Why Does a Company Need to Grow?

Central theses of this article:

• Investors favor growth companies because scale creates advantages
• This creates pressure to scale the business
• In information heavy businesses, this creates the need to invest in tools to process information

Growth is the lifeblood of business—the benchmark by which companies are evaluated, not only by investors but also by employees, suppliers, and customers. It signals competitive strength, leadership quality, and long-term viability. While growth is often assumed to be a natural objective, its significance extends beyond mere expectation. Businesses pursue growth to secure competitive advantages, adapt to shifting market conditions, and ensure long-term survival. This imperative is especially pronounced in today’s knowledge-driven economy, where technological advancements continually reshape how businesses create value. Over the past century, the nature of work has evolved—from agrarian and manufacturing economies to service and knowledge-based industries—each transition driven by technological innovation. Today, knowledge work and data-driven decision-making form the foundation of modern economies, necessitating investments in technology that enhance efficiency, coordination, and scalability.

For investors, growth represents future potential—driving valuations, fostering confidence, and unlocking new opportunities. Fast-growing companies attract top talent, build stronger supplier relationships, and earn customer trust by demonstrating innovation and adaptability. At its core, prioritizing growth aligns with a fundamental business truth: expansion fuels efficiency, economies of scale, and sustained profitability. This dynamic reflects the "Red Queen" effect, where companies must continuously innovate and evolve just to maintain their position in a competitive landscape.

Economies of Scale

Economies of scale are a cornerstone of corporate growth, offering powerful advantages that enable large companies to operate more efficiently and competitively. By spreading fixed costs over greater production volumes, companies achieve lower unit costs, unlocking significant cost savings. Bulk purchasing further enhances efficiency, as larger operations can negotiate better deals on raw materials and other inputs. Additionally, streamlined processes and investments in automation amplify operational productivity, allowing firms to optimize resource utilization and drive down expenses. So let's look at some specific ways a company can leverage scale.

Specific Examples of Advantages at Scale

Economies of scale provide companies with significant cost advantages that translate into broader strategic benefits. Reduced production costs enable firms to price their products more competitively, allowing them to capture greater market share while preserving healthy profit margins. Key advantages of scaling include:

• Enhanced Profitability and Innovation – Cost savings can be reinvested into research and development or expansion into new markets, driving continuous innovation.
• Stronger Financial Position – Larger firms benefit from improved financing terms and heightened investor confidence, further strengthening their market standing.
• Lower Customer Acquisition Costs (CAC) – As companies scale, they refine marketing strategies and leverage brand recognition, reducing the cost of acquiring new customers.
• Increased Customer Lifetime Value (LTV) – Established brands foster trust and loyalty, leading to higher retention rates and greater long-term revenue per customer.

The interplay of cost efficiency, market leverage, and innovation creates a reinforcing cycle that strengthens a company’s competitive edge. Established firms further benefit from brand recognition, which builds trust and loyalty, fueling sustained growth.

Achieving scale is not merely about increasing size—it is about leveraging operational efficiencies to reinforce market position, enhance resilience, and sustain long-term success. Companies that effectively scale can continuously reinvest in their growth strategies, securing a lasting competitive advantage.

"Growth is Good", but Not Always Easy

Achieving scale is not an endpoint but a foundation for continued evolution. Businesses must adapt and expand to maintain their competitive edge—similar to the "Red Queen" effect in evolutionary biology, where constant effort is required just to sustain position. While Gordon Gekko famously claimed that "greed is good," I instead assert that "growth is good." Growth fuels efficiency, drives GDP expansion, and, when pursued under the right conditions, leads to positive emergent effects within companies and economies. However, sustainable growth requires more than just expansion—it demands strategic investment in infrastructure, processes, and technology.

For companies to scale effectively, they must coordinate larger teams, streamline workflows, and optimize information processing. Investors prioritize growth-oriented businesses because scale creates operational and financial advantages, increasing the pressure to expand. In information-driven industries such as insurance, scaling introduces the need for technology that minimizes information processing friction in data management and decision-making.

However, technology’s impact varies across industries, making it essential to align investment strategies with both the company’s stage of growth and the specific demands of its industry segment.

Framing the Technology Investment Path

In knowledge-driven industries such as insurance, growth places increasing demands on data management and decision-making systems, making investment in the right technology essential. Investors are naturally drawn to high-growth businesses, as scaling creates operational efficiencies and financial advantages. However, not all technology investments are equally effective at different stages of growth.

As companies expand, their technology needs evolve, requiring a strategic approach to ensure continued efficiency and competitiveness. In the next article, we will explore the challenges of scaling a company and how these challenges influence the selection and implementation of technology solutions.