spectrum of scalability — Tarik Yildirim

There are only two types of businesses that really matter, namely those that scale perfectly (totally inhuman) and those that do not scale at all (totally human).

For instance, both content production and information-heavy technology businesses scale perfectly. (It is costless to reproduce films and software.) Spotting and nurturing promising artists and technology entrepreneurs on the other hand do not scale at all.

Greatest returns in business come from highly scalable (and defensible) businesses, but the most vital ingredient in building such businesses is talent. In this sense, talent management is only one-step away from scalability, and that is exactly why its return profile is extremely nonlinear, mimicking that of scalable businesses.

Media and technology worlds are structurally quite similar in the sense pointed above. But then how could media companies have been so slow and inept at crafting a legitimate response to the tech companies creeping into their domain?

Answer is very simple. Although media content scales perfectly as software does, it does not evolve after it is born. For instance, once a film is produced, it is done. Software on the other hand is born immature and goes through an evolutionary design process which slowly settles into an equilibrium. Media companies do not know how to guide this evolution. That is why they are prudently waiting for the equilibrium to emerge before making a move. (Think of Disney’s late response to Netflix.)

Investing only in totally scalable and totally unscalable businesses is an example of the barbell strategy popularized by Nassim Nicholas Taleb.

Universities are embodiments of this strategy. They pool their resources into two buckets: facilitating research and teaching students. Research is a form of content production and teaching is a form of talent nurturing. (They are nurturing future researchers.)