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7 Types of Business Scale

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Business scale is an advantage or disadvantage that a business faces as it grows larger. A scalable business is a firm that enjoys an increased competitive advantage as it grows. Scale is an important consideration in planning a business, developing strategy and evaluating the competition. The following are the common types of business scale.

Unit Cost

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.

Value

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.

Service

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.

Brand Awareness

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.

Operations

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

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.

Organizational Culture

Large firms are more likely to have negative office politics that interfere with productivity, innovation and strategy implementation.
Overview: Business Scale
Type
Definition
An advantage or disadvantage that a business faces as it grows larger.
Related Concepts

Competitive Advantage

This is the complete list of articles we have written about competitive advantage.
Absolute Advantage
Bargaining Power
Barriers To Entry
Brand
Business Cluster
Business Scale
Business Strengths
Capital
Competitive Differentiation
Competitive Parity
Competitive Pressure
Cost Advantage
Cost Innovation
Cost Strategy
Critical Mass
Customer Satisfaction
Design
Digital Maturity
Distinctive Capability
Distribution
Economic Advantage
Economies Of Density
Economies Of Scale
Economies Of Scope
Experience Economy
Information Advantage
Information Asymmetry
Know-how
Market Position
Market Power
Marketability
More With Less
Network Effect
Organizational Culture
Price Leadership
Product Development
Productivity
Relational Capital
Relative Advantage
Risk Management
Strategic Advantage
Switching Barriers
Switching Costs
Trade Secrets
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