 2 choices, be bought up by Microsoft, or wait and get run out of business by Microsoft later. They were the first Death Star.
Sounds very familiar to another company that basically did the same and was busted for being a monopoly (standard oil).
Embrace, Extend, and Extinguish
@@commandergree6131 except standard oil lowered the price of kerosene by a factor of 10 over that period.
@@EFCasual And? It was still a monopoly that after lowering the price of Kerosene and bankrupting its competitors simply raised the price again. My point is what little good a monopoly can do will always be outweighed by the fact they can always simply decide to raise prices on goods, the consumer be damned.
@@commandergree6131 it didn't raise prices though. They maintained low prices.
My favourite part of the videos is quickly becoming seeing what the background will be. I have created a head cannon that Patrick is on the run and stops moving from place to the place one step ahead of the authorities only to do these records then packs his suitcase and disappears into another crowd while authorities throw their police hat on the ground and stamp it in frustration.
How do you know his real name is Patrick?
I've enjoyed watching his rise from newly housed homeless person with just a chair and table in early videos through to the tastefully decorated man-pads of later videos. I'm worried that the lifestyle went to his head and he lost a lot of money on ape receipts forcing him to sell most of his furnishings and decent mic before filming this episode.
“Satoshi has escaped us once again”
Blitzscaling: how to turn billions of dollars in investment into millions of dollars of value in order to sell off your shares.
I love the phrase "then pivot to profitability" it encapsulates all that is flawed in how so many businesses see their strategy, as in yeah yeah we'll get to that pesky business of actually making money instead of just relying on massive amounts of credit and hype valuations.
haha yes. Its hilarious when framing the story: Yeah so we get to this magical place, flipthe switch and boom! lots and lotsaaaa cashhhhh!!!
I think the bombshell take at the end that UBI is the logical conclusion of blitzscaling might need more unpacking. It's dropped like something uncontroversially self-evident but I'm not sure I follow the line of reasoning there.
the idea is that you are getting "growth" by subsidizing customers with artificially low prices or rebates or rewards or whatever. why not just outright "buy" the customer, since growth of "customers" is the most important metric and profitability never enters the mind. so you have VCs funding startups that are giving money away to customers. you could just take the money from the VCs and give it to people directly without having to worry about e-bikes littering the sidewalks of cities.
@@rizzorepulsive7704 And that system might work, if it wasn't dependent on perpetual motion. The VCs in this case, seemingly have infinite money that they've somehow extracted from the very people they're giving it to. It, seemingly, hasn't occurred to them that someone's already figured out what happens when two batteries are attached in a loop. Even if a Socialist wears a suit and has an economics degree, they still refute basic math. Listening to these people is like having a Physicist tell me they're attempting alchemy and occultism to solve the energy crisis. Then I realize they're never going to jail because the banks and politicians are complicit, and wonder if it's too late to join them.
@@infinityryvus they just print off the money from nothing. These businesses are designed to usher in what is called “stakeholder capitalism” which is a critical component of the fourth industrial revolution. In the new economy, regular people need to rent, lease, or subscribe to every service they use to maximize GDP. Private ownership of most property needs to be largely off limits. This system will really come into its own once we move to purely digital currencies. Eventually, we will have digital regional currencies that are all backed by a supranational “apex asset” that will act as the worlds reserve currency. Regular people will not be allowed to own the apex asset and will be forced to use their local regions digital currency for all transactions. With a system like this, they can freely inflate or deflate any market in the world that they want just by clicking keys on a keyboard.
They want to implement things like putting a burn timer on your money where you have to spend it or it disappears, and put multipliers on your earnings based on things like intersectionality and social equity. The Bank of International Settlements published a big paper talking about all this about a year ago. It’s why the World Economic Forum tells us, “In the year 2030, you’ll own nothing and be happy.”
@@thebiggestpanda1 Money is only a promise to pay now. It is the value placed on the promise behind a currency that gives it any value. Therefore, it's not that much of a stretch to apply that to assets. After all, employers only pay employees if they deliver on their promises, and employees only work for employers that deliver on their promises. What the plutocrats want to do, is to inflate the value of their promises, and offer anyone else less value in return. They can only do so most effectively in monopolies at best, or at worse in cartels. In maintaining the dependence of the political class on money, makes it easy to neuter competition law and regulation through lobbying, which in turn neuters legislation geared towards protecting societies against the negative externalities inherent in uncompetitive markets. Therefore, we are where we are. UBI is the logical result of this, because it would remove the inherent instability created in societies exposed to the large game of Monopoly being played by the plutocrats and their multinational corporations. These hope it would neuter societal discontent, so that they can continue play their game to their heart's content. If every aspect of Living can be monetised, then they can just dish out some money as minor compensation for the wealth they have sequestered to themselves. Having no wealth, but still having access to necessities should be enough for those unable to compete with the plutocrats. The importance is that they should be dissuaded from interfering with the game's progress. Whether that vision is tenable, is another matter.
