Archive for September, 2014

Organic v Inorganic Growth for your business?

There are principally 3 growth models – Organic / Bolt on /Strategic Acquisition
But how are you going to grow? This was discussed at the Business Exposure Group meeting.

1. Open another location
2. Offer business as a franchise or business opportunity
3. Licence your product
4. JV’s
5. Diversify
6. Target other markets
7. Win a government contract
8. Merge and acquire another business
9. Expand overseas
10. Capitalise on the internet

Organic growth was favoured because of the advantage that you know your business inside out and you can move quickly to take advantage of changes in the market place and grow at a comfortable rate. But you are limited by cash and your own ability. Whereas with inorganic growth you can grow through merger or acquisition. The advantage is it expands your assets, income and market place and adds expertise from the staff. But the inorganic disadvantage is that the focus of a second business can destroy your original vision and you may be entering markets that you have no expertise in and therefore most fail.

Yet in today’s economic environment it’s difficult to grow revenues with the economy growing at a slow pace. So why not acquire either customers, products or technology? Several of the members stated that it is cheaper to buy customers and loyalty than to build them.

A smart takeover can present an opportunity to cut costs at every level and if you are
number one in the market after the deal then you can increase prices. But often poor due
diligence prior to the acquisition creates problems later.

If you are not careful you lose key staff to competitors and quickly your acquired company looks a lot worse. Always interview the 2nd tier management because they are all the future stars who have often been overlooked by the old management.

The hard part begins once the acquisition has taken place and the cultural fit, which should have been explored during negotiations, has the most important impact on the success of the future venture.

A cost effective ‘part take-over’ can be achieved by targeting non-core contracts operated by your competitors and making a small offer to take these contracts off their hands which adds turnover, customers and a great opportunity to leverage your product at little risk to your core business.

It’s a win win for both sides.

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