Business success requires more than just hard work. As trends, consumer habits, and the economy change, you’ll also need to adapt and grow your company to keep up with the times and maintain your usual revenue levels. You have two ways of achieving this goal: organic and inorganic growth. We’ll explain both below.
What is organic business growth?
According to Investopedia, organic growth is the growth rate a company can achieve by increasing output and enhancing sales internally. Organic growth, often referred to as “true growth”, can happen through price reductions, finding more customers, or boosting output to current clients.
Three primary strategies for organic growth
Organic business growth is typically rooted in one of three primary strategies:
- Optimizing business operations. You can organically grow your company through changes to its longstanding products or services. Relevant changes include marketing, sales, or pricing adjustments.
- Optimizing production budgets. Many high-growth companies first blossomed shortly after modifying their budgets to allocate more funding for high-revenue products or services over low-revenue ones. You too can take this approach as part of your growth strategy.
- Trying new things. You can also change your internal workflows or roll out additional products to strive for growth. If done right, changing your operations can lead to revenue growth opportunities you might have missed if you hadn’t adjusted.
What is inorganic business growth?
Inorganic growth occurs when a business merges with or is acquired by another business. Mergers and acquisitions can introduce the partnering companies to previously unreachable audiences and markets, thus making formerly unrealistic growth opportunities newly possible. Since a merger introduces growth paths that were previously close to impossible, inorganic business growth rates may be greater than organic growth rates.
How is growth measured?
There are many ways to measure the growth of your small business. The key is to be consistent over time so you have accurate benchmarks. Define what success will look like and decide exactly how to measure it.
The concept of benchmarking is more formally described as “the process of comparing one’s business processes and performance metrics to industry bests and best practices from other companies. Typically measured are quality, time, and cost.” (Wikipedia)
Advantages of organic growth
Among the reasons you may prefer to grow your business organically include:
- Costs. Organic growth has a much smaller upfront cost than inorganic growth. Combining with another company to spark inorganic growth can be expensive and require a large outlay of money at once.
- Flexibility. Organic growth is also more flexible. When business is going well with the support and money to expand, organic growth can increase. On the other hand, if you find yourself understaffed or with cash flow problems, you can scale back.
- Internal financing. Organic growth refers to growth funded with money that you already have, so you won’t need to find funding elsewhere. As such, you can launch organic growth initiatives at any time.
- Low risk. Since you’ll use your retained profits to fund it, organic growth can be less risky than relying on money from another company in a merger or acquisition. Additionally, with organic growth, you’ll fully control your company’s initiatives, whereas with inorganic growth, other executives will have a say.
- Strength-based. If you choose to optimize your operations for organic growth, then you’re attempting growth based on strengths your company already possesses. Doing so can be easier than branching into new markets or adding completely new services.
- Steady growth. In the long run, organic growth may be safer. That’s because it involves no debts and maintains your company as an independent, non-merged, non-acquired entity.
Disadvantages of organic growth
Some reasons why you might want to think twice about organic growth include:
- The economy. Growth achieved may be dependent on the growth of the overall market. If your industry is down, it can be hard to expand.
- Growth speed. Organic growth is also much slower than inorganic growth. In cases where your shareholders demand rapid revenue growth, organic growth rates may disappoint them.
Advantages of Inorganic Growth
If the above organic business growth challenges concern you, then you may want to consider inorganic growth instead. Inorganic growth has the following advantages:
- It may be lower risk than organic growth. Growing your business inorganically involves joining with another business through a merger or an acquisition. In acquisitions, you may bear less of the risk that comes with growth since another entity now controls your operations and finances.
- Better credit. Your line of credit will be stronger because of the combined value of the two businesses. You can also benefit from the expertise of the employees who join your organization from the other business.
- Market share. Mergers and acquisitions inherently mean that all involved companies expand their market share, thus leading to faster growth.
- More knowledge. If your company merges with a complementary business, then you can add its services to your suite. With more services often come more customers.
Disadvantages of Inorganic Growth
Some reasons why you might struggle with inorganic growth include:
- Management. When you combine your business with another, your management responsibilities increase dramatically. You’ll have more employees, more assets, and you may expand in ways you didn’t anticipate.
- Financing. Most mergers and acquisitions require outside financing, meaning a bigger debt load. If income doesn’t increase, you might find it hard to repay that debt.
- Changes to key products and services. If another business acquires yours, it has complete power to drop certain products and services while adding others. If not planned thoughtfully, these changes can present substantial operational and revenue challenges.
