Stanford University's CS183C course, taught by Reid Hoffman (LinkedIn CEO), John Lilly, Chris Yeh and Allen Blue. Blitzscaling is what you do when you need to grow really, really quickly. 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. The class explains the visible secret of Silicon Valley's success: entrepreneurs, venture capital, technical universities, existing technology companies — which all lead to launching great startups and the creation of massive new industries.

Notes and Essays: https://medium.com/cs183c-blitzscaling-class-collection

It is my great privilege and honor to have Maryam with us today.

She's done this multiple times successfully.

She is also experienced in both the first internet boom and whatever we call

And it's been on various lists, Fortune, most powerful women entrepreneurs, et cetera, et cetera, blah, lists.

But 1 of the part of the design of this was, as you noted last week, we actually had something of a notion that 1 of the ways that even small startups can actually blitz scale and scale very quickly is through the deployment of communities and it's 1 of the things that Merriam has done very successfully within the commercial realm.

And so we thought that that was another part of an interesting arc, especially when you're dealing with the, you know, essentially the tribe stage of what kinds of things could be very relevant.

So, why don't we just very quickly touch on kind of the first business, Eve, right?

What was a little bit of the kind of the story of the first internet boom and kind of what lessons did you learn from it that you carried forward?

So I was on the Stanford campus in the basement of the GSB building on a payphone, believe it or not, no cell phone.

So I was actually using the payphone, and I was calling a best friend of mine in New York and saying, come out with me, there's venture capital money available, I've been through banking, I've been through consulting.

There's no way I'm going to progress to these ranks.

She was my roommate while we were in banking together, Varsha Rao.

And She said, I'll come out there, I'll leave McKinsey, I'll move in to your tiny little apartment and sleep on your couch, but only if we start what I want to start, which is this online cosmetics business.

And I wanted to do online market research.

I love market research and data and surveys and stuff.

But I said, sure, you know, I use cosmetics, how hard can it be?

You know, I don't know anything about it, we might as well start you.

We went out and raised, in the first year and a half, 26 million dollars.

I think I was 28, yeah, 28, and we built it really fast because it was really a land grant mentality.

It was, you know, who's gonna get Mindshare in the consumer's mind first as the first online cosmetics destination?

And it was a very simple business now that I think about it, because you, well, you had to go convince all the brands to give you distribution, put it in a warehouse, pick and pack it, and make sure all consumers understood that you were the destination for online cosmetics.

And we grew it very rapidly, 120 people, 6 months.

I think we hired the entire executive team in 6 months, and 120 people, and all of a sudden we're in the middle of, we're on Market Street with this fancy office, and it's like a 10 person board, Bill Gross from Idealab, a bunch of other people.

And then all of a sudden, Sephora, LVMH approached us to buy us within, I think before we even launched, they wanted to get us out of there, because they were trying to launch Sephora in the US.

So they tried to buy us before we launched.

We said, look, we're just trying to launch this business.

So they literally tried to buy us the month before we launched, then the month after we launched, and finally in December, tried again.

And we thought, okay, well, at this point, we're just 9 months into it, we're rising a series D.

Okay, this is the craziness of the environment.

And we noticed it was starting to get a little hard.

This is early 2000, so this is about a year after we launched.

We launched early 2000, they say, we want to buy you, and we thought, okay, it's getting a little harder to raise a Series D.

People are starting to ask about profitability.

So we thought, maybe we should seriously talk to them.

We start going down the path, they want to buy us for $88 million, we thought, I thought, you know, this is pretty good, we should sell the company because we need to be under the aegis of a bigger player and get the dedicated distribution rights from brands.

Varsha agreed, but then Idealab stepped forward and said, you know, not sure about this valuation of 88 million.

We just told Goldman Sachs you're worth, you know, 300 million.

And so I, all of a sudden, I guess as a very presumptuous 28-year-old, said, well, if you don't like the price, then you should pay more.

So we sold it to Idealab for over $100 million in cash in April 2000, and 2 weeks later, the NASDAQ plunged.

And I got my first gray hair, seriously, started getting gray hair about that time because the merger had not been approved yet.

And there was all kinds of things that happened during that process.

Needless to say, the deal stuck together.

I stayed on with the acquire, with Idealab.

We bunched a whole bunch of Idealab companies into Eve.com, and then finally we resold it to Sephora in October 2000.

So we sold it twice in about 6 months, something like that.

So that's part 1, that's the first entrepreneurial experience.

And before we move on, so 1 is, if you were to call yourself, like your current self sitting here, you were able to talk to your younger self just starting.

