For their startup to increase revenue to 100x or make $7M in revenue, their efforts/time put in/costs would need to be 50x-100x higher. For it to be a startup, at this scale their efforts should only be 2x-3x higher.
In other words, if they can't get to $10M in rev with 20 people or less, it's just not scalable and right now it looks like they need several hundred tutors, program coordinators etc. to do so.
Does a startup need to be scalable on day one? Would you consider Nintendo a scalable company? They started selling cards in the beginning - which isn't very "scalable" in your mind. Would you consider Samsung a scalable high-tech company? They started as a trading company and diversified into textiles, insurance, securities and retail before also adding electronics.
Or to use a more relevant example 37signals, their humble beginnings was a design studio which then had a string of unsuccessful products such as the usability report before finally hitting it big with BaseCamp.
Lots of retail based businesses are highly scalable through a franchise model. If they can nail down the playbook - they can license that and repeat with new locations.