In this Ask Evan episode, Evan Carmichael answers a Twitter follower’s question about the meaning of scalability in business, especially for a food‑industry entrepreneur selling slow‑cooked barbecue meats. He defines scalability as the ability of a business to increase revenue faster than its costs, creating more profit as it grows. The core distinction is between fixed costs (one‑time or recurring expenses that do not change with each unit sold) and variable costs (expenses that rise with each additional product or service). Evan illustrates the concept with several examples: a bronze statue (high variable cost, low scalability), his own software company (high fixed cost, negligible variable cost, highly scalable and attractive to investors), a dance studio (large fixed rent, low variable costs, also highly scalable), and the barbecue meat business (significant variable cost per unit, making it less scalable). He notes that while low‑scalability businesses can still be successful, they may face challenges attracting investment. He invites viewers to comment on their own business scalability and suggests possible ways to add value or improve scalability.
Chapters
What does scalability mean? I'm going to answer that question in today's episode of Ask Evan. So I recently got asked a question from one of my Twitter followers. Love you guys. @xgirlcandice wrote in to say, Evan Carmichael, can you make a vid on scalability? What it means and examples? I'm in the food industry and I sell slow-cooked barbecue meats. So let me answer this question in as non-a-boring way as possible. We'll get into some accounting terms. Scalability relates to how fast a business can grow and how much earning potential it has. And so if you look at how a typical business will grow, your revenues will go up and your costs will go up, right? This is revenue, these are your costs. A business that scales well, that has high scalability, will have revenues that go up and the costs don't go up too much. And so this extra room, that's profit. Where if your revenues are going up and your costs go up too, then your profit isn't as big and therefore you're not as scalable. What this really comes down to is the difference between fixed costs and variable costs. Fixed costs are one-time costs that you have for your business, where variable costs are ongoing costs with every product or service that you sell. So let me give you an example. If I come over here, I have this statue, right? This statue, the fixed cost would be the, the, the factory that it was made in, the machines that were used to create it, where the variable cost would be the bronze in actually creating this. And so this is not a highly scalable business because every time that I need to ship out one of these products, I have to buy the bronze, right? So my costs go up as my revenue goes up as well. And I'll give you two examples from my own background of businesses that are highly scalable. My first company was a software business. With software, there's a lot of investment at the start in development, right? You have to hire programmers, or you have to spend your time being the programmer and putting it in. But once you create a product, all of those hours, all of that time and the money invested into creating the software, whether you sell 1 copy of it or 1 million copies of it, it doesn't matter. It's the same software. It doesn't cost me more to sell 1 million than it does 1. For every piece of software that gets sold or downloaded, I don't have any extra expenses. So that's a highly, highly scalable business. And that's why so much investment dollars, venture capitalists, angels pour money into software because it's highly scalable. You can make a lot of money with it. The other business is a dancing school that I'm involved in, and our fixed costs are our studio. We have a main studio here in Toronto and city, and that studio is in a mall and it costs over $100,000 a year in rent. So every year over $100,000 has to be given out in rent to the management company. And whether we have one student who comes out to class or 10,000 students that come out to the class, that's the capacity of the studio. Doesn't matter. We're still paying $100,000. So that's the biggest fixed cost. There's very little variable costs as we grow. There's some in terms of having instructors, but the biggest cost is that studio space. And so that becomes a highly scalable business as well. So if your costs go up dramatically as your revenues go up, then it's not so scalable and it's harder to attract investment. So if you look at your business, barbecue meats, which I'm a fan of and want to try some and maybe make a video review on some barbecue meats, ex-girl Candice, that's what's up. It's not a highly scalable business because every time you sell your meats, you have to pay for that meat, right? Whether you have a physical product, it's a lot harder to scale it up because there's costs every time you sell a product. Now, there may be ways to do it. There may be value-added services that you can add on top of it. There may be other ways that you can market it, and it's not necessarily a bad thing, right? You could still grow a highly successful business that makes you a lot of money that isn't necessarily super scalable, but you can still have a ton of success with. Hopefully that helps answer the question about what scalability means. If you need me to elaborate further or give more examples, leave it in the comments below and I'll see what I can do. Thank you guys so much for watching. My question of the day for you is, is your business scalable? I'm curious. Let me know. I'll see you guys soon. Believe. Thank you for watching. I'm getting hungry actually. I want some slow-cooked barbecue meats.
