If you want to boost your business growth rate but consider mergers and acquisitions too costly and risky, then consider using a safer, albeit slower organic growth strategy.
Provided it’s profitable, growth can help your company to attract top-performing talent and investors. It can also generate financial resources that will fund expansion.
A business that grows organically uses its internal resources, without having to borrow or get involved in takeovers, mergers or acquisitions, to expand operations.
By comparison, those that rely on inorganic growth use external funding or growth opportunities such as mergers and acquisitions, to expand.
Although internal growth is slower, it can result in increased output, greater efficiency and production speed, higher revenue growth and better cash flow, according to the FD Centre’s multi-channel retail specialist and part-time FD, Sanjay Patel.
For those reasons, organic growth is growth that’s critical for the success of any company, not just those in the retail sector, he says.
It’s also why organic growth is important to existing and potential investors because they want to see the company is capable of increasing output and earning more than it did in the previous year.
Growing organically is what many high growth companies do, according to a global McKinsey report. The study found that organic growth is key to companies’ futures.
Top performers invest in existing high-growth activities by using funds from a variety of sources; create new products, services or successful business models; or perform better by continually optimizing their core commercial capabilities such as marketing, sales and pricing, the report said.
Interestingly, the top growth companies in the study used a combination of all three strategies, it revealed.
The top performers also tend to be better at developing the right capabilities to support their chosen growth strategies, such as using advanced analytics and digital customer experience, it explained.
Although the study focused primarily on publicly listed companies in the US and Europe, its conclusions are just as crucial to both small and large privately owned companies.
Of course, scale-up companies might not have the resources that top growth firms do that enable them to introduce more than one strategy at a time.
But if you want your company to enjoy the benefits of organic growth, then you need to use at least one of the three main organic growth strategies.
It’s also worth considering using a combination of organic and inorganic growth.
Three organic growth strategies
- Continuously optimize your commercial activities (those that involve how your products or services are priced, marketed and sold)
- Reallocate funds from unproductive costs or low-growth sectors of the business into activities such as high-earning products or services that already perform well and which will boost earnings and growth
- Create and develop new products or services and develop new business models.
It’s crucial you use data analytics to determine which growth initiative is having the most impact. Such analytics should make it easy to see which strategy is the most cost effective.
Embedding analytics into the company’s most critical commercial processes will make it easier to get useful insights. The faster you can get access to such insights, the easier it will be for leaders in your organisation to make important strategic decisions.
Why knowing your target market is critical
Thorough knowledge of your target market is essential for long-term organic growth. Without it, it’s unlikely you’ll be able to increase your market share.
If you know how your target customers or clients think, behave, and make decisions, you’ll know in which products and services you need to invest most of your funds.
Your research should make it easier to know what new product lines or services will appeal to your target market.
It will also allow you to tailor your marketing efforts and the pricing of your products or services towards your ideal customers. They’re the ones who buy the most products most frequently.
Social media marketing
For example, the research could reveal that most of your customers come to your online retail shop via recommendations they find on social media. These might include social networks such as Facebook, Twitter and Instagram, blogs, vlogs, forums and consumer review sites.
This insight could mean you decide to focus most of your marketing efforts on getting more organic sales by reaching out to more social media influencers and producing SEO (search engine optimized) content for other people’s blogs, vlogs as well as your own blog and YouTube channel.
The deeper your understanding of your target market and ideal customers, the easier it should be to identify potential markets, invest in product line extension and create future revenue streams.
While becoming more effective at generating sales and annual revenue should result in better top-line figures, it’s also important for your company to become more efficient in spending and managing your operating costs.
The right mindset
To be one of the top growth companies, your business needs a growth mindset as opposed to a fixed mindset. The fixed mindset organisational culture is based on the idea that personal traits are fixed, and natural ability is unchangeable.
Organisations with a fixed mindset tend to reward ‘genius’ type employees, the ‘star’ performers, and overlook so-called ‘under performers.’ Such organisations by their very nature hinder rather than encourage growth.
A growth mindset is based on the belief that everyone can increase their ability, talent, and intelligence, given the right opportunities to learn and be curious.
Organisations that share a growth mindset are more adaptive and flexible and, therefore more agile – the very qualities that a company needs to be able to take advantage of new growth opportunities.