Often the investments that are made possible by scale aren't really an economic advantage, but rather an economic tradeoff, and many times it is of the worst ki

Often the investments that are made possible by scale aren't really an economic advantage, but rather an economic tradeoff, and many times it is of the worst kind: a visible advantage (lower variable costs) for an invisible disadvantage (higher fixed costs as well as other cash flow risks). As an example, we have the story of every single major retail company failure in the last 150 years. Fast sales growth leads to growth in physical presence, which leads to excessive inventory. Excessive inventory isn't the end of the world when revenue is strong...but it can be the end of the world when revenue drops. When the going gets tough, having all your working capital tied up in inventory that isn't moving often leads to the death spiral. Even Amazon isn't immune. Look at their inventory turns from 2003 vs today. It is absolutely shocking how much they have degraded. Sure, they've had amazing revenue growth from their laser focus on reducing shipping times and costs, but that laser focus has led them to build hundreds of warehouses, and each warehouse you build is going to increase your inventory requirements. I'll fall short of predicting their downfall from the next recession, but from their financial trends, they're not exactly looking much different from Sears or Circuit City or ToysRUs.