Organic vs Inorganic Growth Strategy? Which one to choose and When?

Organic vs Inorganic Growth Strategy? Which one to choose and When?

One of the frequent questions founders ask is how to resolve this ๐—ฏ๐˜‚๐˜† ๐˜ƒ๐˜€ ๐—ฏ๐˜‚๐—ถ๐—น๐—ฑ conundrum.

๐—œ๐˜€ ๐—ถ๐—ป๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ ๐˜€๐˜๐—ฟ๐—ฎ๐˜๐—ฒ๐—ด๐˜† ๐—ฎ ๐—ฟ๐—ผ๐˜‚๐˜๐—ฒ ๐—ณ๐—ผ๐—ฟ ๐—พ๐˜‚๐—ถ๐—ฐ๐—ธ๐—ฒ๐—ฟ ๐—บ๐—ฎ๐—ฟ๐—ธ๐—ฒ๐˜ ๐˜€๐—ต๐—ฎ๐—ฟ๐—ฒ/๐—ด๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐—ฟ๐—ฒ๐—น๐—ฎ๐˜๐—ถ๐˜ƒ๐—ฒ ๐˜๐—ผ ๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ?

1๏ธโƒฃ In my view, if the firm intends to enter a new business segment related to its existing business, then the organic strategy works better, mainly if it is an excellent performer in its current industry. For instance, a ๐—ณ๐—ถ๐—ฟ๐—บ ๐˜„๐—ถ๐˜๐—ต ๐—ฎ ๐˜€๐˜๐—ฟ๐—ผ๐—ป๐—ด ๐—ฏ๐—ฟ๐—ฎ๐—ป๐—ฑ ๐˜€๐—ต๐—ผ๐˜‚๐—น๐—ฑ ๐—ถ๐—ป๐˜ƒ๐—ฒ๐˜€๐˜ ๐—ถ๐—ป ๐—ถ๐˜๐˜€ ๐˜€๐—ฎ๐—น๐—ฒ๐˜€ ๐—ณ๐—ผ๐—ฟ๐—ฐ๐—ฒ ๐—ฟ๐—ฎ๐˜๐—ต๐—ฒ๐—ฟ ๐˜๐—ต๐—ฎ๐—ป ๐—ฎ๐—ฐ๐—พ๐˜‚๐—ถ๐—ฟ๐—ถ๐—ป๐—ด ๐—ณ๐—ถ๐—ฟ๐—บ๐˜€ ๐˜๐—ผ ๐—ด๐—ฎ๐—ถ๐—ป ๐—ฎ๐—ฐ๐—ฐ๐—ฒ๐˜€๐˜€ ๐˜๐—ผ ๐—ป๐—ฒ๐˜„ ๐—ฐ๐˜‚๐˜€๐˜๐—ผ๐—บ๐—ฒ๐—ฟ ๐—ฟ๐—ฒ๐—น๐—ฎ๐˜๐—ถ๐—ผ๐—ป๐˜€๐—ต๐—ถ๐—ฝ๐˜€.

2๏ธโƒฃ A firm should decide if the inorganic strategy helps in either giving it a ๐—ณ๐—ถ๐—ฟ๐˜€๐˜ ๐—บ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ฎ๐—ฑ๐˜ƒ๐—ฎ๐—ป๐˜๐—ฎ๐—ด๐—ฒ ๐—ผ๐—ฟ ๐—ฐ๐—ฎ๐—ป ๐—ผ๐˜ƒ๐—ฒ๐—ฟ๐—ฐ๐—ผ๐—บ๐—ฒ ๐—ฐ๐—ผ๐—บ๐—ฝ๐—ฒ๐˜๐—ถ๐˜๐—ผ๐—ฟ๐˜€ ๐˜„๐—ต๐—ผ ๐—ต๐—ฎ๐˜ƒ๐—ฒ ๐—ฎ ๐—ณ๐—ถ๐—ฟ๐˜€๐˜ ๐—บ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ฎ๐—ฑ๐˜ƒ๐—ฎ๐—ป๐˜๐—ฎ๐—ด๐—ฒ. For instance, if a firm has invested $10 million in blockchain for the last five years to build its market share. A competitor cannot dislodge the firm’s first mover advantage by investing organically worth $50 million in a single year. Instead, he is forced to consider inorganic growth.

