Experience curve and economies of scale: growth arguments that convince investors
Experience curve and economies of scale: growth arguments that convince investors
There are two magical concepts that VCs and family offices love: experience curve and economies of scale. Understanding how these work will help you build much more compelling pitch decks.
- How to understand experience curve and economies of scale: growth arguments that convince investors and use it for yo...
- How to understand the bcg experience curve: the basis and use it for your capital strategy
- How to understand practical example: saas and use it for your capital strategy
- How to understand economies of scale: the broader concept and use it for your capital strategy
The BCG experience curve: The basis
The Experience Curve was invented by BCG in the 1960s. The concept: Every time your cumulative production doubles, the (real) costs fall by 20-30%.
Why? Four mechanisms:
- Learning:Your teams become more efficient
- Standardisierung:Processes are reproduced, not re-invented
- Automation:Manual steps are automated
- Supply Chain:You have better leverage with suppliers
The formula: Cost = Initial Cost × (Cumulative Volume)-b
Where b is typically 0.2-0.3 (20-30% cost reduction per doubling).
Practical example: SaaS
Imagine your SaaS initially had a customer acquisition cost (CAC) of €1,000. After 1,000 customers (first doubling) you can acquire with €800 CAC. After 10,000 customers: €400 CAC. After 100,000: €100 CAC.
This is Scale Effect in action. Investors love this because it means that the more we grow, the more profitable we becomewithout new innovation– only through Scale.
Economies of Scale: The Broader Concept
Economies of scale are broader than the experience curve. They can be:
- Produktions-Skaleneffekte:Larger factories are cheaper per unit
- Marketing-Skaleneffekte:Bigger ad spend has better ROI
- Netzwerk-Effekte:Every new user makes the product valuable for everyone else
- Daten-Skaleneffekte:More data → better ML model → better product
In a good pitch deck you show how your unit economics can be improved with Scale:
€10K CAC → €5K → €2K
This is extremely attractive for investors because it means: Your financing efficiency increases with every euro you invest.
When you apply this knowledge, you gain a concrete advantage over competitors who enter investor conversations without this foundation. Use the insights from this article as the basis for your next step.
Winner-takes-all dynamics
In certain markets, economies of scale lead to extreme concentration: the largest player becomes 10x more profitable than #2, which in turn becomes 10x better than #3.
Examples: Uber in ridesharing, Amazon in e-commerce, Google in search.
If you can convincingly argue that your market is a winner-takes-most market - AND that you can be the winner - you will get much more valuation.
Klassische Quellen
- BCG (1970s):Perspectives on Experience
- Henderson, Bruce (1968):The Experience Curve – Reviewed. Perspectives on Strategy.
Read alsoExperience curveandBalanced Scorecardfor more in-depth details about unit economics.
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What you now know — and how to use it
- You know the core concepts and can apply them directly to your situation
- You know which mistakes to avoid — saving you time and capital
- You understand how this building block fits into your overall strategy
Sources & Further Reading
This article is based on a review of leading expert literature and curated primary sources from the CANVENA source matrix — more than 60 core books and 120 online resources across all relevant fields from capital intelligence, family office, strategy and valuation.
Books
- Competitive Strategy — , Free Press.
- Competitive Advantage — , Free Press.
- Good to Great — , HarperBusiness.
- Blue Ocean Strategy — , Harvard Business Review Press.
Online Resources & Industry Reports
- HBR Strategy — Harvard Business Review
- Strategy & Corporate Finance — McKinsey & Company
- Henderson Institute Insights — BCG Henderson Institute
Links are recommendations, not affiliated.
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