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.