@@infinityryvus VCs have infinite money by way of debt/equity and even the risk on debt-raising is low risk financing for them. Thats how it works buddy, where do you think all the money comes from?
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So glad to hear that Blitzscaling might be falling. In a very small way, I've just begun a startup and there's a huge pressure for even the tiniest company to get as much funding as quickly as possible, even before you find out if the thing you're doing is likely to be profitable. I am constantly getting messages on LinkedIn from various funding factories who want to take on as many startups as they can, presumably on the basis that the tiny number that succeed will pay for the cost sunk into the failures.
Thank you for this video.
So like the music industry , just with entire companies. Great.
whats ur company bro would love to check it out
I was told that Venture Capital firms make an initial investment in say 10 firms and only provide the money in tranches if they meet targets. Miss your targets and no funding.
Lol if you think growth scaling and investment is gone, youll get a rude awakening. Good luck to all out there and wish your businesses well.
It has gotten really ridiculous. I honestly blame Bezos and his Amazon gimmick (which is just an anti-competitive, or rather hypercompetitive because competition is about winning, campaign)
Didn't buy Amazon back in 2010ish at $315/share because they didn't turn a profit. Talked out of buying like $5k worth by Jim Cramer. 🤦
Him and his hedge fund buddies probably had a short in place against Amazon. Never listen to Cramer.
why listen to cramer? learn the fundamentals of finance and valuation my friend!!
The UBI conversation is extremely interesting in relation to gig business because generally, the primary reason a capable individual would drive for Uber is because they are desperate so if everyone has a base income, people would only drive for extra cash on top of their UBI.
correct. UBI i believe would help balance how big these companies can become. The consumer should be able to decide who wins, not the monopoly that in effect becomes the market maker!
It’s interesting to hear about the twisted and novel economic dynamics to which blitz-scaling has contributed.
As I understood it, a significant portion of the inflation we've experienced is the direct result of dozens of large tech companies--who for the last decade have provided heavily discounted and subsidized services to gain market share--simultaneously reining in their previous expansion strategies as they are put under an increasing pressure to begin posting profits.
So, as the economy has turned downwards, rather than the healthy practice of maintaining business-as-usual using cash reserves they should have had from the boom years--they all aggressively begin cutting programs and services, announce layoffs, end discounts, and leverage their hard-earned, completely anti-competitive dominant market positions to raise prices on consumers...precisely when they can least afford it. This initiates an ongoing trend of rising prices, contracting services, cheaper goods, and an otherwise downward cycle of depressive economic pressure from all sides.
The FTC, SEC, and congress have the authority, tool sets, existing code of laws, and historical precedence to start reining in this corrosive and miserable failure of neoliberal laissez-faire economics. But it's that 21st-century All-American 🇺🇸 axiom--we can, but we won't.
Now, that gas station pizza slice will be $8.25, would you like to raise your purchase to the nearest dollar today to help feed the underpaid cashier you're looking at? Because we couldn't be bothered to reduce our shareholder dividends by 1/10th of a percent to pay a living wage...plus this dumb yokel with no union options will work for basically nothing. A fierce addiction to the Oxycodone we subsidized with no alternatives when she had that fall last year, plus more McDonalds value meals than even we thought we'd get away with, and subsequently her extremely heavy insulin habit that our parent company just keeps tweaking enough to delay its patent expiration (we're using gopher embryos now, not gerbils! 25 more years please and thanks!)--these are the ingredients in that secret sauce that keep this little productivity workdoll sleepy, docile, and desperate. Our people are our greatest asset!
Wait
This sounds like the Plauge Inc method of winning
(Infect everyone on earth, then become deadly, and then boom you win)
Become deadly? You mean sell the cure? lol
@@rkan2 In Plague Inc you play as the pathogen, and your objective is to kill everyone :D
I reckon some credit is due to Spolsky who wrote a strategy letter about about Ben and Jerrys vs Amazon growth models in 2000. Blitzscaling definitely has a snappier ring to it, but I guess he had 18 years to refine the idea.