๐—ง๐—ต๐—ฒ ๐—ฝ๐—ผ๐—ฝ๐˜‚๐—น๐—ฎ๐—ฟ ๐—ป๐—ผ๐˜๐—ถ๐—ผ๐—ป ๐˜๐—ต๐—ฎ๐˜ ๐—ถ๐—ณ ๐˜€๐—ฝ๐—ฒ๐—ฒ๐—ฑ ๐—ถ๐˜€ ๐—ฒ๐˜€๐˜€๐—ฒ๐—ป๐˜๐—ถ๐—ฎ๐—น, ๐—ถ๐—ป๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ ๐—ด๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐—ด๐—ฎ๐—ถ๐—ป๐˜€ ๐—ฝ๐—ฟ๐—ฒ๐—ฐ๐—ฒ๐—ฑ๐—ฒ๐—ป๐—ฐ๐—ฒ ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ ๐—ด๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐—ถ๐˜€ ๐—ณ๐—ฎ๐—น๐—น๐—ฎ๐—ฐ๐—ถ๐—ผ๐˜‚๐˜€. The problem is the ๐˜€๐—ฒ๐—ฐ๐—ผ๐—ป๐—ฑ ๐—บ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ฑ๐—ถ๐˜€๐—ฎ๐—ฑ๐˜ƒ๐—ฎ๐—ป๐˜๐—ฎ๐—ด๐—ฒ. If competitors have relevant assets and it is difficult for you to replicate them, or there is a substantial second mover disadvantage for trying to build similar resources, thenย ๐—ถ๐—ป๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ ๐—ด๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐—ถ๐˜€ ๐˜๐—ต๐—ฒ ๐—ฟ๐—ถ๐—ด๐—ต๐˜ ๐—ผ๐—ฝ๐˜๐—ถ๐—ผ๐—ป.

Inorganic growth strategy has its downsides – High control premium, loss of motivation of target employees and integration costs. If the ๐—บ๐—ฎ๐—ด๐—ป๐—ถ๐˜๐˜‚๐—ฑ๐—ฒ ๐—ผ๐—ณ ๐˜๐—ต๐—ฒ ๐˜€๐—ฒ๐—ฐ๐—ผ๐—ป๐—ฑ ๐—บ๐—ผ๐˜ƒ๐—ฒ๐—ฟ ๐—ฑ๐—ถ๐˜€๐—ฎ๐—ฑ๐˜ƒ๐—ฎ๐—ป๐˜๐—ฎ๐—ด๐—ฒ ๐—ฒ๐˜…๐—ฐ๐—ฒ๐—ฒ๐—ฑ๐˜€ ๐˜๐—ต๐—ฒ ๐—ฑ๐—ผ๐˜„๐—ป๐˜€๐—ถ๐—ฑ๐—ฒ๐˜€ ๐—ผ๐—ณ ๐˜๐—ต๐—ฒ ๐—ถ๐—ป๐—ผ๐—ฟ๐—ด๐—ฎ๐—ป๐—ถ๐—ฐ ๐—ด๐—ฟ๐—ผ๐˜„๐˜๐—ต ๐˜€๐˜๐—ฟ๐—ฎ๐˜๐—ฒ๐—ด๐˜†, ๐˜๐—ต๐—ฒ๐—ป ๐—ฏ๐˜‚๐˜†๐—ถ๐—ป๐—ด ๐—ถ๐˜€ ๐—ฎ ๐—ฏ๐—ฒ๐˜๐˜๐—ฒ๐—ฟ ๐—ฑ๐—ฒ๐—ฐ๐—ถ๐˜€๐—ถ๐—ผ๐—ป ๐˜๐—ต๐—ฎ๐—ป ๐—ฏ๐˜‚๐—ถ๐—น๐—ฑ.



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