Startup Opportunities: Know When to Quit Your Day Job by Sean Wise & Brad Feld

Author:Sean Wise & Brad Feld [Wise, Sean]
Language: eng
Format: epub, pdf
Publisher: FG Press
Published: 2015-03-05T05:00:00+00:00

SCALABILITY

Scalability refers to an opportunity’s potential to bring in revenue faster than the growth of related costs. With a scalable product, margins grow as volumes grow. Software as a Service (SaaS) products are often extremely scalable, as they can add new customers without materially increasing unit costs. In contrast, a law firm is not very scalable because for a lawyer to make more money from his revenue model, he must either: (a) work more hours or (b) charge more per hour.

Scalability has a lot to do with variable costs, which are the costs related to each unit sold, in comparison to fixed costs which are incurred regardless of the number of units sold. The amount of steel used by Toyota Motors is a variable cost. The more cars Toyota makes, the more steel is needed. A highly scalable business will have relatively low fixed costs so that the majority of costs are variable and scale with growth.

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