Organic and external growth

In one paragraph

A business gets bigger either by selling more of what it already does, or by joining with or buying another business.

Organic (internal) growth means growing from within: more customers, more outlets, new products, new markets. It is funded from profits or borrowing, it is slower, and it is more controllable.

External (inorganic) growth means growth by combining with another business. A merger is two businesses agreeing to become one. A takeover (acquisition) is one business buying control of another, whether the other wants it or not.

Why external growth is fast and dangerous

Buying a competitor buys their customers, staff and capacity overnight. It also buys their problems, their culture and their contracts, and the buyer usually pays a premium for the privilege. Integration is where most of the value is won or lost, and it is consistently harder than the spreadsheet suggested.

Organic growth risks being too slow. External growth risks being too much, too fast, with borrowed money. Neither is the safe option; they fail differently.

How to actually use it

• Before buying anything, write down what you are actually buying — customers, capacity, a brand, a team, or a competitor removed. If you cannot name it, you are buying revenue at a premium.
• Cost the integration, not just the purchase. Systems, redundancies and the months where nobody is selling because everybody is in meetings.

Where it breaks down

• The categories blur. Franchising, licensing and joint ventures are growth routes that are neither cleanly organic nor a takeover.

If you are being examined on it

Examiners want the trade-off, not the definitions: speed and scale against cost, debt and integration risk. Anchor it to the business in the case.

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