Understanding organic company growth
Organic company growth is when a firm grows by building up resources and capabilities internally, and gradually increasing the customer base itself. This is in comparison to inorganic company growth – where firms grow by acquiring another firm. While inorganic growth has the advantage that it can quickly grow the firm, there are many advantages associated with growing internally.
Advantage 1: No challenges integrating a new firm
The first advantage of organic company growth is that it avoids the need for integrating a firm. Integrating a company after an acquisition is not easy – it can take a long time to combine the operations of the firms together, and there may be cultural clashes. Some perceived advantages associated with an acquisition may not materialize or it may take much more effort than expected to complete the integration.
Advantage 2: Avoid overpaying for resources
Another advantage that comes with organic company growth is that you don’t overpay for resources. Acquisitions are often a costly way of growing – a premium paid relative to what the company is often trading at. By growing internally, you may be able to build up the capabilities at a lower cost than the price that would have been paid to acquire another firm.
Advantage 3: Gradual learning - potentially fewer mistakes
A final potential advantage that comes from organic company growth is fewer mistakes from the gradual learning process. Growing internally means that you can gradually learn what resources you need and the best approach. Acquiring another firm in comparison may mean that you make the mistake of buying a firm, only to discover that the approach that they have taken is not as well suited, or has other challenges associated with it.