Organic growth – that sounds like someone growing tomatoes in their backyard. But it also sounds healthy and many people are willing to pay a premium for produce that is grown organically. In reality, there are similarities between organic gardening and organic business growth. Both practices are based on using what is already occurring without adding unnecessary outside influences.
In the case of business growth, the term “organic” refers to the process of expanding the company using the existing business base. Growth most often occurs from increasing customers or increasing sales to existing customers and those are the accepted methods of growth. Using internal or existing funds to finance the growth allows management to choose the growth path and timeline. However, organic growth means committing resources to the growth path thereby limiting resources available for other corporate uses.
Managers must take multiple factors into account when choosing organic growth strategies.
Two Organic Growth Strategies:
- Realigning corporate budgets to allow for necessary infrastructure, production supplies or staffing to accommodate growth, or
- Restructuring existing debt to allow for needed cash flow for financing the infrastructure or production supplies needed for growth.
Either of these strategies requires management to take an in-depth look at the existing and projected financial situation, the resources required to obtain the growth, the goals of the business plan (you do have one, right?), the tolerance for speed of change, and the need for the anticipated growth. While growth may be desirable, it is not always advisable so know why you are choosing a growth strategy at this time in your company’s life.
Organic growth can be slower but carries less risk as the debt ceiling is not increased as it often is with inorganic growth (mergers and acquisitions).
If you interested in growing you business organically, check out our series of small business books.