Financial Solutions

Organic growth and inorganic growth: An insight

The term ‘organic’ denotes the way living beings develop from the womb (internal growth). Time plays a crucial role. Inorganic growth is like assembling built parts (organs) into a system. This is how Investopedia explains: There are two ways for human beings to keep our heads warm. We can grow hair, or we can put on a hat. It takes a while to grow hair, but we create it ourselves. We do not have to pay money for hair; the body grows hair naturally. The hair is equivalent to organic growth, and a hat is equivalent to inorganic growth. Hair doesn’t cost anything, but it takes a while to grow. Those people that don’t grow hair fast may be better off buying a hat or a wig if it’s cold outside. Likewise, it may be easier for some companies to buy a fast-growing company. Indeed, some companies use acquisitions as the foundation of their growth strategy with the expectation that year-on-year growth is expected to decline. In other words, some companies are losing their hair, and inorganic growth vehicles help to manage the loss.

For many businesses, the way forward is growing organically for the first say two to three years. For an online business, you come out with a proprietary software, unique contents, find affiliates and sponsors, build followers and customer list, raise MozRank. This comes close to organic Search Engine Optimization (SEO) where the focus is on generating unique contents and notion of time comes into play.

Organic growth gives an impression of sticking to one place, slow movement, guarding home/core territory. The idea is finding meaning with roots. For months, your business may be generating little revenue. Your confidence in what you are doing is right will be crucial. You use rail instead of flight in order to save money that adds to the bottom line. Cost accounting is in full swing.

Quick top line growth is more often after acquisitions & mergers, inorganic way to expand. With abundant capital, one could have acquired/merged an existing shop or portal on day1. Inorganic growth is more justified when you have built a foundation and then bring into force newer entities. There is a rise in gross sales figure in addition to adding more employees and suppliers. There are more press coverage and public attention. The deciding factor is whether there is a rise in net profit that justifies the expansion effort. Microeconomic theories like increasing returns to scale find relevance.

Even when one goes for inorganic growth, the business purchased is built organically. So, organic growth and inorganic growth are not mutually exclusive. One strategy could be to go for organic growth in your core business and use inorganic ways to capitalize like a catering firm expanding with acquiring confectionery brands. One could see that more than often the natural way is building a foundation through organic growth and then capitalizing on inorganic growth.

A rough way to look at organic growth and inorganic growth is doing work by yourself equivalent to organic growth and hiring others to do inorganic growth. Acquiring a new business is obviously not hiring in the strict sense.

For a sole proprietor, the choice to grow organically or inorganically is to a great extent about personal preference. For a software vendor, one way could be to acquire newer software brands and other to continue developing the existing product because of bonding that the proprietor has with it irrespective of lost business opportunities.

Here is the experience of an Android apps developer on Quora:

“My recipe for success is love and dedication. I didn’t make the app for money. Of course, there are full (paid) and free (ad-powered) versions, but the most of the money is re-invested back into the app to bring new features, new translations, improve functionality, pay for licenses and tools, etc. It’s not even earning me enough money to be the only source of income, but I still spend a lot of time making the app better because the most rewarding are positive comments and feedback from users. I love to work on the app and dedicate a lot of time to it. And not only to the development itself but also to answer every single email and every single Google Play comment, to produce guides and introduce little-known features, etc. Also, I listen to people and over the past few years, their suggestions changed how the app looks and works – for better.This is one of the reasons why sole proprietorship business remains small and listed companies expand over time, other things remaining constant…”

This is one of the reasons why sole proprietorship business remains small and listed companies expand over time, other things remaining constant.

Recommended Readings:
Hire slowly, grow slowly: how we grew from 1 to 100 employees by Aytekin Tank, founder at


FutureLearn Limited

Why share trading not a zero-sum game?
Online lending platforms for loans when banks refuse

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.