Interesting comment on this week’s Dragons’ Den from Peter Jones (a similar comment has been made a few times before on the programme). Whilst discussing a small business that someone was proposing to scale up, he said something along the lines of “this works all very well whilst you are doing it, but it won’t scale as you get more customers”. This seems to be the very opposite of the notion of economies of scale that we are always hearing about: surely if you have more customers then you can scale up the business and benefit from economies of scale.
I think the answer in this case is fairly self-explanatory. The person in question ran a business that required a large number of small physical operations, and was in effect hiding from herself some of the “real” costs of doing the business, e.g. by putting in many hours for no pay, running the business from her house and therefore subsidising the space cost, which would not be scalable. But nonetheless it provides a good example of why we should ask the question raised recently by John Seddon—”why do we believe in economies of scale?”.