Organic growth is best for your vegetable patch, but not always your business. Almost every business owner wants to grow their company. With each strategy for expansion having different pros and cons though, it can be difficult to know the best way to approach it. You’ll need to decide whether to take an organic or inorganic route to growing your business. Consensus tends to suggest that while organic growth is safe but slow, inorganic growth is quick but risky, but is that necessarily the case?
Organic growth requires little else than you and your business but can still be very effective. The only problem with it, however, is that it can indeed be quite slow to take effect. If you’re short on funds for expansion, and you’re happy to wait, then could it be the best option for you?
What constitutes organic growth?
Organic growth pretty much encompasses anything that you can change about your business to make it more profitable. This might include an investment in some new machinery, or just simplifying your processes to save money.
One of the most obvious ways to grow your business organically is to increase your target market. You can do this by extending your service area or providing extra product lines. Think about how many fashion brands eventually try their hand at toiletries, watches, and other markets they previously had no stake in.
The word ‘eventually’ should also give you some idea of how high on these fashion companies’ lists of priorities such ventures lie. It’s almost always the already-well-established brands that look to move into additional markets. This is because they’ve often already exhausted most other growth strategies before arriving at this point.
An organic risk
This doesn’t necessarily mean that such efforts are a bad idea. Many have enjoyed some success with this method, and diversification is always encouraged to reduce overexposure. That said, a new product line can sometimes be a gamble. For every fashion company that does well with them, there’s another with bargain bins full of branded toiletry sets and watches.
As you might imagine, warehouses full of unmoveable toiletry sets and cheaply made watches can severely cost a business. The image of organic growth being low risk then, isn’t entirely true.
For example, new software or machinery bought to streamline processes may not produce the results required to offset the cost of your purchases or the disruption it causes. Likewise, even a cost-free change such as increasing prices isn’t without risk. Hike your prices too far and your customers will simply go elsewhere. Worse still, there’s little precedent for businesses returning their prices to lower levels, so they’re unlikely to check back.
So, is pursuing inorganic growth any safer?
In a word, no. But it does seem unfair to be overlooked in favour of ‘safer’ strategies that still carry plenty of risk. In general, inorganic growth often involves the merger or acquisition of another company, and this can understandably give many pause for thought.
If you take a moment to consider the true risk though, it can actually make sound business sense even to the most risk-averse director.
Unlike organic growth strategies such as increasing prices, introducing new lines, or even targeting a new geographical area, you can get an accurate idea of how well a business purchase will pan out. An existing company can give you all of the data and reports you need to see that it already works as a viable business.
Chris Leadley, senior consultant and marketing manager at acquisition specialists, Forbes Burton, suggests that “all businesses should be looking at certain organic growth strategies like streamlining their processes as part of their regular efforts to improve anyway. For quick and substantial growth though, nothing comes close to purchasing another profitable business.
“Done well, a successful acquisition not only expands your business, but also wipes out a competitor in one fell swoop. If an independent rival is doing well in a particular area , it’s always worth checking to see if it’s possible to purchase their company, rather than battling for the same client base with a new store”.
Which way to go?
Of course, acquisitions can require a sizeable amount of capital, but some sellers offer sales structures that allow you to stagger your payments, or even variable amounts depending on how well the purchased business performs.
Rather than organic growth strategies offering a slow and safe option compared to its inorganic alternatives then, it can sometimes be both slower and riskier than a business acquisition. Both types of growth strategy have their place in business expansion, but cautious directors shouldn’t be so quick to rule out an inorganic approach.