What are the key things you would tell yourself about how to run that race differently?

Like what, or what to emphasize and what to detract?

I would have tried to think a little bit longer term because when the company, so ideally I ran into issues where I couldn't go out, it was about to go public, Goldman was trying to take them out, then the market fell apart, so they couldn't go public, so they wanted to shut us down, and they said, Mariam, can you sell the business again for us?

So I turned around, picked up the phone, called LVMH.

But in retrospect, there was something else I could have done, which is taken the money out of my pocket and bought it for a tenth of what I had been paid, essentially.

And I could have bought the whole thing back.

2000000 uniques a month in traffic already after 1 year.

But, you know, when you are, I would say to myself, if you're, when you're young and you're going through like all of a sudden the Great Depression, you have this tendency to become conservative.

And when everything starts falling apart around you, every single day There's a company going under and the entire world is imploding.

It's hard to have the historical context and maybe if I'd been a better student of history, I would have realized that the internet was indeed not over.

And it was not time to leave town, but I would have bought it back myself.

So that would have been a very bold choice.

And I was severely in debt when I graduated from the business school.

I, you know, like nobody in my family came from a business background, so for me this was like, the sale was a big triumph, you know, and so, and it put me in a very different place in life, so I had a hard time thinking, I'll put my cash back in again now.

So I did get a little conservative, and I've been fighting that ever since.

So 1 thing you would have done is say, as opposed to selling at Sephora, actually in fact, a belief in the internet and the macro counter being contrarian, I would have actually bought it back and built from it, because actually in fact the asset was a unique asset.

But actually someone could make something out of it.

Totally, I would have tried to figure out, and now I know how to make businesses profitable.

I did not know for sure then how to do it, but I learned it afterwards going to a bigger company.

I went to a bigger company for a couple years to really learn how to run a P&L.

And now realize I could have probably done it with, because we were already doing about 10 million in sales on an annual run rate in their first year.

So it's a lot of what ifs and could ifs, should ifs, but I mean I think the idea is to be a little bit less conservative when you're, I would have been a little less conservative.

And what about other lessons, like financing pattern, hiring patterns, go-to-market patterns?

So 1 thing was I didn't like the size of the board being so large at the beginning and all the board members, some of them didn't get along that well.

So there were board members who didn't agree.

There were 2 board members from the series B fighting over 1 board seat all the time trying to like kind of gain favors with us to try to give them the board seat.

of our time managing the board, which I thought was wasted time.

I just thought, I need to focus all my time right now on building this company.

I work till 10 o'clock every night in the office.

I mean, I don't have time to spare to manage the board.

And getting someone a pashmina scarf, et cetera.

So I thought, OK, small board, maybe back away from VC financing quite so early.

And it was very much the, but On the other hand, I got to see what a lot of capital buys you, the best PR firm, the best executives, the best headhunters, I could see, I learned on somebody else's dime, really,

that's what made it possible to do Minted in a completely different way, which is, I raised 11 million for 7 years of operation and brought to break even.

And that was a very, and for a commerce company that makes things.

And so that was a very, very different capital and financing strategy.

And I would not have, I don't think, been able to do that had I, and also actually known how to scale now.

Because now we're going into the big, we've raised the big capital, raised 90 million now for Minted, and we're definitely in the range of like, you know, hiring the more expensive executives and all that.

And I wouldn't have seen how to do it had I not done it the first time with Eve.

I may come back and ask you a couple more questions, but because that is actually literally, you've softballed, you've literally teed up what was the next question after Eve.

is, you know, 1 of the key things that has kind of been a theme throughout the quarter for the students is choosing when to blitzscale.

It isn't like success equals blitzscale, failure equals not blitzscale.

Part of what we did in the very beginning when we were portraying LinkedIn is we said, look, it was a very long period, were we just getting it right before we actually did that?

And actually making that decision about when do you pour on the gas and then how do you do it, is actually 1 of the really key things.

So let's talk a little bit about kind of the first part of Minton, which is like, okay, let me be capital efficient, let me raise $7 million, 11 or whatever.

Yes, and go for 7 years, go through that, and then now is the time, and this is the reason.

Okay, well, I thought that, I had some lifestyle considerations, so in the beginning, I had just had my second child, so I wanted to really control the pace myself.

What Eve bought me was credibility and being able to make investors a return.

And with that, I had a lot of choices, career choices, and I could afford a lot of support, for example.

I could have a family, I could basically have everything.

I could have my family and have a career.

So I think getting out of the gates early with the taking a risk really paid off for me.

And I would encourage people to think about that early.

But, so basically, you know, I guess, with Minted, I wanted to basically control the pace.

