Scalability Thinking – Mental Models

Thanks @Donald for starting this thread on understanding the mechanics of scalability. I think it is one of the underrated attribute of the business (something beyond numbers and ventures into realms of qualitative aspects). Super work @spatel and @pratyushmittal on giving some very interesting data points to ponder over and ask relevant questions. While I was looking at the list, few aspects caught my eyes

• There are set of companies that has extraordinary execution capabilities and even though the businesses are highly competitive, what sets them apart is their execution prowess…in thick and thin they execute. Some names that I know of that fall in this category are PI, Deepak, Polycab, APL Apollo, Astral, Bajaj Finance, Aarti, Gujarat Ambuja. Almost every company in above names operates in highly competitive space with many players vying for the pie…but due to extraordinary execution skills they continue to grow. As a result many such names have consistently gained market share.

• Another interesting data point that comes out of this list is that duopoly/oligopoly/moats are overrated. In fact, many of the businesses that belong here because they were able to break free from the traditional “entry barriers” of the incumbents. Think of Eicher or Polycab or Astral…all these industries had players of scale who had advantage of brand or distribution network ( Bajaj, Hero, Finolex, Supreme) and yet they either introduced new segment/category and or deployed strategies where they beat the incumbents on their on own game to continue to grow. All these names and others continued to gain market share from incumbant…and hence I feel “ability to gain market share from existing players or ability to create new markets” is one of the factors that lead to scalability.

• Another point to ponder over while we do exercise is why certain companies take pause/ stop to scale beyond a point? Why do companies stagnate despite large opportunity size still available? Is it just scale/market share limitation or inability to move to adjacencies for continued scale up? For example- Astral once scaled up it’s pipe business – acquired Resinova and continue to scale up that beautifully even before pipe segment slows down it’s scale up. Polycab probably is doing the same as it exploits cable segment growth, is creating new lever in terms of FMEG. Titan has done that in past and by going into eyewear and Saree is trying to do the same hence forth. Companies that take long pause (some which do not belong to this list but we have tracked and studied), Mayur or Kaveri or Ajanta or Eicher fail to do so?