Strategy: The benefits of organic growth

When you think about your company in five, ten or even twenty years from now, what does it look like? Is it still you and your freelance VA hustling along? Is all income passive, are all processes outsourced to independent contractors, and money flows in like clockwork? Or do you see your office building, a team of motivated staff, an employed CEO, and you popping in and out, just so everybody knows how you appreciate what they do for your clients, and your retirement?

Let’s face it: As an entrepreneur you have to think about the future differently than an employee with a pension scheme. Freelancing might work amazingly as long as it lasts, but it’s not a company you can sell when you retire, or hand over to a CEO while still claiming the profit. When you have a small business, you could theoretically sell it, but how much would that bring in? It’s one thing to save a portion of your income for higher age. It’s another to treat your company as your pension scheme. And it’s not just about the money. What about your legacy? Maybe you love what you created and want it to survive your exit. But that may require to grow the company a bit more than you previously thought of.

Why grow at all?

Women in general are more reluctant than men to take the necessary risks associated with growing a company into something bigger than themselves. We often don’t have this desire to leave a legacy, or we channel it to our families and friends rather than into our jobs. But we also avoid risks we cannot judge sufficiently. Growing a company does not necessarily mean creating a multi-national corporation – unless you want that. Growing a company may just mean having enough staff so that you can have a day off when your kid is sick. Or to make enough profit to go on vacation or feel safe.

It can mean to create jobs in your community and lift others up by providing opportunities to grow personally and professionally. And doing so totally on your own terms. Growing your company means you can serve more clients, provide goods and services for more customers. It’s also a challenge in personal development for you as a leader. But don’t hold back because the challenge is so huge and you don’t know where to start. Chances are, you’re already experienced in organic growth and now just need to approach it more strategically.

What is organic growth, and when is it the right strategy?

There are a range of options to choose from when you plan to grow your business. Every new customer grows your business. But only until you max out your capacity. If you reach that limit, you have to decide whether to stay there and be happy with being fully booked, or to expand your capacity.

The key feature of organic growth is that you fund your growth from within your company. That means, reinvesting some of your money into things that grow your business. That can be staff to be able to serve more clients, marketing to find more clients, systems to streamline production or administration, new facilities, or product development.

You can see from this that being able to grow organically requires a healthy business. You need a certain profit margin to be able to reinvest and still make enough to fund your livelihood. Investments shouldn’t jeopardize your cash flow.

This is a feasible strategy in markets which are not too competitive while growing steadily, or in niche markets with high entry barriers for new players. It’s a fairly slow growth strategy which is good for first time entrepreneurs, as it gives you the time to grow into your new role. And for some entrepreneurs, especially women, it’s also the only realistic option. E.g., if you are a single mom with an online business who wants to invest to grow, you might have difficulties finding a bank to get a loan because your lack of assets to secure the loan. If you lack the driven, competitive energy of a start-up founder, who wants to create a family business rather than grow to sell, investors might overlook your long term potential.

Securing funding can be a challenge, and in such a situation organic growth is the only strategic option.

Is organic always good?

As mentioned above, organic growth tends to be slow. And in some markets, that is not what you need. E.g., if a market is growing fast, competitors will try every trick in the book to secure their market share. If you then take your time, and only grow so fast, chances are that you’re left with nothing simply because of the competitor’s reach or ability to compete via pricing.

Some markets, such as the platform economy, have the innate quality to be winner takes all markets. That means the company that can grow into the market leader quickly, attracts all the business. Over time, everybody else gets out. The number two and three are often enough bought by the leader at some point in time. Which can be a reasonable strategic decision if you find that you’re not going to be the leader and don’t have the funding to buy your competition: prepare to sell.

Apart from market conditions, the product itself can be an argument against organic growth. If you can expand your capacity only in large units, e.g. because you need to build a new factory, which requires huge financial investments, it’s usually unrealistic to fund internally. In those cases, financing externally, via a loan or taking on an investor, is advised.

The benefits of organic growth

Often enough, the strategic analysis points clearly into the direction of growing quicker or slower. But sometimes, the best strategy is not so obvious. You have to choose between organic growth and a faster pace. Why would you decide to grow organically if you don’t have to? Because growing your company organically has its benefits:

  1. You don’t need investors. Meaning, you don’t have to share your decision making authority. While investors can be incredibly valuable partners, their investment usually buys them a say in your company. When you need money, you might not be as diligent as you’d like to find those partners who really fit your vision for your business. If in doubt, you might want to keep the power with yourself.
  2. You don’t go into debt. Business debt are not a bad thing in and of themselves. Banks usually make sure that your assets cover your debt anyway. But due payments can pose a risk on your business should sales decline or unexpected investments dry your cash flow. You don’t want to sell your laptop to pay back the loan to buy the laptop because the government shut down your business to stop a pandemic.
  3. Capacity and demand are aligned. When you grow your business organically, you only expand as much as required to meet actual demand. You don’t create massive over-capacity hoping for new business that might or might not come.
  4. Growing slowly gives you time to catch up, develop your skillset and grow into your new leadership role. When growth requires updating systems, optimizing processes and hiring more staff, your role changes drastically over time. Especially for first time entrepreneurs, growing organically gives you the chance to grow along with your company.
How big is big enough?

When we talk growth, there is an issue that deserves consideration. Which is, how big do you want to grow? Economic growth is the basis of our economic system, and it kills the planet. It does so not because of business owners creating jobs, serving customers or feeding their families. It does so because, globally, we produce too much stuff, much of it to bin only, and because a small number of people is using way more energy and other resources than the planet can healthily reproduce.

As a consultancy, we think it’s important to consider the global impact of our work. And we advocate an “enough” approach. That doesn’t mean not dreaming big. Making money is amazing. Creating jobs, serving clients or pushing the limits of an industry are worthwhile goals. Live your dream life, buy the house, spend time with your friends! Growth for growth’s sake, however, is unsustainable.

So, to close this post, we encourage you to think about these questions: How big do you want your company to grow? How much money do you want to make from it, including what you need for retirement and old age? That’s probably more than you think. How many employees can you handle, and how many hours do you expect people to work, how much responsibility do you accept? What causes do you want to support, and how much money do you need to do so? How do you define your “big enough”?

Can we help you get there? Book your discovery call and let’s find out!


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Photo by Elisabeth Arnold on Unsplash

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