Scalability

At the age of 22, Nassim Nicholas Taleb received an advice he deems important but avoids giving to anyone else because of the risk assigned to it. A second year Wharton student told him to get a profession that is “scalable”, that is, one in which you are not paid by the hour and thus subject to the limitations of the amount of your labor. Most of us choose profession that are not scalable. These professions produce income that are limited by hours and the labor we put. A baker needs to bake every single piece of bread in order to satisfy each additional customer while a writer expends the same effort to attract one single reader as she would to capture several hundred million. But “scalable” professions come with uncertainty that “not scalable” professions don’t. Only few in scalable professions do well and most of them face the wrath of inequalities in such professions. Some get all the spotlight while most remain under the shadows. It has "winner take it all" risk.

I went back to the chapter regarding this topic from the book “Black Swan”. I have been thinking of “scalability” as a parameter in choosing businesses I want to invest in. Some businesses are more scalable than others because of the industry they belong to. Some businesses are limited by their existing production capacity and the capital they can deploy while some businesses have more scalability depending on the number of customers they can serve in a given period of time and marginal cost of acquiring those customers. There are businesses that have close to zero marginal cost of acquiring a customer. These businesses are more scalable than others.

Some economies also focus on scalable part of the products (production concepts and ideas) while outsourcing non scalable jobs to other economies which are happy to be paid by the hour (e.g. assembling).

I ask myself if I want to do something that is scalable. If I am ready to take the risk. I am still in the process of figuring this out. Should I choose what Nassim Nicholam Taleb chose or should I choose what he advises.

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