I was worried about people getting in the way of the strategy when the strategy wasn't quite solidified.

So when I raised angel financing, people weren't quite necessarily on board with crowdsourcing 100% among our angels.

They were thinking crowdsourcing sounds interesting, but maybe crowdsourcing is nothing.

Who knows what crowdsourcing is gonna do?

So sign up all these brands, go with a brand strategy, sign up, it was a web 1.0 strategy of building distribution rights with existing stationary brands, believe it or not, that we did in addition to trying to build the crowdsourcing mechanism.

And so I wanted to have the flexibility to really change the model quite dramatically without having to take 10 people with me around on those strategic meandering.

Agility and communication is everything, right?

So if you have to communicate to 10 board members versus 1 or 2, it's just a completely different proposition, and I really believe in keeping people updated along the way so there are no surprises.

Third, there wasn't a lot of competition.

Nobody was talking about crowdsourcing, really, and nobody was talking about stationery.

It wasn't the Eve.com situation where we were in this like land grab where the minute we launched, 4 other VC-backed firms launched, companies launched behind us into the cosmetics market.

There was, I mean, I know you guys probably don't remember this, but there was gloss.com and I don't know, lots of companies, names I don't even remember now.

5 of us all launched, and we were the first by a month, maybe a month and a half, and then there were 4 behind us.

So That was an example of trying to grab mind share in consumers' minds as this is the number 1 first destination for cosmetics online.

And spending money to make sure everybody knew that.

Minted, it was like no 1 was circling at all, so I could take my time.

When we finally started to, I think your question is, well, what then made us finally do it?

a little bit about also your idea for starting it, because as a formerly successful entrepreneur, you're not gonna start something unless you think it can be big.

In that big thing, you think, okay, we're gonna go run tight for a while, but I do plan to get big, so it wasn't like, no, no, no, yes, look, I'd like to have some control over my life, but if it just gonna be, like if it had been a lifestyle business for you, you would have been like, no, no thanks.

So what was the thinking about, oh, this 1 actually in fact will have that kind of lengthy ramp.

Yeah, well, so, I've been a lifelong shopper.

When I wasn't doing my homework at school, I was always in the mall, and my parents would always criticize me for it.

And then I would go there and think, geez, first this brand is hot, then this brand is not.

And I actually really, for example, respect Mickey Drexler at Gap as being, well he used to be at Gap, now J.Crew as this great merchant.

But even he can have a bad couple of years.

So what I really wanted to do was figure out a way to build a retail brand that would last forever, that would be fresh forever.

And the way I thought you could do that is by completely removing the risk associated with a couple people choosing the merchandise.

Because what if those couple people are wrong, and what if they have a bad year?

So the hypothesis was, and I'm still completely obsessed with this hypothesis, because I'm trying to see how far I can take it, is if you turn all the decisions over to the crowd and you let people submit and curate, you will be potentially fresh forever.

And I thought I would start in stationary, which Peter Fenton, 1 of our backers now, says I brought a gun to a knife fight because we figured out how to do crowdsourcing of design and we brought it to the stationary business.

And the stationary market is a $10 billion market.

But I did it because I wanted to start in a small place where I could have very little competition, really revolutionize design completely, and then I love the unit economics.

High transaction value, high margins, inherent virality of the product, which we can talk about in the marketing thing.

Inherent virality, huge repeat factor, great customers that repeat with you if you're loyal.

So once you get them, you can sell them other things, they repeat with you, you've built something.

So I started there, but then when I, with this hypothesis that we could, that we would build just a stationary retailer that was crowdsourced and see if we could do something big with that market.

But then in 2011, 12, realized that we weren't a stationary retailer at all.

We had built a community of independent creatives who were not stationary designers at all.

And I can talk more about that, but that's when I

And that's when the scaling of the capital started.

And the theory of the scale capital to scale the business was?

It is that we could no longer do the cheap thing of having a couple of us do all the executive jobs if we really wanted to grow ourselves into a several hundred million, several billion dollar company and address different markets.

So if you were advancing the burn rate, were you advancing the burn rate on building the organization?

Were you advancing the burn rate on recruiting a bunch of new people within the design community?

And so it was all building engineering, building an executive team out to run the different groups, different departments.

I was basically, before that, basically playing maybe 4 or 5 VP roles myself.

Same with my co-founder, who I recruited right out of Stanford.

So I recruited a co-founder who's about 7 to 10 years younger than me, right out of the GSB, and we each split all the VP roles up in the beginning.

That's how we got to cash flow break even in 2012, basically because we didn't hire a lot of expensive executives.

