Marginal Value Should Exceed Marginal Costs
Scalability depends on unit economics which are marginally favorable to revenue over COGS.
Scalability
Definition: A company's ability to grow its revenue and profits significantly while maintaining or improving its profitability margins.
Unit Economics
Definition: The profitability of each individual unit (product or customer) a company serves.
COGS (Cost of Goods Sold)
Definition: COGS refers to the direct costs associated with producing the goods or services a company sells.
Why Marginally Favorable is Crucial for Scalability:
Sustainable Growth: When unit economics are marginally favorable, each additional unit sold contributes a small but positive amount to overall profitability. This allows for sustainable growth, as the company can gradually increase its revenue and profits as it expands its customer base or production volume.
Funding Growth: Even small profits per unit can generate significant overall profits when scaled across a large number of units. This profitability can then be reinvested in marketing, research and development, or other growth initiatives.
Attracting Investment: Positive unit economics are crucial for attracting investors. Investors are more likely to fund companies that demonstrate the potential for sustainable profitability and significant returns on investment.
Venture returns rely upon scalability
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