Even without losing money, hypergrowth can lead to severe problems. In France we have a scandal with a public company named Orpea. It is specialized in so-called luxury retirement homes and mental health / rehabilitation clinics. This company grew like a mushroom the last 20 years. They never lost money, God forbid, but they were on the same mindset : growth at all cost, very low profitability, very low free cash flows, and a ton of debt. They kept buyiing more sites, everywhere (either with M&A of other companies or by building new sites), the new revenue of the most recent sites covering the debt costs of the older ones.
Everything went bust when a journalist published a book that proved they were defrauding public dotations (false accounts, false lists of staff members, etc.) and willingly starved dwellers in their retirement homes to save money... The stock lost 66% of its value (that's a 3 billion euros of market cap loss)
Growth at all cost w/o profitability or with low profitability is the mother of all sins.
Sweden have the same problem in the school market.
an yes we have school companys on public markets.
@@ThePapaja1996 what is a school company?
@@ThePapaja1996 jesus what is that ? some form of private schools ?
@@ThePapaja1996 what the fuck did i just read
I seriously don’t know what moviepass was thinking with that 10 dollar deal 🤣🤣
It's such a dumb idea in the long run. Since it wasn't a mandatory service, the only people who were gonna sign up for it were clearly people who would go to more movies than the cost of the membership. You're a lot less likely to get burnt out and waste your money on it when you have a stake through the membership
That would only have made sense if the theatres were giving the company a significant discount on admissions, perhaps as a loss leader to encourage the sale of greasy and sticky things for people to buy in the lobby and spill in the dark.
@@ElysianAura The key is to have a service where some consumers intend to use it more than they actually do like gyms (and be the ones actually providing the service)
Blitzscaling is the epitome of “A good Defense is a powerful Offense”.
Large amounts of capital and a management willing to push forward relentlessly makes for a brutal, hyper-offensive competitive environment.
Monetary policy may be able to deter this sort of strategy, however, high potential reward may still push some venture capitalists with a thirst for risk to loan the money anyway. And with fewer offense-oriented competition around (owing to less cheap money), could actually make Blitzscaling even more oppressive.
competitive? more like anti competitive
competitive? blitzscaling main interest for investor is gaining monopoly on market, high risk high reward
Blitzscaling is fine if you want a business today but nothing tomorrow. It's not sustainable. It's not good for a country if a large over funded company goes bankrupt, the loss of income of employees, loss of stock market value etc. Growth needs to be slow and sustainable for the good of society generally.
@@idleishde6124 Heck, for the good of markets as well. Nobody wins in this game if it gets bad enough, even the rich. We've already had 'too big to fail'. Unfortunately this could lead to a worse situation 'too big to save'.
That was a...unique explanation of how blitkrieg worked. I remember outrunning one's supply lines being a bug not a feature in mechanized warfare. No wonder this business strategy is a long term failure.
It also seems that the people doing Blitzscaling forgot what happened to the Germans?
I recently found your channel and enjoy the content greatly. Your evidence based approach to these subjects is refreshing.
I can't believe Deliveroo have stopped their 40% off deals in the UAE, how dare they!
just found this channel, love this style. no fluff, getting to the point and staying there
I’ve never understood how uber is supposed to become profitable. The typical story (funny enough, the same cab drivers use to justify regulations) is that at some point in the future they’ll have an amazing monopoly and will be able to rise prices. At that point, wouldn’t it be *really* profitable to build an uber clone and just repeat the strategy? How is Uber supposed to compete with a clone? that can take advantage of their learnings and offer an equivalent product without having to offer the theoretical market rates, while Uber has to charge extra to make up for all the previous years.
There’s only one way IMO for this to work out, and it’s through regulatory capture:
1. Blitzscale
2. Become the standard
3. Lobby governments to build yourself an actual monopoly.
But these companies are *very* hostile to regulators, meaning that is not happening any time soon.
Another thing that's against uber's interests is that the business model is pretty susceptible to nationalization. Its a middle man that takes a cut of the profits, companies like that are going to be a magnet of political outrage and unlike something like facebook local governments can actually do something to fight their monopolies. Its possible to make an app like that on a local scale. Getting it adopted wouldn't be an easy task but I don't think uber is favored to win that fight.
It's been a while since I've looked into it, but if I remember correctly taxi companies also don't really have economies of scale. You have some, especially in paying for initial app development, but there's a reason why in 2005 you had a bunch of local taxi companies and not just a few players across the US.
