Organic growth vs. inorganic growth: which approach Is right for you?
For many business owners, growing a company is one of the most important stages of your professional life. Ensuring that the business under your responsibility achieves its potential is a delicate process – and there’s more than one way to go about it.
Should you buy a company that’s already established or focus on improving your own? Here, we take a look at the benefits and drawbacks of each approach.
The process of growing a business organically involves improving and increasing its performance from the inside. This could involve increasing your output, expanding your customer base, developing new products or services – or a combination of all of these factors.
Typically, organic growth generates more value. The share price performance of firms that have achieved their growth organically is generally higher than those with a greater number of acquisitions.
An organic approach to growth can also help to circumvent the difficulties that can arise from integration during mergers and acquisitions. Not all companies will have the same potential for synergy and efficient integration, and this can often result in unforeseen complications.
Organic growth is also generally the less expensive option and allows you to grow at a comfortable rate that better suits your existing business model and structure.
However, growing organically is usually the slower of the two options. If you are operating in a particularly competitive industry, it can end up costing more in time and resources than you initially expected. This option also requires your current employees to have the knowledge and skill set necessary to grow the business, or it will be necessary to make new hires.
Unlike the previous avenue for growing your business, inorganic growth is the kind that is primarily achieved through mergers and acquisitions.
There are a number of distinct benefits to this approach, including an accelerated growth process and a significant potential for expanding your company’s assets, income, and market presence. It can also be an ideal opportunity to bring in new skills and expert knowledge that is lacking in your current workforce. Companies such as WPP have previously specialised in following this route
However, inorganic growth can result in a certain amount of friction and integration problems. You are likely to have significantly more personnel and assets following the acquisition or merger, potentially requiring you to drastically restructure your company management.
It is also possible that the new business will begin to overshadow your own identity and strategy and lead you into areas of the market you had no previous intention of entering. Inorganic growth is also considerably more expensive than its organic counterpart and therefore requires accurate calculations and forecasting to ensure that you can afford the move.
Both organic and inorganic approaches to growth have their advantages and drawbacks, and the most beneficial one for your business will depend upon your circumstances. If your plans for the future involve preparing your business for a sale, then you can receive a free business valuation, as well as a Guide to Selling Your SME from the financial services platform Pomanda. Preparing yourself with accurate, up to date information is the surest way to arrive at the decisions that are best for the future of your company.
Once you’ve digested whether you should grow organically or buy your way to success – take a look at our Learning Centre for further guides on how to maximise the value of your business.