Inside Melbourne’s high-rise towers, small offices, and co-working spaces, and behind historic building facades, a digital revolution is taking place. Over the past few years, the city’s burgeoning technology industry has placed the city well and truly on the map as a destination for global innovation, and has earned it the title of Australia’s tech capital.
It is now home to more than half of Australia’s top 20 technology companies. With more than 8,000 technology businesses operating in Victoria, the industry generates $34 billion in revenue each year, employs about 90,000 people, and accounts for approximately 31% of Australia’s entire ICT workforce, according to InvestVic.
Melbourne is a city that produces more IT graduates than any other Australian city, and is ripe with opportunity to nurture, grow and attract global talent, and will continue its rise as a true hub for technology and innovation.
The future of technology in Australia is exciting, and that future is coming from Melbourne.
So, what’s “Organic Growth”; Organic growth is the gradual growth in a company’s revenue through the slow and steady acquisition of new customers with a limited budget.
This slow and steady approach is common in old school businesses that lack the knowledge and capital to grow rapidly. I know I founded my first business this way decades ago, and it was a damn hard struggle trying to drive growth using small increases in revenue to fund sales and marketing.
It’s common to see businesses like these with limited funds to spend on the important areas that drive revenue, areas like sales, marketing and product development; this typifies organic growth.
These businesses are in effect capital constrained which is the main cause of organic growth, the investment community sometimes refers to this as being “under capitalised”. Which leaves few alternatives other than raising capital.
Now if you had capital in your company and could spend an extra million dollars on sales, marketing and advancing your product I’m sure you would be achieving more rapid growth maybe even 20% a month.
Wouldn’t that be a significantly better outcome?
The other reason why you might need to raise capital is you might be in an industry or a sector where you have competition that is rapidly coming up behind. You don’t want to be overtaken by your competition, which means you need to grow quicker than your competition and to do that you need capital. Organic growth is probably going to see you wiped out by your competition.
Let’s look at two examples.
Company X is a 3 year old small business with 100 customers, X is consistently picking up one new customer a month with a small budget for sales and marketing based on existing revenue. So each year Company X adds 12 customers which is a 12% annual growth rate. Now this is okay for a lifestyle business and organic growth but bad for a business or Startup if you want to exit for millions.
Company Y is a 2 year old Startup with 50 customers, X is consistently picking up five customers a month with a $800k budget for sales and marketing funded by a Series A investment. So, each year Company Y adds 60 customers which is a 120% annual growth rate.
Company Y will overtake Company X in its third year.
So organic growth is a mugs game because your limiting your growth and therefore you need to raise capital.
Furthermore, if your product is online, cloud, software as a service or in a high technology sector, your market is advancing, innovating and growing at higher than average rate
The days of slow organic growth are over, rapid advances in technology are enabling companies to quickly grow and service more customers with less effort. Artificial Intelligence is a prime example of this, if you haven’t heard, it’s going to impact every industry in the coming decade. This is not a bad thing, you can use it to your advantage by developing a smarter sales and marketing strategy using technology.
Bottom line those raising capital have more money to spend than those that do not. Which means you have little choice but to raise capital to not only secure your market but to grow your revenue before your competitive advantage evaporates and your competition overruns your market position.
Don’t even think about organic growth, it’s a mugs game.
Take the smarter path to success and start planning your capital raise now.
Founders are increasingly pointing to Asia when asked for an example of a product they aspire to create, and WeChat is very often that aspirational product. My friend and former colleague Connie Chan described WeChat as “the one app to rule them all”.
It used to be a rare thing when start-ups were valued at $1 billion or more by their investors. Now it’s become so common that there are at least 131 start-ups boasting such valuations and a term — “unicorns” — to refer to the companies.