Is an organic growth strategy a better way to go?
Monday, December 18, 2017/
How do I grow my business? How do I get a better return on investment? How do I get more profitable sales? How do I attract and convert more customers?
These are some questions entrepreneurs, business owners, chief executives and sales leaders ask on a daily basis — and rightly so. We need to ask questions of ourselves and how we run our businesses so as to be appraised of the better ideas that serve our goals and ambitions.
To keep myself fresh, I like to read widely. Most recently, while on a plane to Sydney, I came across a very interesting McKinsey article about the various business growth options available to us. It was called ‘The organic path to growth’.
It got me thinking about the various conversations I have with clients about how they want to grow their businesses, what products/services they want to sell, which channels they want to sell to, what types of customers they want to attract and serve, how their sales people need to sell and so on. These are business and sales strategy questions that then need to be shaped into a focused sales and services effort across the value chain.
Today, you would be forgiven if you thought the only way to grow a business was through mergers and acquisitions (M&As). The plethora of news articles and business publications spruiking private equity firms and venture capitalists as the pathway to growth would lead you to believe is true. It seems every start-up tech entrepreneur is looking for their venture capitalist to accelerate growth.
At its worst, and in a world of short-termism and instant desire for profit and growth, the mergers and acquisition approach to growing businesses can be a bit like house renovators flipping houses to sell. We’ve heard and read too many disaster stories of businesses being stripped down to the bare minimum to remove costs and then sold on without any consideration or regard for the domain expertise within that business and sector. This approach often results in the shell of a company being the only remains. I’ve seen this first hand.
What about organic growth?
Is it a bit old fashioned? What the McKinsey article pointed out is when done right, organic growth delivers long-term value too, and often better than M&As.
Organic growth may take longer and may not be for every market place or business; however, organic growth typically generates more value.
“A look at the share-price performance of 550 US and European companies over 15 years reveals that for all levels of revenue growth, those with more organic growth generated higher shareholder returns than those whose growth relied more heavily on acquisitions”.
Here are three organic growth options available to us:
- Investors: Investors have a clear understanding of growth sources from existing products or services, and squeeze funds from a variety of areas, such as low-growth initiatives or unproductive costs, to reallocate capital and double down on winners.
- Creators: Creators build value by developing new products, services or business models.
- Performers: Performers grow by constantly optimising core commercial capabilities in sales, pricing, and marketing.
Now, you can choose one of these options to further your growth but research shows better performing businesses adopted at least two of these options simultaneously which demonstrated the power of a diversified approach to growth. Those organisations that took a diversified approach to growth, specifically combining ‘investor’ with ‘creator’, grew at 4% greater than their sector’s growth over the previous three years.
As the article stated:
“These results make intuitive sense: companies creating new products or services frequently need to reallocate capital so they can place their bets, while an exceptional sales force or top-flight marketing team can accelerate a variety of new product or service initiatives. Our analysis further showed that companies exhibiting strong investor and creator tendencies particularly benefited from a diversified approach to changing their growth trajectory”.
Over the festive season when you may have some time to reflect, you might like to consider your growth strategy options.
Organic growth strategy looks like it might be a more viable and sustainable option for businesses to implement and for industries and communities to flourish. And of course you will need a sales force that is aligned and ready to go to deliver your organic growth strategy.
Remember everybody lives by selling something.