In the business world, scale is often seen as one of the key success factors. This article delves into the importance of scale advantage in business competition, and analyzes how scale brings advantages in cost, efficiency, experience, information, psychology and professional ability.
If the first law of physics is entropy increase, what would be the first law in business?
If I could only keep one, I think it would be a scale advantage, it's like gravity in the business world.
If you can't figure out the advantage of scale, then you can basically say goodbye to the possibility of becoming a capitalist.
The first thing to look at in any company or business is the size of the business, and the perspective and ideas of business analysis are completely different at different stages of the business.
Scale is not just a phenomenon, but the most basic element of understanding business, and any theory that is not combined with scale is a loft in the sky.
The capitalist business environment is very cruel. Whether it is a stock market or an incremental market, competition is always the main theme.
If the scale is not the head, then it is easy to lose in the competition.
Small, beautiful companies may not exist. Once the scale is too small, it is difficult to survive in the face of active competition from stronger opponents.
If larger-scale enterprises take the initiative to engage in competition, the probability of small-scale enterprises going down will increase significantly.
A lot of business things are pushed to the bottom, and in the end they are all scale advantages.
For example, China's supply chain capacity is the world's largest in many areas, and the core reason is that we have the largest consumer group and industrial worker group.
For example, the difficulty factor may be the same for big and small things. Sometimes it is more difficult to do small things, because once things are small, there are relatively fewer resources, and it is more difficult to land.
For example, most of the time in the industry war (often in the form of price wars), the first and second can grow, but the third and later are likely to be unfortunately affected to death.
For another example, it is relatively easier for rich people to become richer, because resources, opportunities, and abilities will only be stronger than ordinary people, and the probability of success will be increased by quantity, it is enough for the rich to try 1 times and succeed 0 times, and it will be difficult for the poor to get up again if they try 0 times.
……
All of the above are anti-common sense perceptions embodied in the scale advantage.
There are a lot of basic business analysis methodologies, but if you don't explain the scale advantage first, it's like building a 18-story building and suddenly realizing that the foundation is not solid.
The same e-commerce, looking at Ali and Vipshop, the same travel, looking at Didi and Cao, the analytical perspective and thinking are completely different.
Scale is a consequence, but sometimes it can make or break things. From a competitive point of view, the larger the scale, the more advantage.
So what is the scale advantage?
Munger's understanding is that larger scale will bring cost advantages (lower costs), efficiency advantages (higher transaction efficiency), experience advantages (better products), information advantages (more people know), psychological advantages (more people agree), and professional ability advantages (more detailed division of labor, more professional employees).
I think so, it's the standard answer.
The scale effect originally refers to the fact that in the era of mechanized production, for a factory, the more goods it can sell, the larger the factory can be, and the larger factory can produce more goods and purchase more raw materials (amortizing the fixed cost), resulting in lower costs and stronger competitiveness.
However, most of today's business scenarios have moved away from manufacturing thinking, and Wang Huiwen of Meituan believes that today's scale effect is the customer experience advantage or cost advantage generated by the transaction volume/customer usage is large enough.
This understanding may be closer to the real business scenario in the Internet era, and of course, in terms of depth, it is Munger's understanding that is the clearest, more powerful and concrete.
For the understanding of business, we must stand on the shoulders of business giants, who is the best business analysis? It may be Warren Buffett and Munger, otherwise they would not be able to become the world's richest people through excellent analytical skills.
Sometimes we feel that the business is difficult to do, maybe it is simply too small to be competitive. Most businesses going from 10-0 will be more difficult than 0-0.
So how to build up the scale, there are two paths, one is through long-term management excellence, and the other is through capital burning to accelerate progress.
Thinking back to the travel war back then, the similar model and experience, in the end, it was not a certain platform that won, but the capital behind it, and the merger of Didi Kuaidi was also dominated by capital. Smart capital burns money regardless of the cost, and as long as the scale is made larger, the battle can basically be declared over.
