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Understanding The Crux Of Organic And Inorganic Growth


Saikiran Chandha, CEO & Founder of Typeset — the world’s all-in-one research authoring and publishing platform.

“Business is a race and growth is the fuel point” should be the new integrated metaphor of every organization. Ideally, growth acts as the fuel or driving force that propels you toward your business goals. So, defining dynamic growth-building strategies must be your primary responsibility to helm your enterprise.

Just like how a biathlete needs to concentrate on both skiing and rifle shooting to win the game, your organization’s growth-oriented strategies serve the purpose only when you focus on achieving both organic and inorganic growth in business. Growth is indispensable no matter where you invest, what you invest or how you invest. Be it organic or inorganic, it has a significant role in optimizing business capital.

So, what are these organic and inorganic growths I’m talking about? How essentially do they favor our business? In what ratio should we consider them? Let’s decrypt them.

Organic and Inorganic Growth

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Organic growth is associated with your product’s primary string (i.e., increased revenue and sales via internal business operations). Ideally, it is reliable on the company’s own resources without the aid of other companies. In simpler words, organic growth is the upsurge of your business from within (i.e., you are reinforcing both crew and cash—financial resources—to attain your company’s vision and mission). The process includes effective product planning, resource allocation and reallocation (a fund or an employee), process optimization, substantial marketing strategies, introducing diverse product offerings, improved customer service, and more.

On the contrary, inorganic growth is the acquired growth hailed from mergers and acquisitions (M&A) or the takeover of another company. Merging and acquiring other companies to foster business has been in place for ages as it immunes a company with a quick booster shot. The process includes expanding your wings—opening new outlets or branches or merging with other companies and joint ventures. By doing so, you are gaining access to their existing market shares and assets, and thereby, the overall capital increases. Thus, it swiftly glides your business, too. However, the abrupt diversion of your business line and its management has its risks and benefits.

Organic Vs. Inorganic Growth

As science demonstrates, natural processes are slow, yet they remain spontaneous and stable. In the same vein, organic growth tends to be slower—it takes time to market your product, seek customers’ attention, and expand your business. But organic growth surely never disappoints if you have invested the appropriate intellectual capital and required resources.

On the flip side, when it comes to inorganic growth, along with earning the market shares and profits faster, you also welcome additional management challenges and unanticipated business goals that demand upfront outlay and substantial risks.

But How Do You Gauge Them?

Measuring organic growth is straightforward; you draw the figures by comparing successive financial years’ revenue and sales reports. Besides hiring additional team members, improving infrastructure and customer experience also echo your organic output.

Since organic growth knows your business in and out, it acts as the underpinnings to uphold your business’s pendulum without diluting the clasp of your company. Organic sales are the perpetual indicator of how your business organically adds value to the customer. And this is solely internal growth.

In contrast, the sales and revenue generated (excluding internal profits) accounts for inorganic or external growth. Acquisitions can infer quicker cash inflow, faster sales generation, and easy-to-penetrate new technologies and markets, yet the effect could be unpredictably profitable or strenuous—it depends on multiple criteria. That’s why it’s crucial to have a balanced strategy that navigates your business with the proper amalgamation of organic and inorganic growth.

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Balanced Growth = Organic (Build) + Inorganic (Buy)

It isn’t true that once your business is coined as a brand, nobody can stop you. Your business can go from awesome to troublesome and vice-versa overnight, even if you have rooted a solid business. It is a complex task to maintain or achieve rapid, intensive development only via internal processes or organically alone, and the evolving digital space or the inflation rate can bleed your business. Under such circumstances, you can use mergers and acquisitions as a fallback plan to address the downfall of organic growth.

That’s why foreplanning of business growth is inevitable in any business. You never know what business has in store for you. The smart blend of internal and external growth helps create shareholder value that any investor would be interested in and prevents you from falling prey to any untimely catastrophes that block your way.

To sum it up, organic growth with no or little shareholder value and acquisition with no healthy growth rate would be at stake. So, it’s good to have a balanced and optimal ratio of internal and external growth at your company. But again, the ratio depends on your business type, market, customers, stock price, etc.

Conclusion

Organic growth is the natural byproduct of your business, whereas inorganic growth is the outcome triggered or reinforced using a catalyst called merger and acquisition. However, I believe that harnessing both is necessary to drive success and capital.

I still believe that organic or internal growth is the best avenue for any business. But focusing too much on organic growth can exclude you from reaping the benefits of acquisitions. Similarly, depending solely on the M&A profits affects your internal growth. Hence, a savvy move would be to implement a combined organizational growth strategy and get them in action.


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