In general this is a common theme of the strategy. It makes a lot of sense if you're linkedin because people don't feel the need to use two similar social media accounts and also don't use unpopular social media, but that doesn't describe most businesses. In most businesses people want to use the cheapest service available unless said service has burned them or a friend in the past. This makes it really easy to grow if you're selling a dollar for 70 cents, but it also means people will stop using you once you stop selling a dollar for 70 cents.
Ignoring that the technology is in all likelihood not possible outside of relatively small geofenced areas, self driving cars have a similar problem. The companies sell this vision of nobody owning a car because it'll just be so cheap and fast to use self driving taxis, but that's just empirically not true. You can already easily ride share and use public transportation in any medium+ sized city rather than owning a car for a lot less than owning a car. Basically nobody in the US outside of NYC chooses to do this. It's far more about convenience than cost, and owning your own car will always be more convenient. Plus it's not even clear that you're saving money. Replacing a cheap human driver with a bunch of expensive sensors and computer chips that puts significantly more liability on yourself isn't obviously cheaper than the cheap human driver, and it can easily be significantly more expensive.
Very good points and I can already see them failing at point number 2. While they have market domination in western countries , there are smaller clones that are more popular in south + south east Asia , Africa etc. These might not be 1st world economies but they have a huge user base and the same could happen in western countries slowly
@@shawnjavery yeah, that is part of the risk. The best outcome for them is that they get converted into something like an utility company.
@@theondono Your error lies in the fact that you think the people involved in funding this don't know that it won't be profitable. You are living in an obscured command economy facilitated by zero interest rates and QE that is laundered through back door deals at large financial firms.
Blitzscaling for me always feels like a modern ponzi scheme. But with a 1% chance of actual success
Which is probably why the rise of interest rates is a good thing
@@Demopans5990 It's a painful but necessary thing. Unfortunately it's still gonna suck, just in a different way.
Very compelling and insightful vid. You completely schooled me- like a dozen lights flashing as the closet opens. Thank you.
thanks Patrick, you gave answers to so many questions I had about some bizarre business models whose existence I could not justify. fifteen minutes of video and it wax all clear!. these companies thrived thanks to a huge confidence on cheap money for years to come. not because they were providing valuable services or products.
While I agree with what you say, disrupting the taxi industry was more than welcome. There is no reason for a license to run a taxi to cost 1 million dollars. This sum was paid by the passengers in the end.
Citation needed, wow. How can you even possibly think that? Did you mean to say that it costs a million to run a taxi company? Running a taxi company and "running a taxi" are obviously two very different things. I'm floored that 12 people upvoted that and yet I'm the first to ttink of this.
@@awesomeferretuse Wikipedia taxi medallion , here is a link if it posts en.wikipedia.org/wiki/Taxi_medallion, New York City taxi medallion peaked at USD 1 million, absolutely crazy.
@@awesomeferret Did you even watch the video? Patrick said that the price of a taxi license in New York was over $1 million before Uber, you can ask him for sources
@@apacheattackhelicopter8185 not the entire thing, no, it was too long and too subjective for me. It's extremely unlikely that the price of a taxi license is 1 million dollars. Think about that that would mean. The average taxi driver would have to actually be rich, and we know that's not the case. No taxi driver takes out a million dollar loan to get a job driving a taxi. That's flat out goofy.
@@awesomeferret Right, you comment without watching the video, apparently you also can't type 'taxi license price' into your search engine. It's sad because the second article that comes up mentions exactly the price of $1 million. In case the article is also too long for you to read: taxi driver is not the one who owns the license.
Thank you for another very clear (and literally LOL entertaining) video Patrick! Very helpful in understanding the bizarre world we live in.
Blitzscaling = get it while you can and get out
You could say a pump and dump.
Build crappy product, get it funded, burn through cash, obtain users, sell it, rinse and repeat.
Respect for using Wilt Chamberlain to visualize “dominant player”
That line at the end is why this is my favourite finance channel.
I did like Uber because it caused the taxis in my city to start accepting credit cards and reduced drunk driving.
But as a general business practice, the more I learn about this business model, the more wary of it I am.
“WeWork…allegedly worth $47B…” indeed! 🤣
chortle chortle chortle chortle
sounds like enron
That bit about movie pass … I couldn’t stop laughing.
Explains why my rental business plan is growing so slow. The cogs of the universe turn slow, unless you cheat the system with a fake image. Theranos was doing the same thing it seems but got caught.
yes exactly. "growth hacking" is just that: finding ways to cheat an otherwise naturally slow hard-earend process [if you have decent FCF].
