The goal for many businesses is to grow. Growth primarily happens in one of two ways: through specific, planned tactics that seek to force expansion or gradually over time, as you attract more customers. These are known as inorganic and organic growth.
We’ve previously explored inorganic growth, which uses measures like mergers, acquisitions or the opening of new locations to fuel growth to accelerate growth. However, with the organic approach, growth happens from within your business with a focus on internal excellency.
There are many benefits to organic growth, making it a desirable strategy for businesses seeking to fulfil their expansion goals. Below, we explore the ins and outs of organic growth, including how it can help businesses.
What is organic growth?
Organic growth refers to growth that happens naturally, usually due to growing sales and revenue through your internal resources. Any measures taken to facilitate this growth will occur internally, such as improving quality, utilising marketing, increasing your sales efforts or providing outstanding customer service. It may also include scaling up your operations to meet demand. With increased efficiency, you will fuel your revenue, sales and profit.
This growth tends to happen slower than inorganic growth as you attract more customers, build awareness and gain a favourable brand reputation.
It’s also important to emphasise that organic growth only happens internally, without intervention or support from external sources. This includes investors, funders, lending and any other tactics that impact you from outside your business.
The advantages of organic growth
There are many benefits to organic growth.
Firstly, the fact that this growth happens gradually means no dramatic moves that risk disrupting your operations, such as merging with another company. It also means you adapt in a more cautious manner, taking the following steps once you have the rising sales and profit to warrant it, which will reduce the strain on your cash flow.
Secondly, as organic growth focuses on the business internally, a lower level of investment is required, compared to inorganic growth, which might include acquiring another business. Instead, the emphasis is on making existing systems and processes more efficient, which should lower your costs, whilst also making your customer acquisition process smoother.
Organic growth also encapsulates new product or service development, with the business relying on its own resources.
Organic growth may also improve the chances of long-term success as it means you can only expand when the time is right – with the appropriate demand. Because the aim is strengthening your internal processes to serve customers better and drive profit growth, it means you should have the right foundations to excel continually, even as you scale up as a company.
Finally, growing organically will enable you to avoid any dilution of your share value as all funding is from your own resources although it may involve the reallocation of resources.
Considerations to make
While there are advantages to organic growth that make it an appealing approach, you also need to be conscious of any restrictions it may place on your growth in isolation.
Mainly, organic growth requires the right tactics to make it happen, including marketing, sales and customer service. You need to be prepared to take the time to identify the best strategy for your business and commit to it. This will require experimentation over time, as well as a solid understanding of your market and customers.
You need to be on a firm foundation to achieve effective organic growth. This means optimising processes and addressing any issues in your business, which takes time. It relies on your customer service team and marketing activities, as people recommend you to others and your visibility increases. Again, this requires time and patience.
While organic growth is an excellent indicator of success, especially as your sales and revenue increase, it can only get you so far. You will get to a point where you can no longer move forward without undertaking an element of inorganic growth – such as acquiring a new company or opening a location elsewhere.
Due to this, it’s best to undertake a combined organic and inorganic growth approach that will enable you to scale up while growing demand and profit. This will allow you to ensure your business operates at an optimum level while having access to external support that helps you achieve higher goals.
Conclusion
Most businesses seek to grow, it is essential to pinpoint a strategy that works for your business and enables you to fulfil your ambitions. Understanding the difference between organic and inorganic growth can help you determine how each approach will play into your strategy.
Regardless of your approach, having a foundation built on strong organic growth is hugely beneficial for your organisation as it enables you to increase your sales and customer base, thereby driving profit and revenue. With this, you will have the tools you need to take the next step for your business.
If you are looking to achieve growth for your business, in any form, we can help you plan a financially sensible strategy and put you in touch with funding sources who will push you towards your goals.