Organic Growth

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    Organic Growth

    Methods of growing Organically:

    • New Customers
    • New Products
    • New Markets
    • New Business model
    • Franchising

    Advantages of Organic Growth:

    Reduced Risk – growth of well-known practices – predict markets reactions to methods used; prevent unnecessary risk which arises from merging two firms such as culture clashes etc

    Relatively Cheaper – Maybe cheaper than buying another firm as well as this internal finance can be used for organic growth whereas inorganic growth other sources of finance often have to be used as well increasing the financial cost of growth

    Retain More Control – Rate of growth can be managed internally by managers and executives.

    Lower strain on financial resources – Growth can be managed to minimise impact on cashflow and ensure liquidity retention in the firm – whereas inorganic growth can often put financial strain on a firm especially an acquisition where share prices can become volatile this said the exploitation of dark pools can minimise this.

    Reduced exposure to Diseconomies of scale – sharp increases in unit prices are unlikely to occur if growth is managed – possible to for-see difficulties resulting from scale increases. Helping to keep costs under control

    Disadvantage of Organic Growth:

    Pace of organic growth is slow – conflict with shareholders

    Miss out on exploiting resources other firms have – R&D, distribution channels, lucrative supply deals

    Left behind in the market – If competitors grow via inorganic method the firm may become uncompetitive in the market and lose market power

    Time delays to exploit Economies of Scale

    Rapid industry growth may lead to the firm being acquired if growing organically

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