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The Scaling Problem

I know it might seem anti-everything-business, but there’s huge a problem that scaling causes for most businesses: margin.

In a simple, small business, your margins are easy to control and typically quite high.

Let’s look at the opposite example.

Amazon and Walmart have both achieved scale, but don’t make much profit. Their respective net profit margins in recent years have been 1.7% and 2% respectively.

That’s a whole lot of leverage.

The same is true in your consulting business. If you attempt to increase profits through scaling your service, you’ll add fix costs that mean you’ll have to increase your gross receipts at a faster rate than your additional costs.

Scaling adds complication, and management challenges, and tremendous overhead. It can be totally worth it, but it’s not a singular answer to the question of how to make more money.

It’s simply one of many answers that comes with a new set of problems that you should prefer to the alternatives.