5 Things People Get Wrong about Scale Advantages, Economies of Scale and Moats (251)
whatshot 13 snips
Jun 19, 2025
Discover the key differences between scale advantages and economies of scale, as misconceptions are debunked. Learn how growth strategies can drastically shape financial returns, while understanding the dark side of being a large company, like bureaucracy. Explore the importance of distinguishing barriers to entry from competitive advantages in building a successful business. The conversation takes a personal turn with insights from teaching experiences in China and a humorous critique of a reality TV show.
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insights INSIGHT
Absolute Scale Advantages Exist
Absolute scale advantages exist independent of competitors' size.
Growing bigger is the default business strategy due to broader operational capabilities.
insights INSIGHT
Scale Advantages Are Multifaceted
Scale advantages are broader and more complex than economies of scale.
They include bargaining power, branding, financing, and specialization beyond just cost efficiencies.
insights INSIGHT
Scale Advantages Cascade
Scale advantages create a cascade effect, leading to multiple reinforcing benefits.
Larger firms can leverage scale in production, marketing, awareness, and social proof sequentially.
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In 'Small Giants', Bo Burlingham explores companies that have rejected the pressure to grow endlessly and instead focus on more satisfying business goals. These companies, termed 'small giants', prioritize being great at what they do, creating a great place to work, providing excellent customer service, making significant contributions to their communities, and finding fulfilling ways to lead their lives. The book highlights examples such as Anchor Brewing, Righteous Babe Records, and Clif Bar Inc., and discusses the benefits and challenges of maintaining a smaller, more personalized business approach.
Competition Demystified
Bruce Greenwald
Competition Demystified offers a streamlined approach to understanding business strategy by emphasizing barriers to entry as the primary factor in achieving competitive advantages. The book simplifies Michael Porter's five-force model, focusing on how companies can create and maintain advantages through customer captivity, lower production costs, or economies of scale. It provides practical examples across various industries and discusses strategies for maintaining market stability through cooperation and bargaining.
This week’s podcast is about scale advantages. Which are different than economies of scale.
You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.
5 Things People Get Wrong about Scale Advantages, Economies of Scale and Moats
There are lots of absolute (not relative) scale advantage. Growth is the default business strategy.
Scale advantages are bigger (and more vague) than economies of scale
Scale advantages can cascade
Scale disadvantages (diseconomies of scale, big company disease) are under-rated and under-measured
You need to separate barriers from competitive advantages. And measure each specifically.
I want to know 3 things:
Barriers to entry against new entrants.
What specific CRAS to reproduce?
What is the cost, difficulty and timing to enter?
Competitive advantage against rivals
Which CAs specifically? With measurements.
The incumbent or rival response
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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.
This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.
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