But then we realized that that wasn't gonna scale to a larger business or to more verticals.

So we went from art, we went to state, I'm sorry, we went from stationery into art.

We launched fabrics by the yard last year.

So we now sell home decor like pillows, lampshades, et cetera, et cetera, made on demand for you out of all these crowd sourced designs.

So we moved progressively into more and more verticals.

And so let's think a little bit about that move, let's expose a little bit about the move in vertical.

So that's part of, like there's 2 parts of the scaling thesis that you exemplified.

1 part of it is, okay, how do we really build up the employees in order to capture a much larger market opportunity and to do that at some speed in order to occupy to get to critical mass, et cetera.

Second part of it is, let's also deploy, like sometimes it's software developers on an iOS platform or something else, but let's deploy a community to also add a lot of value to the ecosystem.

So when you're making the decision to go, okay, so we were stationary, oh, and in case you guys missed it, the word that is obviously way overused in Silicon Valley, but is disrupt, right, in terms of disrupting the stationary business, and also it's kind of the classic 0 to 1 thesis of, okay, let's tackle something that we know we can, we don't know, we have a very good bet of killing, and then once we have that, then we can actually in fact run up.

How did your thinking go to, now is the time, these are the verticals, we're gonna do it as a multiple vertical strategy, and how did that all play in the community?

Right, So we did what we thought were small experiments, and we ran, everything in Edminted is a competition.

You run competitions, people enter the competitions from all over the world, there are no qualifications needed.

And then if you win, you give us the original file, we sell it, you make a great commission, and everyone is happy.

And a upfront cash prize that you get to keep.

And people vote, and everyone is invited to vote.

When we decided to move into art, we decided to just try 1 art challenge.

And I decided to take the furthest away thing, the most challenging thing I could possibly do, just to kind of see, can the community produce art that people want to put on their walls?

Because that's very different from producing a piece of stationery.

However, the supply chain is about the same.

I can use the same supply chain, because I didn't mention to you that we make everything, too.

So once we source the file, we have all these integrated partnerships, and we send out files to the printers and the printers drop ship.

So I could leverage the same supply chain back end, right, but go very far to see how far we could stretch the community, the same community.

Within 3 months, we had West Elm calling us, a retailer owned by William Sonoma, to say, we want your art in all of our stores.

That was the first sign it was working, was when the people in the know start calling you and saying, we need this content.

Because ultimately, Minted is a content destination.

We make content, We just happen to monetize it by selling it in physical form to you.

We're gonna sell it in digital form starting about a week from now we're gonna launch digital invitations, so we'll be competing with Paperless Post and Evite in about a week.

Or we could delay the release of this video.

Yeah, so we're gonna, we're agnostic actually about whether we monetize the content either physically or digitally.

It's like whatever you want to do to create, bring style and design to your life is great with us.

So, but the point is that we went far, it worked, we started getting, and the indicator is when you're very small scale, you have no traffic, for example, Trying to decide whether something is working or not working in a consumer business can be very challenging.

So I didn't tell you that we almost folded the company in the first month of our existence because there were no sales whatsoever for the first month.

OK, so the first month we launched, we had 0 sales.

Very different from Eve.com, where immediately people started streaming and buying makeup from us, like in kind of a surprising fashion.

Maybe week number 6 we had 1 sale, 1 transaction.

And what the transaction was, was nobody was buying any of the branded stationery products that we'd spent probably 90% of our funding launching, because our investors thought that would be a little safer, which I understand.

And there were 22 designs that were crowdsourced for save the date card invitations.

I don't know if you guys even know what those are, but those are wedding, like you send a save the date card out when you get engaged and you're about to get married.

So there's this tiny sign of life in this tiny little corner, 1 transaction a week, then there were 2, and maybe 2 another week, and then 3.

And the question was, the problem is we had no traffic, so we had no ability to tell whether that was good or bad, except the conversion rate was .1%, which is pretty lousy of unique visitors, transactions divided by unique visitors, right?

So you want to get a conversion rate at least up to

or higher, really, to be a healthy commerce business.

So I thought to myself, geez, maybe I should just take all the money and give it back to my friends.

They're all my friends who Angel invested.

I can't take 2 and a half million from my friends and burn it.

And honestly, the reason I kept going, just completely honestly, was I did not want to lose my friends' money.

I felt so responsible for taking my friends' money that I just could not lose their money.

I don't care what happens, I gotta make it work.

And that means I'm gonna take a venture round.

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Blitzscaling 07: Mariam Naficy on Lessons From The Dot Com Days and Knowing When To Blitzscale