Mergers and acquisitions (M&A) have become increasingly popular in recent decades, as companies look to quickly build scale, and gain a competitive edge. However, with a tough economic climate, the number of M&A deals is said to have fallen by more than 21% year-on-year [1], as more companies focus on organic growth strategies.
But what is organic growth?
“Organic growth means growing your business using internal strategies and techniques such as marketing, sales, and search engine optimisation,” explains business strategy consultant Louisa Willcox. While organic growth is fuelled by actions and resources inside your business, inorganic growth is fuelled by external actions and can include paid advertising campaigns, and growth from merging or acquiring other companies.
Read on to discover key strategies for building organic growth.
Why organic growth matters
Organic growth allows companies to increase sales without having to pay large amounts upfront for paid advertising or customer acquisition. This is important for a company where funds are limited, says Justin Fox, Digital PR Manager at Courses Online, a B2B marketplace for online learning packages.
"We don’t have the budget that larger competitors do, so we can’t plaster the tube stations with posters,” says Fox. “We also don’t want to spend our budget on just paid advertising and brand building on digital platforms that we don’t own, and which are always changing.”
In some cases, organic growth strategies help to increase the effectiveness of inorganic growth, adds Fox. "We do see that if we make an investment in paid digital advertising and we're also running organic digital marketing, then we see an uplift in the performance of paid ads because of the organic activity," he says.
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How to supercharge organic growth in business
Organic growth generally takes longer to deliver sales than paid growth, but the benefit is that it’s affordable and sustainable, says Willcox. “Companies that manage their costs carefully and focus on organic growth will typically see better long-term profitability than making a short-term investment in an inorganic growth strategy,” she says.
Willcox recommends asking yourself the following question to help understand how best to boost organic growth in your business:
What organic growth is likely to be most efficient for my business? Because not all growth strategies require the same investment in terms of time and resources.
Sell more to the most profitable customers
Not all sales are created equal. Some of your products or services are more profitable than others, and in many cases selling to your existing customers will be more cost effective than acquiring new business.
“You should be looking at all your business costs at least monthly, to understand which products offer the best return, what’s flying off the shelves, and where you can increase production most efficiently,” says Willcox.
“This data will highlight your most profitable customers, and then you can target those customers with additional products or support, based on what you know they have already purchased.”
Plan well for marketing and retention
To boost organic growth, businesses must strategise their marketing and retention tactics. Courses Online uses account managers to personally assist clients in augmenting their operations and enhancing retention, says Fox.
“As a smaller company, we can beat larger competitors by offering a better service to our clients.
"We have monthly calls with customers to share sales lead data and discuss what we’ve learned about who is buying their products, and why,” he says.
“We’ll also share insights with them that we’ve gained around customer relationship management or digital marketing, that helps their business and adds value to their relationship with us.”
Encourage your sales team to upsell
Willcox also advises small companies to use regular contact to upsell to customers who have opted into receiving marketing communication from you. “If a customer has made a small purchase, using your email list to reach back out and offer an upgrade or a supporting product is a way of building a trusted relationship.
"It's usually easier than winning over a new customer because that trust is already there,” she says.
For example, customers might be persuaded by a special offer or discount for buying in a bigger quantity, or you might offer free shipping alongside orders over a certain value.
Increase your product offering
One of the best ways to drive organic growth in a company is to create new products and services for your customers. If your company sells soup, for example, then branching into new flavours could increase your average order.
Reinvest profits
Putting profits back into your company can drive internal growth without the need for your company to take on debt, or other third-party investment. Over the long-term, this means higher profits for the business.
Train your team on customer service
Customer service is crucial for both attracting and retaining customers. Poor service risks driving half of your clientele to competitors, according to a recent survey [2]. On the other hand, contented customers can be very beneficial; their positive feedback and referrals can draw new business at no additional cost.
Know the competition
Growing organically as a business can be tricky due to competition from larger brands. E-learning company Courses Online differentiates itself from similar global brands and content creators by focusing on a sub-set of the market with a more specialised B2B offering.
“What we’ve done is focus on identifying a niche and working to be the very best provider within that niche of professional learning and development,” says Fox.
“We aren’t here trying to be everything to everyone. We like to think we’re the Waitrose of the space, offering high quality in one particular area.”
Advantages of organic growth
Maintain control
When a business grows by buying out smaller companies, there are new people, processes, and cultures to manage. Organic growth allows the business leadership to retain complete control of the company and maintain its specific direction and culture.
Less financial risk
Organic growth tends to be less capital-intensive than inorganic growth. Since you're not relying on external funding or large acquisitions, you may have less debt and financial leverage, reducing the risk associated with servicing debt.
Disadvantages of organic growth
The main disadvantage of organic growth for an SME is that it takes longer to achieve. Creating a marketing strategy and using that to reach new customer leads, then converting those leads into sales, and fulfilling customer orders can take a long time.
While inorganic growth can deliver a rapid boost in sales or production capacity, it can also bring headaches. Merging two companies could throw up unexpected costs around integration, or the costs associated with completing the merger.
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Sources:
[1] PWC, UK M&A activity for the first half down year-to-year but demand remains - PwC, July, 2023
[2] Zendesk, 73% of consumers will switch to a competitor after multiple bad experiences, 2023
