5 ms·

PG, your use of the term "economies of scale" seems to be slightly misleading: My understanding is that to benefit from "economies of scale", you don't necessa

by nebula 18y ago

PG, your use of the term "economies of scale" seems to be slightly misleading: My understanding is that to benefit from "economies of scale", you don't necessarily have to be big in size. You can be a two people startup serving a huge user base with a small margin. It's possible to make huge profits in this scenario because of economies of scale in terms of the size of the market served. Your use of the terms seems to indicate that you can use economies of scale to your advantage only if you are big in size: Those who bet on economies of scale generally won, which meant the largest organizations were the most successful ones. But in the late twentieth century something changed. It turned out that economies of scale were not the only force at work. Particularly in technology, the increase in speed one could get from smaller groups started to trump the advantages of size.

bdr 18y ago
I think you're confusing "economies of scale" with what Taleb calls "professions that scale".
- nebula 18y ago
  May be I'm; but you are not helping with your one liner :( [for "professions that scale" google is pointing to this page] Btw, Wikipedia seems to be more or less in agreement with my stand here: [http://en.wikipedia.org/wiki/Economies_of_scale http://en.wikipedia.org/wiki/Economies_of_scale] "Economies of scale are the cost advantages that a firm obtains due to expansion. Diseconomies of scale are the opposite. Economies of scale may be utilized by any size firm expanding its scale of operation." OK! It seems I missed the cost advantage part; i.e., the term "economies of scale" is used only if there is a cost advantage to be gained from expansion. Is that right?
  - bdr 18y ago
    Sorry, I assumed that that was where you were coming from. Economies of scale usually refers to how the cost of producing a unit decreases as you are producing more units at a time. Taleb calls an endeavor scalable if your reward can increase practically unboundedly with little no extra effort. Examples include pop stars and websites.
    - nebula 18y ago
      That helps :) Thank you.
crabapple 18y ago
You can be a two people startup serving a huge user base you live in fantasy land. at the very least you will need N customer care agents to every M customers. sorry, people will email you and phone you when they have problems. someone needs to answer the phone. and thats just customer care. who are the sysadmins that watch 10k servers on the weekend? who is doing payroll?
ssharp 18y ago
Economies of scale come into play when the increases in revenue are outpacing the increasing in spending. This is best shown with fixed costs. If you pay $10,000/month for office space and sell 10 widgets or 100,000 widgets, you're still paying for the same amount of office space. So it's always beneficial to scale so long as your fixed costs aren't increasing enough to override the benefits. It could be that PG meant that large corporations were more willing to take these bets as they had less to lose than a small company. Taking advantage of economies of scale will generally require some investment upfront as well as adding something to your fixed costs (building a new plant for example). If things don't pan out, you're left with the new expeneses, debt, etc. The financing gap between big companies and small companies has shrunk a lot of the years. During the times that PG is talking about, a small company would have difficult time getting the same amount of financing as a large company in a comparable amount of time. I doubt a small company back then could scale at 10% of the speed that a small company could now.

by nebula 18y ago

bdr 18y ago

I think you're confusing "economies of scale" with what Taleb calls "professions that scale".

nebula 18y ago
May be I'm; but you are not helping with your one liner :( [for "professions that scale" google is pointing to this page] Btw, Wikipedia seems to be more or less in agreement with my stand here: [http://en.wikipedia.org/wiki/Economies_of_scale http://en.wikipedia.org/wiki/Economies_of_scale] "Economies of scale are the cost advantages that a firm obtains due to expansion. Diseconomies of scale are the opposite. Economies of scale may be utilized by any size firm expanding its scale of operation." OK! It seems I missed the cost advantage part; i.e., the term "economies of scale" is used only if there is a cost advantage to be gained from expansion. Is that right?
- bdr 18y ago
  Sorry, I assumed that that was where you were coming from. Economies of scale usually refers to how the cost of producing a unit decreases as you are producing more units at a time. Taleb calls an endeavor scalable if your reward can increase practically unboundedly with little no extra effort. Examples include pop stars and websites.
  - nebula 18y ago
    That helps :) Thank you.

crabapple 18y ago

You can be a two people startup serving a huge user base you live in fantasy land. at the very least you will need N customer care agents to every M customers. sorry, people will email you and phone you when they have problems. someone needs to answer the phone. and thats just customer care. who are the sysadmins that watch 10k servers on the weekend? who is doing payroll?

ssharp 18y ago

Economies of scale come into play when the increases in revenue are outpacing the increasing in spending. This is best shown with fixed costs. If you pay $10,000/month for office space and sell 10 widgets or 100,000 widgets, you're still paying for the same amount of office space. So it's always beneficial to scale so long as your fixed costs aren't increasing enough to override the benefits. It could be that PG meant that large corporations were more willing to take these bets as they had less to lose than a small company. Taking advantage of economies of scale will generally require some investment upfront as well as adding something to your fixed costs (building a new plant for example). If things don't pan out, you're left with the new expeneses, debt, etc. The financing gap between big companies and small companies has shrunk a lot of the years. During the times that PG is talking about, a small company would have difficult time getting the same amount of financing as a large company in a comparable amount of time. I doubt a small company back then could scale at 10% of the speed that a small company could now.