How to scale your startup - by avoiding Blitzscaling

My Oldham born wife is one of the finest cooks I know, and at the same time, one of the most vicious critics of celebrity TV chefs. Whilst she effortlessly makes two soft centred poached eggs on toast - such seductive delights are the basis of our thirty-seven year relationship - she generously peppers criticism on any TV chef who appears to pay more attention to their own ego than the flakiness or their pastry or the creaminess of their stilton and celery soup.

Whilst James Martin is in her current good (cook) books, a regular target of her wrath is Jamie Oliver. His image as a slightly mouthy, salt-of-the-earth chap was always slightly at odds to her refined Northern palate, but apart from once paying a fortune for a mediocre meal at his now defunct Jamie’s Italian outlet in Manchester, I’ve taken little notice of him.

In an era of millennials eating habits graduating from cheese on toast to avocado on rye, the failure of Jamie’s Italian restaurant chain just over two years ago is a perfect example of how not to scale a startup venture. Susan, it seems, really does know best.

The mass-market chain was founded by Oliver and his Italian mentor, chef Gennaro Contaldo, in Oxford in 2008. The chain rapidly expanded to 43 outlets by 2016. However, appetites waned as it faced rising competition from numerous Italian-inspired rivals and the market became crowded after private equity investors piled into casual dining chains.

Consumers became nervous amid the uncertainty of Brexit, while the rise of takeaway apps and delivery services such as Deliveroo and the emergence of home-eating kits such as Hello Fresh, encouraged the Netflix generation to stay at home on the sofa.

Startups fail because of lack of customer traction, and Jamie's Italian evidenced this as it struggled for relevance as people changed their eating habits. It first showed signs of trouble in 2017 when it closed six outlets as high prices and unexciting menus failed to win customers. The chain made a ￡30m loss and Oliver pumped in ￡13m of his own money to reboot. January 2018 saw the closure of a further twelve outlets, and another ￡4m from Oliver. Customers would buy his books and watch his shows, but choose to eat out in a rival restaurant.

Susan always said the end was nigh when he added chorizo to paella. But of course he’s not alone, other Italian chains such as Carluccio’s, Prezzo, ASK Italaina and Zizzi folded, whilst Yo! Sushi, Itsu and Wasabi serving Japanese food struggled at that time too.

In the midst of the barrage of negativity, it’s easy to forget the positives – Oliver’s 20 years in broadcasting, selling 40 million cookbooks that cajoled reluctant cooks to give it a go, campaigning on issues such as school dinners and energy drinks, and his charitable venture Fifteen Cookery schools, which helped the poor and underprivileged to become chefs.

But that was not enough to persuade diners to pay ￡4.50 for a garlic flatbread or ￡15.30 for a prawn linguine at his gaffs – the ingredients needed to make a celebrity chef aren’t those for a businessman. With restaurant margins are notoriously slim those who do well do so by either constantly evolving – anticipating rather than following trends – or delivering classic experiences with superb service and outstanding food.

Oliver did neither of these, but his hubristic approach led to Jamie’s Italian expanding at a ferocious pace. This for me shows why the populist Blitzscaling growth strategy for startups is fundamentally flawed.

Blitzscaling is an accelerated growth path, prioritising speed over efficiency to move a company from startup to scaleup at a furious pace to capture the market. Its advocates are Reid Hoffman, founder of LinkedIn and Chris Yeh. Dropbox cofounder Drew Houston described the feeling produced by this kind of growth when he said, It’s like harpooning a whale. The good news is you’ve harpooned a whale. And the bad news is, you’ve harpooned a whale!

While blitzscaling may seem plausible, it is fraught with challenges and is as counterintuitive as it comes. The classic approach to growth involves taking risks when you both measure and afford them and prioritises efficiency over speed. However, when you blitzscale, you deliberately make decisions even though you’re uncertain about the outcome. You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster.

For me, the failure of Jamie’s Italian remains a case study of why Blitzscaling doesn’t work, it’s a flawed strategy and shouldn’t be in the startup growth roadmap. Here’s why I think this, with my own ten-step startup scaling growth plan thinking.

1. Scale the personalised customer experience Every business needs to connect to customers as individuals, with highly personalised experiences to make every customer interaction count, transforming single moments into personalised customer journeys.

Oliver’s growth plan was classic blitzscaling, driving rapid expansion in pursuit of bums-on-seats to the detriment of delivering an experience designed to bring the customer back. They ignored the feedback from TripAdvisor local ratings, which always showed a poor dining experience.

2. Scale simplicity Oliver said he relied heavily on others for day-to-day operations: Don’t forget that my day job is making content for television and books. I can’t do everything he said.

Blitzscaling means you quickly dilute the culture and your personality as you industrialise the business model. Rapid growth in branches meant they were effectively franchises and run very differently to his early restaurants.

3. Scale through validated learning How many moving parts in your startup do you need to scale? Maintain a learning mindset, be the best at getting better, recognise growth is never done. Metrics don’t lie but they don’t tell us everything, keep a ‘hands on, hands in’ approach.