Examples of organic growth
Many SmartBiz Loans customers are growing through internal organic growth strategies. Here are a few:
Adding new products or services
Asha Waterstreet owns Tasteful Additions, a shop in upstate New York selling gourmet salts and vinegars in store and online. Business was going well but Waterstreet knew she could up sales with additional products. With low-cost funds from an SBA loan through a SmartBiz marketplace bank, she added luxury body products as well as tableware to her line up. Current customers bought more merchandise and new customers were attracted.
Improving sales and distribution
SmartBiz customer Randy Jacques owns Southern Utah’s The Tree Guy. As his business grew, Jacques realized that he needed additional equipment to keep up with demand. He used funds from an SBA loan to purchase equipment and is successfully expanding across the state.
Increasing branding and promotion
SmartBiz customers Mary Grupka and Lisa Scibetta co-own Painting with a Twist (PWAT) art studios in New York. PWAT has an excellent reputation in the community and great word-of-mouth referrals. But Grupka and Scibetta knew they could better target their key demographic with additional marketing. They used funds from an SBA loan to launch more traditional channel marketing and creative events to introduce their brand to new audiences.
Strategies for generating organic growth
If you’re seeking organic growth, there are lots of strategies you can use. Here are just a few:
Identify and market to your target audience
This is important and should be firmly established in your initial business plan. You can’t successfully market to everyone. Make sure you nail down who wants or needs your product and identify how to reach those consumers. If your target customer is over 60, you might want to skip social media and concentrate on email marketing or more traditional methods. If you’re targeting parents, explore informative content blogging.
Focus on your unique selling proposition (USP)
Very few businesses are one-of-a-kind. Identifying and focusing on your USP is especially important when your product or service is similar to others in your industry. Check out effective USPs from giant brands like Avis and FedEx. Even with stiff competition, these corporations have set themselves apart from the pack.
Share KPIs with your team
If you share with your team and let them know your business goals, they’ll feel valued and will be more likely to be an engaged employee. Your employees can probably sense when things are not going so great or when they are. Honesty is the best policy. Share the challenges but when meeting goals and reaching KPI’s, be sure to share the wins. For more employee engagement ideas when pursuing organic growth, review 9 Effective Ways to Improve Employee Performance.
Use both traditional and digital marketing
Businesses that achieve successful organic growth use a combination of both traditional and digital marketing strategies.
Traditional marketing refers to any type of time-tested campaign with a proven success rate. Methods include print advertisements, billboards, TV, newspaper and radio ads. While a billboard might be out of reach, there are cost effective traditional ways to get your business out there. Simply posting or handing out flyers can elevate your brand in the community and bring in new customers.
Digital marketing includes advertising on social media platforms, maintaining a targeted website, establishing a blog, email outreach, and mobile apps. Our article, Digital Marketing for Your Small Business, can help you identify the best channels to pursue.
Research your market
You can’t execute a successful organic business growth plan without knowing whom you’ll target with your new or improved products or services. According to Hinge Marketing, companies that include regular market research as part of their growth plans grow twice as fast as other companies. The Hinge Marketing team suggests conducting this research at least quarterly, though if you have the resources for more frequent research, it likely won’t hurt.
Once you know more about the customers or clients in your audience, you can use their preferences and needs to inform your product development and optimization choices. For example, if you own a dance studio, you might be planning to target millennial women or perhaps parents whose children are interested in dance. However, if your market research uncovers an older crowd interested in dance lessons, you’d be wise to offer classes for older folks too. Organic growth may result.
Pursue underserved niches
Continuing with the above dance studio example, if you focus your services on the older crowd you discovered, then you might be in a unique position to see your revenue grow. Since organic growth relies strongly on finding new customers, expanding into niche services such as older folks’ dance classes may set you apart from your local competitors. Since chances are that few, if any, dance studios in your area offer these classes, focusing on this niche can direct more people – and money – your way.
Firmly establish your qualifications
If you’re struggling to obtain new clients, you can potentially find them by showing that your company is best qualified to address their needs. A thorough content marketing strategy can achieve this goal – the more blogs that your company posts about a topic, the more it will be seen as an expert in that field. Leads searching with navigational intent may stumble upon your blogs and, unbeknownst to them, find themselves at the start of your sales funnel. You can then nurture your new leads and hopefully secure them as customers – and every time you do, your business grows.
Organic growth isn’t mysterious. Approach this type of internal growth in a well-researched and systematic manner. Explore your industry to determine what your competitors are doing that works and doesn’t work is a great first step. You won’t have to reinvent the wheel or stumble blindly through strategies that are difficult or won’t get results. Consistency and research can help an entrepreneur meet organic growth goals.