In my business growth strategies post I briefly highlighted three routes we commonly see with clients for growing their businesses. In this post I aim to explain how to grow through organic expansion to give you more information on this route.
What is classified as Organic Growth?
Essentially this is growth from within – it involves you expanding from your own resources and existing infrastructure.
Growth may be as a result of:
- Expanding a product or service range
- Increasing the number of your locations (if relevant)
- Entering a new market
- Investing in more capacity and therefore expanding capabilities (equipment and/or people)
Organic growth builds on your business’ own capabilities and resources, and for most small businesses, it’s the most common method of growth.
How to measure growth
Now, you may be tempted to only use one metric for growth (like turnover), but to be honest – this will vary business-to-business, and industry-to-industry.
How you choose to monitor and track your growth (or at least reaching higher milestones each year) will depend on a few factors:
- Profit margins
- Expenses (fixed and variable)
- Cost margins
- Gross profit margins
Notice how those 5 things are really your P&L? Your Balance Sheet issues like capital investments and loans are of course important – and part of your objective needs to encompass staying on top of these and mitigating debt as much as possible. There is more value in your business – the more you get on top of your debt.
In general – you want to measure your growth by the actual growth you are experiencing in output and by enhancing your sales internally. Obviously constantly looking at improving your efficiencies will help to improve your profit margins, so that is definitely worth watching.
The Challenges of Organic Growth
Organic growth can feel like a hard slog, especially for small businesses. Here are some of the challenges (not all negative) around growing your business yourself:
1. Funding (the cost of growth)
You will need funds to expand the business. Ultimately you will have to source the extra funds to be able to invest for the future – which is what growth will feel like in the present. You will need to ensure the cashflow of your existing business (so you can pay yourself, your team and your suppliers) – while also paying for the investment.
Investment can be in the form of:
- Time (this can be for research, recruitment, qualifying new suppliers, searching for new strategic partners, product/service development)
- People (new recruits, expanding your existing team to be able to deliver more)
- Equipment (if needed for new products, or to expand current capacity)
- New property (if needed to expand premises to more locations)
2. Strategic Leadership
Growth takes a certain mindset to take the business to the next stage of its life. You will need to sharpen your skills in leading your team and business and be prepared for all the new things that will come your way.
Looking for business mentorship and/or coaching during a time of growth is highly recommended – if only to stay sane, and on track.
In the world we live in today – technology is something that has to be baked into your business. With some of the small businesses we have worked with, one of their biggest challenges in scaling their business – is their technology set-up (or lack thereof).
Building in a stage to evaluate your technology and make the right investments and work – will go a long way in the longer term and help you to grow exponentially. (Technology affects: customer service delivery, providing your service or delivering your service, marketing your business, managing customer journeys, or even your communication tactics.)
4. Energy & Culture
Growing a business will take a lot of your energy, so be prepared to look after yourself and your people. Keep the culture positive and moving towards a winning situation where everyone is better off with the growth in place.
Often business owners get so wrapped up in their “mission” to grow the business, that they can take their eye off the day to day operation which still needs to keep up momentum. You do not want to dip in terms of your reputation and lose any of the hard-won customers you have.
Arguments for and against organic Growth
There are of course other routes to growing your business, like through acquisition or franchising. It’s best to evaluate all routes for your specific case to see which will work out better for you in the long run. For organic growth – you will of course also have some pro’s and con’s and I’d be remiss not to mention those!
Argument FOR organic growth:
- Less risk than being merged with another business or being bought by another company
- You can fund the growth through your own funds (and not be strained to outside in investors)
- You can build on your existing strengths (brand, customers, longevity)
- Allows you to have a slow and steady growth which you can control and manage
Argument AGAINST organic growth:
- Your growth may be highly dependent on the growth of your overall market (and therefore limited)
- Growth is too slow (and if you have shareholders – they may want faster growth)
- If you are in a fast-paced industry (where trends are important and change is frequent) – you may not be able to grow and change fast enough to make a dent in the market
Best advice for growing organically
Generally speaking, if you are focussed on continually improving:
- your systems and processes,
- your marketing efforts
- your product or service
and working hard to keep identifying new or more profitable markets you can successfully enter…you will find that growth will be more predictable and controllable over the long term.
Choosing what is right for you
There are many aspects to consider when growing a business, so do not be alarmed at the many options available to you. If you are in a position to consider growing organically and steadily over time, then I think that’s more than likely the best option.
We would be happy to help if you needed some guidance on evaluating your financial viability to grow your business organically. Remember to read my other blog posts on the other two routes to growth: Franchising and through Acquisition.
Just give me call on 01788 577613 or email me direct on email@example.com.