When you hear the term “organic growth,” your mind may turn to a type of growth achieved without external help – for example, growing plants without synthetic fertilizers or rearing animals without the use of veterinary drugs.
This imagery correctly depicts what organic growth in a company or organization is.
Organic growth is when a company decides to expand its business operation on its resources.
That is, the organization enlarges and achieves growth only as a result of maximizing its strengths, available skills, and resources.
Like a plant grown without fertilizers, a company that achieves organic growth does so without receiving external help. Rather, it solely depends on the value it offers customers, available resources, and abilities to expand its operations.
As a success-oriented business owner, chances are you are seeking the right growth strategy to increase your market share and launch your organization to the next level.
In fact, you may have heard about organic growth and are wondering if it is the right strategy for your business. Or maybe you are simply looking to know more about it.
Either way, you will find this post useful.
Here, we discuss organic growth, its pros, and cons, as well as what factors to consider to determine if organic growth is what your business needs.
What drives organic growth?
We can understand organic growth by comparing it to organic agriculture. It is a type of growth that happens naturally. The focus is on managing the ecosystem instead of relying on external inputs.
A company can grow and get bigger by deploying strategies like:
- Improving its products/services
- Stepping up its marketing game
- Investing in manpower to increase its production rate and sales volume
- Investing in the latest technology to ease and speed up the production process, etc.
This is organic growth.
On the flip side, a company can also expand and grow with external help, resources and abilities. This may come in the form of loans, mergers, acquisitions, or joint ventures. This is inorganic growth.
Pros and cons of organic growth
Organic growth differs from inorganic growth in several aspects.
For one, organic growth allows a company to maintain autonomy over its activities and grow steadily from the value it offers customers.
A company that decides to expand its business operations organically can control how much and in what direction it grows.
As it does not merge or sell out to another organization, take loans or lend out, such a company maintains control over its activities. Hence, it is not bound to acquiesce to the demands and desires of external stakeholders or investors.
On the flip side, by choosing to grow organically, the organization cannot attain speedy growth or rise to become a market leader in the twinkling of an eye.
Instead, it has to work hard to cultivate its market, attract and retain customers while relying on its limited strengths, tools, and marketing strategies.
As such, it can be easily overtaken and surpassed by a competitor employing inorganic growth.
A good example of a company that grew organically is Apple.
The company’s ability to come up with trend-setting innovative products (like Macintosh, iPad, iPhone, etc.) that redefined the PC market and revolutionized society’s perception of smartphones is one of the reasons the company has grown to be one of the most valuable tech companies globally.
Pros and cons of inorganic growth
Inorganic growth launches a company into a larger market fast.
By taking loans, selling shares, raising venture capital, or combining resources with another organization, a company can acquire more employees, better expertise, more assets, and new product lines, in the twinkling of an eye.
Such an organization gains access to new markets and clients, and can rise above the competition rapidly.
However, the company may lose its autonomy, becoming subject to the whims and caprices of external stakeholders. In fact, upon an acquisition or merger, the company may completely change its direction and purpose.
A good example of a company that grew inorganically is Microsoft.
The tech giant has spent billions of dollars on more than 200 acquisitions and investments. Some of the most popular ones include Hotmail, Skype, LinkedIn, GitHub and Activision Blizzard which was acquired in a $68.7B deal that was announced in January 2022.
Is organic growth right for you?
To accurately determine whether organic growth is the best strategy for your company, you need to consider the following factors in the unique context of your business.
1. Available resources
Does your business have the resources to successfully implement an organic growth plan and achieve the desired growth rate?
Do you have enough hands to handle an increase in production volume or the expertise to improve your products optimally?
By honestly answering these questions, you can determine if organic growth is the right strategy to achieve company growth.
Using the example of Apple, the tech giant has been able to successfully grow organically because it has the needed resources and expertise to develop unique trendsetting gadgets and devices.
2. Growth speed
Organic growth is slow and requires a patient commitment to the process. [Tweet that]
So, if you desire rapid growth and want to become a market leader in a short while, you may want to consider implementing an inorganic growth strategy instead.
3. Business ownership
Another factor you need to consider is ownership.
If you desire to retain ownership of your company even as its operations expand, growing your company inorganically may not be an option.
As inorganic growth deals with relying on external parties, there is a probability that you may lose the ownership of your company to another.
However, by growing your company organically, you can maintain control and ownership of your business while ensuring your company stays true to its original purpose.
4. Risk tolerance
Inorganic growth comes with a lot of risks.
Whether you are lending, borrowing, merging, or acquiring another company, you could be endangering your business.
For instance, you may merge with a company that has huge debt. You may also acquire a company that is already bankrupt, or one that has problematic employees.
Worse, you may invest in mergers and acquisitions because you believe the other company’s products/services are in high demand, only to realize that the market has changed, leaving you with a huge loss.
So which is better for you?
It depends on your business and its purpose.
Organic growth can be right for you if you are reluctant to relinquish control over your business. It may also be right for you if you have the needed resources to achieve the desired growth.
Either way, it is important that the growth strategy you choose is in line with your company’s values and matches its strengths while minimizing its weaknesses and flaws.