When a business is small, it is possible to overlook a lack of profits based on the belief that you will believe to raise prices later once the product becomes entrenched or the business is able to lower its input costs as the volume sizes give way to the traditional economies of scale advantages.
What has caught my attention when I analyze Tesla and Amazon is that both businesses have become quite large on the revenue front without earning consistent profits that are expected based on the size of the revenue base. Specifically, Tesla is set for losses of around $500 million in 2016 compared to revenues of $7 billion, and Amazon is earning $2.5 billion in profits compared to $134 billion in revenues.
This means that economies of scale (lower input costs) are not contemplated as part of the business model. For Tesla and Amazon to earn profits consistent … Read the rest of this article!