Oliver failed because of illusions of product market fit and poor pricing discovery, the classic mistake in confusing early adopters with a proven market and the resulting rapid degradation of customer acquisition and conversion economics.?

4. Scale the right mindset When you scaleup you need to have the right mindset and ensure the team are on the same page. Scaleups are especially vulnerable to mindset mistake when things are working well.

Rather than developing their customer base organically, Oliver tried tie-ins with voucher schemes such as Groupon, which attracted one-off bargain hunters, and didn't inspire loyalty or regular customers. The blitzscaling mindset is growth not retention – beware.

5. Scale unit economics A startup is a bet on a business model attaining a critical mass of customers beyond which the unit economics starts making sense. But the focus of blitzscaling isn’t efficiencies but simple raw growth.

Oliver’s demise was a result of poor location of new venues, the suitability of the team, and the way the business was run, hurting Oliver’s reputation in the process. In chasing volume, they lost sight of the details.

6. Scale transaction frequency The aim of scaling is to build a sustainable, repeatable model where customer attraction, acquisition, retention and traction build the revenue model with profitable transaction volumes.

Research showed tourists and those who happened to be passing by became Oliver’s key clientele, with few people coming in because of excitement of being at a Jamie's Italian. The focus was on growing numbers, not learning about customer habits.

7. Scale thoughtfully Scaling means ensuring everything moves together. There is no shortcut leading a startup restaurant from one customer location to 50+, each function must mature with attention to detail and support.

By avoiding the trap of one-size fits all and adopting slower, smaller thinking, growth is considered and intelligent. For Jamie’s Italian, the feedback was glaring, as one critic review stated: firstly, the restaurants are too big; due to pared-down staffing numbers, on busy evenings staff are waiting on as many as eleven tables at once, while managers and chefs also felt overburdened.

8. Scale things that don’t scale The early days are the perfect opportunity to do things that don't scale, for example cultivating special, one-off menus. Keep doing this as you scale to sustain brand values – they can’t be copied.

Blitzscaling ignores the opportunity for finesse, personalisation and the flexibility for localisation. Scaleup failure also occurs by confusing founder heroics with a repeatable model which can’t be translated into operating leverage. Jamie’s Italian was just a faceless, soulless franchise vehicle that had no connection to his personal passion, vision and focus on food. It was a copycat business model.

9. Subtract as you add Scaling is all about more - employees, customers and processes – but often masks what you are losing, and what you should lose: scaling is actually a problem of less.

There are lots of things that used to work that don’t work anymore, so you have to remove them, necessary subtractions even as you keep your eyes fixed on additions. Avoid the default of ‘wash, rinse, repeat’, it ignores key aspects of the customer engagement model.

10. Scale your foundations Think of scaling out as building the base of a pyramid, on which everything else is built. Successful startups focus on building their architecture in an intelligent way without overtaxing the team, over stretching on cash flow or endangering the roadmap.

Blitzscaling advocates shooting high, yet a rapid, mass market roll out without a solid foundation gives you nothing to fall back on when the growth stalls.

The failure of Jamie’s Italian also shows the flaw in the financial model of Blitzscaling, it’s a do-or-die approach that you will burn your cash runway unless you can finance your growth from an exponentially growing revenue stream. Blitzscaling means you’ll need investors with deep pockets, and you usually need more money than you thought to recover from the unforeseen challenges and mistakes you’re likely to make along the way. Get your revenue assumptions wrong and against an escalating fixed cost base, you’re in a vortex of spiralling cash burn, as Oliver found out.

In my experience, some funded startups fail because of premature scaling, spending money and resources beyond the essentials on growing the venture before securing product-market fit. While it sounds simple enough, the reality is that most startups do good things, but do them out of order. In other words, they are investing to build the product, hiring great people to build the team and essentially all the things big companies with lots of resources do when they are executing on a known opportunity.

But most startups are chasing a hunch: no matter how much they believe in their idea, are operating on a bet about an opportunity with an unknown solution. All the unknowns mean a startup needs to manage the process of coming to market differently and the priority is to avoid spending money scaling before you have really nailed what customers want and how to reach them.

In my experience, it often takes three times longer than anticipated to really nail the product before scaling becomes appropriate. I’ve also seen premature scaling makes you less agile, you become organisationally, financially and mentally obligated to a particular strategy. This makes it harder to pivot.

At the beginning, there was so much promise. Oliver was the fresh-faced, down-to-earth culinary whizz with his charming, stripped-back style and no-nonsense approach. ?But his ambition absorbed the Blitzscaling hype, and the metaphorical soufflé went flaccid. I bet he feel like I did recently when I burned the Welsh artisan sausages. Susan’s retort was simple: the whole plate looks like it should go straight into the dishwasher.

Blitzscaling for hyper growth means you lose sight of your purpose, blinkered simply on the numbers. You lose your sense of ‘why?’. When the numbers don’t add up, you’ve no other options. Instead, be highly consistent, measured and systematic in progress along all the core axes of execution - customer, product, team, finance - constraining yourself until you're really hurting for resources, including people and capital.