Blitzscaling has been on my mind a lot. Ever since I discovered that word a while back, it has returned time and time again to fill my thoughts. In the wake of COVID-19, and in the mire of this devastating pandemic, is blitzscaling still the right strategy for this generation of storage technology, hyperconverged, data management and cloud storage startups?
What the heck is Blitzscaling?
For the uninformed, here’s a video of Reid Hoffman, co-founder of Linked and a member of the Paypal mafia, explaining Blitzscaling.
Blitzscaling is about hyper growing, scaling ultra fast and rocketing to escape velocity, at the expense of things like management efficiency, financial prudence, profits and others. While this blog focuses on storage companies, blitzscaling is probably most recognizable in the massive expansion of Uber (and contraction) a few years ago. In the US, the ride hailing war is between Uber and Lyft, but over here in South East Asia, just a few years back, it was between Uber and Grab. In China it was Uber and Didi.
From the storage angle, 2 segments exemplified the blitzscaling culture between 2015 and 2020.
- All Flash Startups
- Hyper Converged Infrastructure Startups
All Flash startups
The 2014 and 2015 crystal ball revealed below the Gartner Magic Quadrant for Solid State Arrays (yup, it was termed SSA by Gartner). We see startups like Skyera, Solidfire, Nimbus Data, Tegile, Violin Memory, Kaminario and Pure Storage.
Gartner Magic Quadrant for Solid State Array 2014 & 2015
Hyperconverged startups
In the Forrester Wave™ for HCI Vendors, the juxtapose of Q3 2020 and Q3 2016 tells a tale. Early startups like Simplivity, Maxta, Pivot3, Atlantis Computing, Gridstore and Nutanix were the darlings of HCI back then.
Forrester Wave for HCI Vendors 2020 and 2016 – A blitzscaling effect
I even wrote a piece about my views of HCI vendors overselling their wares, and mentioned that we must read beyond the hyperbole. Here is my 2015 blog
Coldago Storage Unicorns
A few weeks back, Coldago Research, an independent data storage research and consulting company released their Storage Unicorn Note Edition June 2020. 15 private storage and data management vendors were listed to have USD$1billion in valuation or more.
Coldago Storage Unicorns with USD$1billion or more valuation
From the list, we can pick out the startups which are blitz scaling trying to get to the USD$1 billion valuation or more. But what does the USD$ 1 billion valuation mean? Most of these startups, with multiple rounds of funding and VC money, have not the revenues of a billion or more. I don’t think any one of the startups are profitable yet and we can only foretell which ones will survive in the near future.
Where are they now?
All the All-Flash and HCI startups, with exception of Pure Storage and Nutanix respectively, have fallen on the wayside or became roadkill. The Coldago Storage Unicorns list may feel good now but again, we will ask that same question again in a few years time. Where are they now?
[ Note: Since the Coldago report release, Datrium, one of the unicorns, have been acquired by VMware early July 2020. ]
The intense pressure to meet quarterly guidance and the need to escape velocity in blitzscaling have made the condition into a winner-takes-all attitude. Mind you, Pure Storage just became profitable 2 years ago and Nutanix, well, has yet to be profitable.
So, in the end, are these “unicorns” in it for just the growth and profit, OR are they interested to be a business for the long haul?
High risks of Blitzscaling
This recipe of blitzscaling is also a recipe fraught with risks. The risks are high stakes and the impact (both good and bad) come at the expense of something else. The pressures of blitzscaling may bring different perspectives and conditions the people in it to win at all costs. Unfortunately, the outcomes might devastate the companies involved. I look at 3 cases in the past that may have been aligned to a misaligned growth strategy.
- Computer Associates: Former CA CEO Sanjay Kumar indicted
- Informix: Ex-CEO indicted in fraud case
- Falconstor: Falconstor Founder Dead of Apparent Suicide
Technology companies that last
I am a big fan of Tim O’Reilly. His technical and technology books (and the animal images on the front covers) have been the staple source to my passions and work through my career. And I admire his thought leadership as well. A year and a half ago, he wrote this.
The customers and the market are going to ask. “Are you here to serve my business in the long run, OR are you interested to make a quick buck?” The market, however irrational, will in the end, question the need of being prudent, or lack of it in blitzscaling.
As the pandemic rolls on, budgets become tighter, work conditions change, costs become more difficult to manage. Common sense and foundational prudence in a storage technology company should be the true ingredients to a building a business for other businesses in every market, in every industry. Period.
In the end, we ask again, can the blitzscaling strategy build storage and technology companies that last?
Before that, I thought that articles on this topic were not interesting, but now I have changed my opinion!
The key question is whether or not a particular storage market is truly winner-take-most. If a market isn’t winner-take-most, then blitzscaling doesn’t confer enough lasting competitive advantage to justify the cost.