Why Scale is Important

Across the multiple startups and businesses that I have run over time, I have come to a firm conclusion that scale is an extremely important element for the sustenance and success of an organisation.

And yet, many small businesses and startups, do NOT scale. And I have heard a lot of reasons, some of which may actually be well-disguised alibis, justifying why they don't want to scale! From "I want to remain my own boss, so don't want to get investors in" to "I like my niche space, so what if it makes this a small business" or even "I am happy where I am, I am able to run my home, and take a decent profit every year - what else do I need?!".

From having been an early stage entrepreneur multiple times and also having run a small business, as also having interacted with many other founders of this kind, I realise that most of the time, the above-mentioned kind of "reasons" are alibis! Either for not being able to scale, or for the fear of the unknown (like "swimming in your small pond versus venturing out into the ocean"), or some other reasons of the kind. Very rarely is there true and valid justification for staying small.

Irrespective of the reasons, I would like to make a case for why scale is important in business.

Scale gives you the hedge against occasional failure. Yes, somethings can and will go wrong. At scale, you are able to weather such a storm.

Scale gives you an ability to experiment. When you invest into some new idea, it should not take you down. With scale, you are able to handle such experiments.

Scale gives you an opportunity to invest into R&D. And most businesses need to work on their future, and R&D is needed for that. With scale, you are able to do so.

Scale gives you a certain bargaining clout. A business of size can speak to vendors and other partners, with more command than a smaller business. You can negotiate better terms, because of that.

Scale reduces your vulnerability. Whether it is due to a sudden crisis, whether it is due to cash flow problems, or other such reasons. With scale on your side, you can survive.

Scale enables you to attract better talent. A good talent may not want to risk their career in an organisation that appears to be small and vulnerable. Size gives a higher level of confidence.

Yes, scale is very important to ensure sustenance and longevity, even when being smaller might give you a comfort of "being in better control of things"!

A few related points in the context:

• if the scale is also accompanied by a sense of some extent of diversification in terms of revenue and profit channels, it is healthier. That gives you a hedge, instead of putting all your eggs in one basket. Then again, excessive diversification may come at the cost of being a jack-of-all-and-master-of-none. That may not be very smart. You do need to appear to be a specialist or the "best" in some fields, and which may not be possible, if you are excessively diversified.
• So, what is "scale"? How much is good enough? There are no easy answers to this question. However, on a ballpark basis, if you have several months of working capital sitting in the bank, you are rotating your money many times each year, you are creating a rich base of reserves for the organisation, all that is useful, in terms of creating and achieving scale.
• Can you take too much time to scale? Sometimes denial on scaling can also be expressed by saying that "I am not against scaling, but I don't want to do it too fast, as it may hurt my organisation". Well, that could be another alibi in disguise! The longer you take, the longer you carry the risks of annihilation! All the reasons to justify scale have the reverse also being relevant. That not scaling can hurt you, including to a point of creating existential challenges. That is an exposure that you don't want to take, if you can help yourself.

Scale make a big difference to organisation success and longevity. Cheers to all of you working to achieve scale in your business!