規模優勢衍生出來了非常多的理論，比如馬太效應、規模效應、網路效應、一萬小時定律、量變引起質變等。
The scale advantage is further deduced, which is essentially close to a mathematical problem, that is, the larger the order of magnitude of a substance, the more it will attract the number of the same kind to each other, and it will be cause and effect of each other.
Scale advantage is a bit like gravity in the business world, the larger the scale, the stronger the gravitational pull on users, which in turn leads to greater scale.
We are more concerned about what determines the gravitational coefficient of this scale, which is not determined by human will, but more by the properties of the platform itself. The gravitational coefficient of the N-side platform is the strongest. For example, WeChat, every user can interact, which is the N side. WeChat's barriers can be so strong that there is no rival to compete with. The gravitational coefficient of bilateral platforms is secondary. For example, Taobao, merchants can interact with users, which is bilateral. Taobao's barriers mainly depend on scale, there are certain barriers but not strong, and the same is true for Didi. The unilateral platform is the last gravitational coefficient. For example, SF Express, SF's customers only interact with SF, which is unilateral. SF Express is the logic of the supply chain, the barriers are weak, and anyone can intervene in its business.
The stronger the gravitational coefficient, the easier it is to quickly scale, resulting in the higher the market concentration, and the scale of the first and second place in the market may differ by a hundred times.
所以在業務從0-1的過程中，最應該關注的指標不能是利潤，而是規模體量及增速，小米汽車現在賣一輛虧1萬，但是規模上來后，後面就能賺錢了。
If you pursue profits from the beginning, then the volume will not come up, and it will seem that you will make money or lose less money in the short term, but you will lose your future and imagination.
In most industries, due to the advantage of scale, most users will be concentrated in a small number of larger enterprises, which brings the business concept of market concentration.
For example, in China's new energy vehicle industry, the top four companies in the industry occupy about 5% of the market share, and the top ten companies have a market share of more than 0%. This means that if you don't make it to the top 0, you may be eliminated in the future.
Jidu Automobile is just a start, and a large number of car companies will withdraw from the stage one after another. The essence of a new energy vehicle is a consumer electronic product, which is exactly the same as a smartphone.
There are many factors that affect market concentration, the most important is the degree of standardization of user needs, followed by the height of entry barriers, and finally the conversion cost of users, and of course, some policy, capital and technical factors.
If the judgment of the concentration of the market is accurate, then it is not difficult to judge the end of the industry. But it's not an easy matter.
When many new industries are born, investors and entrepreneurs cannot see clearly in the short term. For example, in the wave of AI craze, it is clear that when GPT was first born, most of us overestimated the development of AI.
So why is it so rare for a single company to monopolize the entire industry? Because in addition to these countless advantages, scale will still bring some disadvantages.
The biggest disadvantage is that the difficulty of management has increased dramatically, which can lead to bureaucracy and internal incentive failures within the enterprise. It is difficult to react quickly to changes in the market.
For example, the collapse of the central dynasty in successive dynasties is that once the early stage of the dynasty has passed, the entire bureaucratic system will be bloated and rotten from the middle and late stages, no longer serving the people (users), and will naturally be abandoned by users in the end.
How big an enterprise can be depends on the balance of scale advantages and scale disadvantages. If the internal management capacity can't keep up, then the scale can easily reach the upper limit.
Only cancer cells will grow indefinitely, any scale growth will have its own bottlenecks, and the market volume will not be infinite.
The importance of the concept of scale advantage cannot be overemphasized, it is a long-term thinking, if you always focus on profit rather than scale, then it is a small business, and it is difficult to grow big.
Therefore, in the first concept of business analysis, we must focus on the scale advantage.
Charlie Munger once said:
The essence of the theory of scale advantage is that the more goods you produce, the better you can produce that goods. That's a huge advantage. It has a lot to do with the success or failure of business.
The master is the master, one sentence makes clear the essence of the scale advantage, the next article we talk about competitive barriers, so stay tuned.
This article is written by Everyone is a Product Manager Author [Xiaohe Operation Notes], WeChat public account: [Xiaohe Operation Notes], original / authorized Published in Everyone is a Product Manager, without permission, it is forbidden to reprint.
題圖來自Unsplash，基於 CC0 協定。