Since neither being big nor an actual monopoly in an unprofitable industry returns a profit, we need to address the fact that venture capitalists collect a fee based on the scale of the investment!- not the return.
It's true, investors soak up the losses. Along with an added 4 percent premium to the expert screwing them out of their money. So I'd argue that there has never been a plan to make any of these businesses profitable, just an endless pumping scheme instead...
I will never get over how many times different people come up with new names for dumping, unaware that it's already an existent concept.
I had to watch this again, I was speaking with some people tied to electric car charging companies all of them are focused on a territory/ and deploying stations but this seems to assume that having the territory is going to be a barrier to competition entering the market which will lead to profits as EV adoption increases. I haven't heard how they will avoid competition after the market grows to where the chargers can generate profit, they all seem to be working on a scale now, business model later approach.
It's like the product these firms are making isn't whatever each start-up is doing, but the start-up itself
I’ve been learning a lot from this man. This video helps me understand these companies. Thanks much!
This was an absolutely brilliant presentation. 👏👏👏 Thank you.
Aww that frame from Black Books when talking about Mom and Pop bookstores... Loved it! So glad I was watching the video, not just listening to it.
There is a great book I recommend anyone to read called "Profit First." The faster you scale and grow a money losing enterprise, the more exponentially you scale your losses and problems. This has made many "entrepreneurs" lose sight of the fundamentals of running a company.
if you scale you get the talent and the crop of fresh graduates and new ideas... if you dont scale your competitor gets them... you cant lose sight of the resources
That is very true.
However, these folks are losing venture capitalist money.
To me, it is more of a case of unsound investing, AKA speculation.
These companies are given money to grow at all cost.
they don't really care about the fundamentals of running a profitable business. they want a few years of 20 million dollar paychecks. if the company then collapses, they will be just fine thank you very much.
The real problem is that we went from real business with limited capital to startups with unlimited capital to burn.
The businesses are not sustainable in the long term, as we see with amazon that goes from one fail to the next. They want to become the biggest store in the world, even if they don't make money doing it. They could stop selling stuff and rely 100% on AWS that they would have bigger profits than today.
Blitzscaling and venture capital are just acting as hidden forms of command economy. Softbank exists to launder money back into the US economy.
“Hey, employees, we gotta start making money.”
Failing upwards.
Electric scooterone was awsome , head first into concrete.
Funny that when he said "be the dominant player in the industry" it was a picture of Wilt Chamberlain. Who on paper should have dominated the NBA but in terms of winning, despite his individual records, he was second fiddle to Bill Russell and his team-centric style of play. Don't know if it was on purpose but just seemed interesting.
As allways beautifully explained.
This guy should have a million subs.
When there is excess liquidity in the market, all sorts of hucksters will step in to soak up the easy money: Blitzscaling, Crypto currencies, Buy Now Pay Later, lease long rent short, Hyperloop, Autopilot, Space tourism...are all examples of 'creative' dead-end business plans
I love this analysis! As a consumer, I take the freebies while I can, but do not become dependent on them. As an investor or business person, identify the gaps left in the economy by unprofitable business activities (ie that taxi medallion), who will eventually fail.
"but this is the ceo of uber after all" lmao
Patrick, this was so insightful, thanks very much. It has crystallised a lot of what is going on for me. Whoops I own shares in many of the companies you mentioned...
That was mind-blowing and highly amusing, a Masterpiece
And how did Hitlers's Blitzscaling of Russia work out? Cold winter coming for Door Dash, Air BnB and countless others.
Mr. Boyle,
You are a beacon of light through the foggiest nights my friend.
I cannot talk without getting emotional but I'm not irrational.
I love your calm style of explaining the ridiculousness of it all.
It is not bad or good but it is what it is and the ignorant mass (including most of wall street) simply cannot just accepted that things are this simple even though complicated.
The winner take all approach is the pinnacle of out society now... as if that's the ONLY way.
Capitalism is off the rails and the rich are constantly bailed out.
Insane.
Love your videos! ❤❤❤
I've never heard of this term before watching this. Thanks for the education! 💯
Be interesting to see how much Bliltzscaling there will be as we move into a higher interest/cost of capital world.
Thanks Patrick that was interesting, it's amazing to see how business models have changed over the years. It would be interesting to know how many companies that try Blizscaling actually end up going on to become profitable businesses. I guess it wouldn't be too many.
Fascinating, thanks! I kinda wondered how that worked this whole time.
You speak really well and explain things great. Subscribed.
Terrific stuff - I’ve ordered two of his book recommendations plus one of the books he has written