Yahoo and Importance of Business at Scale

13 06 2008

Put quite simply, building a business that scales is what separates the pros from the amateurs.

Every business hits a brick wall. The business will not grow without drastic changes, and really at that point, you are simply using your existing business structure to go into a BRAND NEW business as a means to growth.

You can scale up vertically within your choice market and vertical. There are a number of ways to then scale horizontally: different applications, different verticals, different markets.

In every conversation I have with would-be and startup entrepreneurs, possibly the number one piece of advice that frankly many ignore is to choose a business that will scale. In other words, choose a big sandbox to play in even if you’re playing in just a very small corner to start.

Investors tend to intuitively understand this. Maximization of returns requires scalability. It still surprises me sometimes, and sometimes doesn’t, that many entrepreneurs don’t think about top-level scale from the get go. Maybe it’s a byproduct of experience. Most often, it’s a byproduct of understated expectations.

But as an entrepreneur, building a scale business gives you more leeway for being wrong. Things will almost never go your way – those are the odds. Building a scale business means that you can move into different directions in a seamless, and yes scalable, way. When your business scales effortlessly, you stand a better chance of hitting numbers you can be proud of. When you scale, you also “let a thousand flowers blossom” and you might be surprised what comes of it.

It can be hard to spot scalability sometimes. For example, it was possibly hard to see why Facebook could be a scalable business when looking at walled gardens of colleges. Someone was thinking bigger from the beginning, even if it seemed otherwise.

I’m not talking about server scalability. It’s almost always a mistake to build for too much scalability there. You can rebuild your server farm. You can’t quite as easily rebuild your business whose very success is dictated by moment-over-moment momentum.

Competing in an undifferentiated manner within a commoditized market is not scalable. Selling someone else’s wares under your banner with no discernible value-add is not scalable.

Maybe Yahoo can get its mojo back, but many people don’t think it’s possible. Not understanding the importance of something as fundamental as business at scale at this stage of Yahoo’s company history for many is inexcusable.

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