Business Growth Basics

Organic vs Inorganic Growth

When considering the context of an organizational entity, Organic Growth can be defined as that entity’s internal expansion and evolution without any external intervention or assistance.  Take the growth of a human as an example; starting as a seed and embryo, going into cellular reproduction, then growing in an incubator (aka the womb), emerging as a human child, then evolving and growing into an adult human.  As long as this human eats, breathes and performs life-supporting activities, it will grow.  In much the same way, organic growth in a company means it relies on and invests in its own core products, people, offerings and/or services to grow and expand on its own.

Inorganic Growth is like an appendage or external addition to the core.  If we take the above example of the adult human, and assume they want to be a lumberjack, then they would need a tool to cut the tree.  They could build such a tool but they don’t have the time nor the skills nor the material for it. Or, they could purchase such a tool.  The chainsaw which they purchase to help cut trees down is the inorganic part of their growth journey.  Applying this to an organization, let’s assume an electric car manufacturer must buy batteries from a supplier to support their vehicle production.  They realize that they can be more profitable and have better and faster supply of batteries if they themselves produced the batteries.  However, they do not have the expertise nor the manpower, nor the time to quickly ramp up battery production.  So, instead of building a new battery plant from scratch, they opt to buy an existing manufacturer, preferably one that already produces their specific model.  They would acquire this business and thus expand their core product.  This would therefore be an inorganic addition to their business, and thus an example of inorganic growth.

Strengths of Organic Growth include having low risk due to strong corporate values, and can benefit from economies of scale if their production is already high or high relative to its competitors.  The main weakness for organic growth is that rate of growth is slow as a result of longer periods between investment and return on investment and/or reliability of sales forecasts. [i]

On the other hand, the strengths of Inorganic Growth include being more competitive and increasing market share rapidly.  However, the weaknesses are that sometimes these large purchases or acquisitions can heavily impact cashflow and take time to complete.  In addition, the existing managers may lack the expertise required to lead and support the new business.[ii]

[i] https://www.bbc.co.uk/bitesize/guides/z72nt39/revision/2#:~:text=The%20advantages%20and%20disadvantages%20of,scale%20and%20lower%20average%20costs

[ii] https://www.bbc.co.uk/bitesize/guides/z72nt39/revision/4

The Ansoff Matrix

Developed by mathematician H. Igor Ansoff, The Ansoff Matrix has been used as a growth strategy tool by marketers and business development consultants to work through the risks that accompany business growth.

Ansoff Diagram explained

The Ansoff Matrix diagram provides a visual goal-setting template that helps with scenario building or strategies for new product and market activities. It is divided into four quadrants with each point in the matrix indicating present and future scenarios.  The quadrants refer to : Market Penetration, Product Development, Market Development, and Diversification.

Figure 1. The Ansoff Matrix (copied from https://www.conceptdraw.com/examples/ansoff-matrix.)

 

Market Penetration:  Deals with growing and/or defending the market share.

Product Development: Reaching the existing market but with newer products, modified products, or just expanding the product range.

Market Development: Focuses on going to new markets but with the existing products.

Diversification: Combination of Product and Market development, ie new products in new Markets

This method of strategizing or preparing a marketing plan has its share of strengths and weaknesses.

Strengths:

• Simple and straight forward.
• Creates a classification and ‘map’ to refer back to when setting goals and following a process.
• Can be used in more than one department at a company.
• Analyses risks and observes possible alternatives.

 

Weaknesses:

• Maybe too simple – some organizations are too complex or large that they need much more than a 2×2 strategy matrix .
• Not enough focus on competitors. The matrix is specifically designed to deal with own company strategies and growth without much consideration for what your competition might be doing to the same market.
• No consideration to lean processes or cost-benefit analysis.

 

Growth Hacking (in laymen\’s terms)

There is no easy way to explain it other than trying to give an example.  Growth Hacking was coined in the 2010s as a contemporary term that simply means ‘growing sales’ by adapting to the current market needs using the current tools available (with those tools mainly being digital).  For example, we can look backwards at a ‘growth hack’ like newspaper deliveries. A delivery boy’s bicycle routes in the 1920s became automobile routes – because automobiles were fast becoming a must-have tool for getting around – hence promising faster, more volume, more frequent, and fewer people to pay when considering deliveries.

Another example is subscription models for physical items.  Take Dollar Shave Club; they may not be world famous or popular, but they have taken the concept of buying razor blades every few weeks from a retailer to creating a subscription model that delivers razors to their consumers’ doorstep for a monthly fee, thereby expanding their reach and locking in consumers.   Same as Butcher Box – responsibly farmed meat delivered to your door.  What they all have in common is they used new tools to grow their reach without a huge investment, hence a ‘growth hack’.

All growth hacking is born from a lot of data, which people study patterns from, and eventually encourage the creation of tools that turn these patterns into business models for profit or growth, or even innovative start-ups that solve re-occurring problems.  The term growth hack is the same as innovative sales growth strategy but has a nicer more contemporary ring to it.