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@Rishad

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How Scale is being Re-invented.

econ

 

One of the long-standing tenets of business are the advantages of scale.

Scale has provided companies with many benefits from higher margins due to lower costs,  to insulation from competition due to moats of marketing spending and widespread distribution.

Over the past decade however the legacy benefits of scale are diminishing and in many cases are a disadvantage:

  • Scale of Distribution: With direct to consumer marketing enabled by the Internet and platforms like Shopify, widespread retail distribution is no longer as effective an advantage.
  • Scale of Communication: New media behaviors by people particularly search and social are leading to communication channels where spending power is no longer a competitive edge as it was in television or print where marketers cornered key inventory at advantageous prices.
  • Scale of Manufacturing: The “Everything as a service” platforms from Amazon Web Services to Foxconn allow smaller companies to gain the edges of scaled manufacturing, distribution and technology without any of the legacy disadvantages of size.
  • Scale of People: From IBM to GE to Unilever to Walmart there are hundreds of thousands of employees and therefore ability to recruit and grow a range of talent and offer career advancement. Scale of people continue to be important to execute complex and large tasks but there are also new ways to re-aggregate talent. And a generation of talent wants to work in smaller and more entrepreneurial environments.

In addition to the diminishment of legacy scale which allows for new entrants, there is also a rise of new types of scale that are becoming increasingly important.

  • Scale of Data: Increasingly companies are realizing that collecting, refining and leveraging data is what is driving the modern fast growing and highly valued companies from Amazon to Google to Uber.
  • Scale of Networks: On the Internet network effects play a dominant role in creating winners. Dominant platforms such as Facebook, Netflix, we chat enjoy flywheel effects of more users attracting more users and therefore marketers and businesses.
  • Scale of Influence: Today individuals have tens of millions of Instagram followers or leverage Twitter to reach hundreds of millions of people with single posts and tweets. If you look at scaled entities on social media, they are individuals and not companies.
  • Scale of Talent and Ideas: One of the lessons of history is that every advance in technology places a premium on superior talent. Technology is a lever and great talent can have major scale effects.

A vivid example of how the new scale works is Kylie Cosmetics. Kylie cosmetics was launched just over two years ago by Kylie Jenner selling lip cosmetics. In the past 18 months Kylie Cosmetics has sold 900 million dollars of product making the 21-year-old the fast billionaire ever. Kylie cosmetics has five full time employees outsourcing manufacturing to Seed Beauty a contract manufacture and all e-commerce and fulfillment to Shopify. The single media channel besides PR that Kylie Cosmetics uses is Kylie Jenner’s Instagram account with 110 million followers (more than the ratings of the top 10 prime time television shows combined)

The New Scale took off beginning in the the year 2007 where the smart phone and social networks came to be. With mobile search, Facebook, Instagram, Twitter, You Tube, Shopify, Amazon Web Services and lots more the ground was laid for massive disruption of business in marketing today.

If we look at how Dollar Shave Club and others took on Gillette it was through a combination of You Tube advertising, Contract Manufacturing, Direct to Consumer Selling, and leveraging word of mouth on social media. Procter and Gamble’s second to none expertise in brand building, distribution at Walmart and spending scale on television did not stop double digit share declines.

The scale that many of today’s successful marketers enjoyed were the old scale which are not only diminishing but are seen as disadvantaged because not only are they not agile due to size but less authentic as a  zone of control world is being replaced by a zone of influence world, and less customized as they struggle to use modern data, communication and manufacturing techniques.

Most dangerously as they cut costs they are trying to find ways to buy cheap arrows versus talented archers. I worry about the ability of these companies to attract the best talent for themselves or from their partners when talent is rare but capital plenty.

Make no mistake that many established companies still enjoy significant strengths from strong brands, the ability to become truly omni-channel, deep financial heft and much more, but to continue to prosper we will all need to re-think and re-invent ourselves including recognizing that worshipping and ritualizing old scale might increasingly be following a false God.

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