The
Hidden Economics
of Growth
By Rafael Karamanian
Founder and Managing Partner at Lendity
For years, tech companies were judged by a handful of loud metrics: ARR, growth rate, valuation, round size. These numbers created momentum, press cycles, and big rounds. They also created a blind spot that still hurts founders today.
The blind spot is simple: growth and progress are often confused for each other. Headline metrics don't tell you whether a company is building real strength or quietly eroding it.
We spend our days looking at the financial mechanics of tech companies. Not theory, but real deals, real mistakes, real outcomes. After working through more than 150 companies, certain patterns become impossible to ignore.
Growth that Strengthens You vs Growth that Stretches You
Two businesses can grow 40% per year with identical dashboards. Underneath, they can be completely different animals.
One learns quickly. Unit economics improve quarter over quarter. Customer retention is strong. Pricing gets revisited deliberately. The go to market motion becomes repeatable, not dependent on a few star performers closing heroic deals. Each new cohort of revenue actually increases future earning power.
The other grows by pushing spend harder. New segments get chased before the core is solid. Discounts creep in to close deals. Customer expansion stays weak. Marketing scales up but nobody can clearly say which channels actually work. Revenue rises, but so does the effort and cost required to produce it. The machine only runs when someone is forcing it forward.
Both show the same growth rate. One is building compounding strength. The other is accumulating hidden fragility.
Founders usually feel this difference in their gut. That tension during leadership calls. The numbers that don't quite match the story. The constant pressure to spend "just a bit more" to hit the next milestone. The recurring questions about runway, retention, or unit economics that nobody can answer clearly or quickly.
Investors often miss it, especially when markets reward speed over substance.
- Unit economics improve quarter over quarter
- Retention is strong and explainable
- Pricing is revisited deliberately
- Go to market becomes repeatable
- Growth comes from pushing spend harder
- New segments before the core is solid
- Discounts creep in to close deals
- Effort and cost rise with revenue
The Problem With Flying Blind
Here is a pattern we see often. A company reaches 2 to 5 million in ARR. Complexity has grown faster than the ability to track it. Metrics live in multiple tabs, sheets, and inconsistent sources. Every board meeting or investor conversation requires rebuilding the numbers from scratch. The CEO spends 10 to 15 hours a month just trying to understand the state of the business, time that should go to product, customers, and growth.
And still, the picture remains incomplete. Retention patterns are unclear. Cohort behavior is a mystery. Contribution margins are estimated, not measured. Pricing logic has not been revisited since the early days. The team operates on intuition because the data infrastructure never caught up with the growth.
More than laziness, it is the natural result of building fast without a dedicated operating system. Most founders at this stage cannot justify more headcount for this, and existing accountants or consultants produce reports, not clarity. So the founder improvises an operating system, and the story and narrative stay foggy.
The cost shows up in unexpected places: worse decisions on hiring and spend, weaker positioning in fundraising, board conversations that stay reactive instead of strategic, and a constant low grade anxiety about whether the company is actually healthy or just lucky.
Why The Rate of Improvement Matters More Than Any Snapshot
Many founders track runway and MRR religiously. All important. But a snapshot tells you where you are, not where you're heading.
A company with high burn but steadily improving efficiency is building something. A company with comfortable metrics that are slowly deteriorating is coasting toward trouble.
What we have learned to pay attention to: How much revenue gets created relative to the resources consumed. Whether efficiency is improving or worsening. Whether the commercial model is stabilizing into something repeatable or still feels experimental every quarter. Whether growth comes from durable, high retention segments or from whatever came through the door. Whether the team is making capital work harder over time or just adding headcount and hoping.
Many companies grow by leaning on capital rather than strengthening their underlying economics. This creates the illusion of momentum, until financing conditions tighten. Then the gaps show up all at once. Managers work harder. Costs rise. Revenue grows but the engine is not compounding. It is just bigger. This burn profile becomes chronic if nobody stops to examine what is actually happening.
The Problem With Using Valuation as Scorecard
Valuations reflect market cycles, investor appetite, timing, competition for deals, narrative, and comparable companies that are themselves often mispriced.
What they rarely capture is pricing discipline, customer mix quality, renewal behavior, efficiency trends, sales model durability, capital allocation decisions, team maturity, operational cadence, resilience under stress.
A big round can feel like confirmation that the fundamentals are working. But a valuation is a negotiated number, shaped by supply and demand for deals at a particular moment. It can lift confidence or distort reality. It can motivate a team or mislead them. It can reward short term signaling and punish long term discipline.
We have learned to treat valuation as one input among many, and often not the most revealing one.
The Indicators That Actually Predict Outcomes
After years of underwriting, the metrics that predict long term health are rarely the ones that dominate pitch decks.
Efficiency trend matters most. Is each new franc of recurring revenue getting cheaper or more expensive to create? Directional improvement over several quarters reveals more than any single benchmark.
Quality of growth sits right behind it. Where is new revenue actually coming from? Do those customer segments renew well? Are they profitable after accounting for support and onboarding costs? A company can grow quickly into segments that quietly destroy margin.
Repeatability separates durable businesses from lucky ones. Is growth coming from a system that can be documented and handed off, or from individual heroics that do not scale? A repeatable motion is worth far more than a strong quarter that nobody knows how to reproduce.
Pricing maturity is chronically underrated. Most companies set prices once and rarely revisit them. Teams that examine pricing intentionally, testing, adjusting, packaging differently, often double their efficiency without changing headcount.
Decision making cadence reveals operating culture. Companies with clean financial reporting, consistent metrics, and regular internal reviews nearly always outperform peers at similar ARR. The discipline spills over into everything else: hiring, prioritization, resource allocation.
These are the forces that determine whether a company becomes stronger as it scales or becomes dependent on ever larger injections of outside capital.
Efficiency
Quality
Repeatability
Pricing
Decision
making
The Founder's Trap
One of the most common patterns we see: a company raises a significant round and immediately "accelerates." Hiring jumps. Spend increases. Growth picks up.
But the acceleration came from capital, not from improved capability. The underlying mechanics did not actually change.
Then conditions shift. The next round does not materialize on the same terms. The valuation becomes a weight rather than a tailwind. The team has to rebuild a leaner, more deliberate version of themselves, often under pressure they did not anticipate.
This explains much of what happened after 2022. The companies that came through strongest were not the ones that grew fastest in the boom. They were the ones that learned fastest and adapted their operating model before external pressure forced them to. They understood their own economics before investors or lenders started asking hard questions.
Why This Matters Now
The European financing environment is improving. But founders, investors, and lenders have all become more selective. Round pacing is slower. Dilution is higher for companies that lack operating clarity. And the patience for businesses that cannot explain their own mechanics has worn thin.
The companies that thrive in this cycle will be the ones that understand themselves deeply. Not just the headline numbers but the underlying economics of how growth actually happens inside their business. Where it is durable. Where it is expensive. Where it is accidental. Where it is repeatable. Where it is fragile.
That clarity becomes a real advantage. It creates a single source of truth that everyone, the founder, the board, the investors, can trust. It turns reporting from a recurring fire drill into a simple monthly rhythm. It frees founder time and mental bandwidth to focus on what actually matters: product, customers, growth.
And it compounds over time, just like the businesses that embrace it.
Build smarter. Scale faster. Give up less.
Join 400+ founders getting our monthly insights on capital and growth.
Learn more about Industry Insights
On How We Read Companies
Tag: Industry Insights
Unlocking the Trapped Value in European Tech Scaleups
Tag: Industry Insights
What is a Downround? Key Takeaways for Founders
Tag: Industry Insights