Based on the information in your post, I cannot judge whether it is actually necessary to grow in order to survive in the long term. If you want, feel free to share some more details, e.g. what industry you are in.
In any case, what is clear to me is that it is very damaging that you and your co-founder don't agree on how to proceed. I'm pretty sure your employees will have noticed the tension by now, and it will certainly have a negative effect on their performance. The main goal should be to resolve the argument as quickly as possible and decide either on growth, or staying a small business.
Does your co-founder not see the same need to grow? Does he prefer to keep the company small, and if yes, what are his arguments?
In any case, what is clear to me is that it is very damaging that you and your co-founder don't agree on how to proceed. I'm pretty sure your employees will have noticed the tension by now, and it will certainly have a negative effect on their performance. The main goal should be to resolve the argument as quickly as possible and decide either on growth, or staying a small business.
Does your co-founder not see the same need to grow? Does he prefer to keep the company small, and if yes, what are his arguments?