When comparing organic and inorganic growth strategies for your business
, it is unwise to ignore key internal and external business management factors in your decision to expand. In the first place, we assume you’re wanting to expand as rapidly and ethically as possible while maximizing value for the shareholders. Understanding a few key company and industry-specific characteristics will be helpful in avoiding blunders when selling or buying businesses
- Industry changes and shifts. Industry-specific shifts can tell you a great deal about whether or not to buy growth from someone else or hatch it internally. In new industries, unless there are outlier leaders who’ve set up stakes for decades waiting for the industry to mature to massive adoption, it is a wise move to simply grow organically. Acquisitions require MBA-level financial modeling to know whether the deal will be worth your while.
- Internal capabilities and resources. Is everyone within the organization tapped-out? Are there bodies to spare for a big shift in strategy or a larger push toward organic growth? Without internal resources to grow, acquisitions start looking viable. It can sound a bit lazy to simply seek an acquisition instead of growing it from within, but sometimes it’s just good math and generally good business.
- Costs of competitive retaliation. It can be difficult to peg a number to the cost of a competitor’s reaction to your attempt at growth, but there are always a cost. Take a look at all potential competitive retaliation options and attempt to peg dollar figures to them. If nothing else, this will be helpful in getting you to see the big picture and view ancillary costs you may have previously ignored in your model.
- Strategic fit within company objectives. If you’re simply going after growth for growth’s sake, your strategy may be flawed. Taking a look at whether growing by acquisition or internal hussle fits more within the company strategy is a helpful exercise.
How growth will be financed plays a huge role in the type of growth the company seeks. Limitations on capital and funding for an acquisition may require a shift in strategy. For the bootstrapping entrepreneur with confidence to the moon, growing from internal resources without the help of outside capital can work, but time limitations are always a potential issue. Capital limitations from Debt, Equity and other sources may force strategy in a different direction than the company may have initial anticipated.
Structuring Business Growth
Business structuring in organic and acquisition growth can get almost as creative as the companies themselves. One of the best things to consider is the potential for more diversification by the way entities and sub-entities are structured. How the company is structured will require an in-depth view into the following:
Business growth should be viewed wholistically from the beginning of the business to the continuation of a legacy. Exit options may not be the best way to look at growth, but they should be something considered when it comes time for the business to eventually sell.
Deal Capital works with long-standing business owners to sell their business in Chicago, IL and around the country.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck
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