Minimum Efficient Scale

Let's start with scale.

When a company scales, it means that its costs get cheaper the bigger its volumes...a kind of virtuously positive business synergy. Bigger really is better. If you only make one sweater by hand and sell it for $800, that business won't scale. But if you have robots who make 4,000 sweaters an hour out of cheap cotton that feels expensive to the wearer, that business scales.

So the question then: how many sweaters do you need to make for scale economies to take effect? Like...if the Weaver 2000 cost $1 million and it only made 10 sweaters a day, then it wasn't worth the capital to automate production. But if it made 10,000 sweaters a day that sold for $100 after unit costs of $40, then wow...this scales.

So what's the minimum that need to have been made for it to have been worth doing, i.e. to scale with efficiency?

Well, there isn't one set number. The answer is really an asymptote that involves calculations of the cost of your capital for building your company (i.e. that robot and volume deals you get for discount cotton) and a bunch of other inputs. But just get the gist here. If we ever wanna really get into it, we'll build a course module that works through a whole long boring case. And we have those. Just on other topics. You'll need caffeine when you come to view them.