Business scale refers to the impact that a company’s size has on its competitive advantage. A scalable business is one that becomes more competitive as it grows larger, while a non-scalable business may face disadvantages as it expands. Scale is an important factor to consider when planning a business, developing strategy, and evaluating the competition. A company’s scale can affect its ability to compete in the market, as well as its potential for growth and profitability. The following are the common types of business scale.
A company that is scalable experiences declining unit costs as it grows. For example, producing one million bicycles is typically cheaper per unit than producing one thousand. As such, it is often impossible for small firms to directly compete on price with larger producers. Smaller companies may avoid direct price competition by producing a niche product that the larger producer doesn’t offer.
In some cases, the value of a product or service grows as sales increase. A nightclub that is filled with people may be more valuable to customers than a nightclub that is empty. It is easier to find support and complementary products for a popular product as opposed to an obscure one.
A scalable business can drive down the costs of providing a service as it grows. For example, a large cloud infrastructure company can build more efficient data centers and push suppliers for cheaper prices due to its scale.
Customers are more likely to purchase a product that they know. Beyond that, customers are more likely to purchase a product simply because its brand name sounds familiar. This allows your sales to increase as your brand gains recognition and awareness in the market. Brand awareness is often one of the benefits of achieving scale.
Operational costs typically decline as a percentage of revenue as you grow. In some cases, large firms have operational issues due to factors such as legacy systems, excessively complicated processes and resistance to change.
Innovation can be difficult to maintain as you scale. There is something about large companies that seems to inhibit creativity, risk taking and divergent thinking.
Large firms are more likely to have negative office politics that interfere with productivity, innovation and strategy implementation.