What's the best way to scale your business and take it to a whole new level? Here we look at organic and inorganic growth - growing gradually thorough increased sales and market share versus scaling up through acquisition or merger with another business.
As the name suggests, "organic growth" means growing your business by increasing your output, creating or introducing new products or services, selling more products or services to new and existing customers, building your customer base and increasing your profits. The driver of growth comes from within.
Organic growth is a long-term strategy and it's less risky and expensive because business growth is continually fuelled by increasing sales. Business growth usually occurs at a steady and manageable rate. However, the rate of business growth may be slower and not to the same extent as you could achieve by other means. And competitors may even enter your market or bite into your market share because they grow at a faster rate.
The other strategic option is "inorganic growth", which usually refers to merging with or "acquiring" other businesses. This can leave your business in a much stronger position, with increased assets, greater revenue and market share. You can also gain knowledge, expertise, capability or reputation by joining or buying another business. Get it right and it can bring significantly faster growth, but the risks are far greater and buying another business can be expensive.
Growing your revenue
Developing new products and improving your existing products and services could enable you to sell more to existing customers, win new customers and ensure their loyalty. Carrying out thorough product research and having a deep knowledge of your market is essential, of course. You could decide to open up new premises in other locations to increase your reach and revenue. Another strategy that could enable your business to grow could be to diversify, by introducing products or services for which you're not currently known or by targeting new types of customers (or sectors if you sell B2B). This too involves investment and risk.
Your business might be able to use new sales channels, for example, selling online if you're not already doing so (or selling offline if you're an online business). Alternatively, you could sell licenses to others to use your patent or sell your products, but protecting your intellectual property is a must. Depending on what you sell, sales agents, distributors or wholesalers could be among your other sales channel options, but having robust legal contracts is essential (find out more before working with agents and distributors). You may even be able to turn your business into a successful franchise if your business has a strong brand, proven products/service and your success can be replicated by others elsewhere.
Another decision that could seriously transform your business is to target new customers overseas. Organisations such as Open To Export, the Department for International Trade and British Chambers of Commerce offer help to UK firms seeking to grow their business through exports. The EXPORTING IS GREAT website is also worth a visit. You should also find out more about export taxes and relevant legal issues.
Mergers and acquisitions
A successful merger between two businesses with complementary strengths can allow both businesses to prosper and grow. A newer business with unique intellectual property or a cutting-edge solution, for example, might merge with another more established business that has more money, market reach and clout.
A horizontal merger happens between two companies in the same sector. A vertical merger brings together two or more firms operating at different levels within a supply or value chain.
You may initially decide to continue to operate as separate businesses while working together on specific projects. Alternatively, you could form a separate joint venture or completely merge with another business. The new entity might use one of the existing company names or take on an entirely new one.
The other option, of course, is to buy ("acquire") another business. Strategic acquisitions must be well planned if they are to prove successful and sound due diligence is essential. Often the acquirer is able to buy another business, reduce its operating costs and improve margins.
Buying another business can strengthen your position by giving you access to new markets/customers, products, services, skills, knowledge and valuable assets, while enhancing your reputation and credibility. Although it involves risk and usually requires the investment of a lot of time, energy and money, if you target the right acquisition (guided firmly by your well-considered strategic plan) it can prove to be a major catalyst for growth.