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Is Blitzscaling for Private Equity?

I recently picked up “Blitzscaling, The Underlying Principals of Business Model Innovation”, written by Reid Hoffman. Its purpose, as it seems, was primarily targeting start-ups entering into a high-growth stage that needed rapid scaling to win the market share.

As I learned, Blitzscaling is about harnessing growth and acquiring market share at a speed of light ready or not. Moreover, constant catch-up is a good thing because it means the growth is happening. The two interesting concepts were (1) Blitzscaling is iterative, meaning that as a growth strategy it can be used periodically throughout the lifetime of a company, and (2) a constant need for change.

Although Blitzscaling isn’t applicable in its raw form to private equity, its principals can be used in scaling a business post acquisition and as well as re-inventing stale business models.

Think about it. Typically, PE makes safe bets with easy upgrades from cost efficiencies to personnel and senior management changes and roll-ups. Though sourcing and integrating addons can be mechanically challenging, it’s not as if PE was launching a new product line or completely re-inventing a business. It is a relatively safe bet, unless it was a bad investment thesis or the sector tanked as a whole, all things equal of course.

The trick is making sure that in addition to the strong foundation, the product/service is as strong, and if not, this is where the change needs to happen and FAST!

So, how can Blitzscaling be applied to private equity? Well, just like in a case of a start-up where Blitzscaling is only valid when a company has a good enough foundation for an intense growth. This means – product/service, business model, systems, processes, talent are generally there. So that when the spent dollars start to drive sales, the company doesn’t break. In the case of a PE, most of the acquired businesses do have somewhat of an established or very well-established foundations and should be able to absorb the growth.

Then the set-up for a PE is actually pretty good. You have a foundation you can grow and compete with. What’s missing is taking a risk of tweaking a business model to align with current trends and growth potential. That might be easily said than done. As they say, don’t fix what’s not broken. It’s easy to fall into a trap of trying to reinvent a business while alienating consumer that has been supporting the company. The trick here is to make sure that although the foundation is strong, the product or service are as strong, and if not, this is where the change needs to happen and fast. Many founders become burned out and complacent about their product after 15-20 years of running a business and things get stale. There can be many other reasons of course, but that’s not the subject of this post. This is a huge opportunity for a professional PE team to step-in and drive the change.

Consider the founding story of Harry’s Razors that I’ve written about before. This was a combination of an established business with a strong foundation and a new business model applied to a very known and somewhat common product. Was this a venture or a private equity deal?


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