Organic business growth: Growing new business ventures
This month in the U.K. it’s “Organic September,” a celebration of all things wholesome and organic. Since the turn of the century, there’s been an ever-growing interest in “organic” stuff. Whether it’s organic food, organic farming, or organic medicine, it seems that people like things better when it’s associated with natural means and processes. The term “organic business growth” (or simply “organic growth”) is also commonly used in business. And, much like anything else with this adjective, the implication is that organic business growth is a good thing.
So, what’s all the fuss about organic business growth? What makes it so special? What does the term even mean, anyway? And how does it compare with its presumed opposite: inorganic business growth?
What is organic business growth?
In its purest and simplest terms, organic business growth is growth that comes as a result of a company’s business as it already exists. Achieving organic business growth means that the company has managed to successfully increase its output and sales using the resources and strategies it already has available. In other words, the company is doing very well at what it does.
When a company chooses to prioritize organic business growth, they’re trying to enhance and maximize growth from withinꟷrather than employing external means. This is seen as a much safer option, although it may take more time before it starts to pay off.
This is why it’s called “organic”ꟷit uses things that the company already has at its disposal, and uses them to achieve natural growth over time.
So what’s inorganic business growth?
In contrast, inorganic business growth is when a company expands by maximizing profits, or growth gained as a result of acquisitions, mergers, and takeovers. While these may count as growth, they don’t actually encourage profits made within the company itself. A company could, in fact, be experiencing a decline in productivity and sales, but it can still “grow” inorganically.
As an example, consider the ways in which you might obtain fruit. An inorganic method would be to go to a supplier and buy it directly. An organic method would be to purchase a fruit tree sapling, grow it, and then harvest the fruit when it ripens. In the inorganic method, you may be acquiring more fruit but you’re still not actually producing any yourself. In contrast, while you may not be gaining fruit very quickly with organic growth, your own productivity is much higher.
Is an organic business necessarily a healthy business?
The main advantage behind organic growth is that it’s relatively simple to achieve, yet very safe at the same time. As it uses things the company is already good at, you already have the experience and resources necessary to keep expanding on that success. Likewise, because its results tend to be more long-term, it gives more time to oversee and manage that expansion. There’s no risk of moving into an area too quickly, and winding up with an acquisition that’s actually more expensive than it’s worth.
As a prospective area for investment, companies acquiring more business growth organically tend to be more attractive. Investors can see that the company is growing by genuine consumer demand for the products and services that it offers. It also breeds confidence that the company is capable of using its resources responsibly and effectively. This would imply that the company will continue to see a return on any investments within the foreseeable future.
What’s the problem with organic growth?
The problem, of course, is that any such returns tend to be delayed, and on paper, the growth may not be as impressive. Investors may be tempted to favor companies using inorganic growth because larger numbers are more attractive, even if the reality is that the company isn’t growing much internally. Another pitfall is that continued organic growth is very dependent on the state of the market. And because it grows slowly, it may not be able to respond to rapid changes.
Consider the sudden shift in communications technology over the late 90s and early 00s. Within the space of a few years, the market rapidly moved away from beepers and pagers, and toward cell phones. Businesses that specialized in the former were not always able to adapt in time to accommodate the loss of demand in favor of the latter, leaving them essentially destitute.
This is one way in which inorganic business growth can be very useful, and why it’s always a good idea to diversify a little.
So why not just “buy” growth?
Inorganic business growth is not bad. It’s a great way to rapidly expand and acquire new assets when your company needs them. Such quick action allows you to seize the initiative when the balance of the market unexpectedly shifts. But it does carry risks, especially if acquisitions are achieved thoughtlessly or using borrowed money. The new gains may not always generate enough additional income to cover the costs of investment. As such, inorganic growth should always be achieved with funds the company already has.
It’s therefore advisable to always use a mixture of organic and inorganic business growth. That way, you’ll maximize your company’s potential.
Key strategies to obtain organic business growth
As a result of organic business growth, you can expect to:
1. Gain new customers and increased sales
To acquire new customers and increase sales, all you need is an effective marketing campaign. Always scale such activities to the size of your company, and keep thinking of ways to expand your customer base to include a wider range of people. It’s also worth finding ways to cultivate your existing customer base to ensure loyalty and return business.
2. Expand into new markets and geographies
Expanding into new areas will follow similar strategies, but may require new thinking and approaches depending on the area. For example, a company that traditionally caters to a European market will want to adjust their usual marketing approaches if expanding into an American or Asian market.
3. Develop and employ new means of distribution (such as online retail)
You can also develop and release new products or services to generate renewed interest in your company. This is essential for ensuring continued long-term organic business growth. A useful tactic is to release products that complement existing ones, such as selling car insurance alongside cars.
When looking at new distribution options, always cater them to the needs and function of your company. New methods of distribution should always add to sales, and careless moves in this area could simply cause other areas of the company to lose revenue. Make sure that all avenues of distribution integrate seamlessly with the whole for maximum output.
Like a bonsai tree, thoughtlessly cutting off and rearranging aspects of your company will only kill it. To properly achieve organic business growth, you must be patient and encourage the company to grow naturally along the lines you wish it to.