Definition: The ability to quickly grow a company without requiring a proportional additional investment in the business to support the growth.

Example: Uber and Airbnb are highly scalable businesses. Software is also highly scalable. Once software is created, millions of software licenses can be sold without requiring a large additional investment (equipment, employees, buildings, etc.) in the business. By contrast, Starbucks (the retail segment) is not a scalable model. To grow Starbucks 10 times would require a 10 time investment in hard assets, whereas to grow a software company 10 times might only require a two time investment. 

  • Scalable Company: Growing revenues from $10 million to $100 million requires a $1 million investment in additional resources (equipment, employees, etc.).
  • Non-Scalable Company: Growing revenues from $10 million to $100 million requires a $10 million investment in additional resources (equipment, employees, etc.).