While looking for a good definition of a scalable business I came across two great articles.
First, from Sacred Cow Dung, a wonderful explanation with killer graphs.
Then, from Briefing.com, a great explanation. No graphs, but a brilliant quote:
“Many Internet business models didn’t pass basic tests of credibility. For example, sites with pure advertising models are usually unable to answer the most basic question about growth: how big can you get? The reason is that growth is entirely dependent upon increased page views, either by more users, or more pages, offset by declining ad rates.
Both have upper limits and most companies with advertising models have fixed costs exceeding current revenues. When you try to compute how many page views a pure advertising model needs to generate just to cover fixed costs, it is usually baffling.“
That’s my emphasis added, but the article makes a great point. The only way to scale an advertising based model is to increase the number of page views. This naturally has an upper limit, and that upper limit is probably much more shocking than you realize. I think we delude ourselves when we hear about someone making ‘millions’ off a blog, and think that’s really a business model. It’s a hobby, possibly a lucrative one, but a business? Probably not.