It's really easy to scale up to large losses: hire more people. Which is what Square's been doing in spades. Amazon did this as well, they went public in 1997 on huge losses and didn't break even until 2003, and even now the company is basically run at break-even with all revenues reinvested into the company.
The reason this works is because once you have that repeatable and scalable business model, you can be fairly sure that hiring a person (plus all the other operational costs) at $X will bring in >$X in new business. So you spend money for growth; the expenses are booked this year, the revenue doesn't happen until next year when contracts are inked, product improvements are launched, more people hear about Square, etc. The number to pay attention to is gross margins (the amount of money they make off each transaction); the 2nd article I linked lists that at 34%, which is comparable to Amazon's 30% and Apple's 39%. As long as that is positive and high enough to cover fixed operational costs, Square can instantly get to profitability by laying off people (or, with current revenue growth, simply by slowing down hiring).
The risk with this strategy is that the market turns out to be smaller than expected, and your product appeals only to a small number of early adopters. Growth then slows down markedly right as expenses ramp up, and there's no way to jump-start growth again. I think this is what's happened with Quora. Square seems different, though: the customers I've talked to are decidedly non-technical, and yet they love the product.
The reason this works is because once you have that repeatable and scalable business model, you can be fairly sure that hiring a person (plus all the other operational costs) at $X will bring in >$X in new business. So you spend money for growth; the expenses are booked this year, the revenue doesn't happen until next year when contracts are inked, product improvements are launched, more people hear about Square, etc. The number to pay attention to is gross margins (the amount of money they make off each transaction); the 2nd article I linked lists that at 34%, which is comparable to Amazon's 30% and Apple's 39%. As long as that is positive and high enough to cover fixed operational costs, Square can instantly get to profitability by laying off people (or, with current revenue growth, simply by slowing down hiring).
The risk with this strategy is that the market turns out to be smaller than expected, and your product appeals only to a small number of early adopters. Growth then slows down markedly right as expenses ramp up, and there's no way to jump-start growth again. I think this is what's happened with Quora. Square seems different, though: the customers I've talked to are decidedly non-technical, and yet they love the product.