Big businesses always knew it: growing a business through acquisition is faster, cheaper and much less risky than expanding on your own.
Any entrepreneur who himself started from scratch will be able to agree: building a business takes years of blood, sweat and tears. Long working weeks, a lot of stress and you are happy when you can pay all the bills at the end of the month. Anyone who wants to continue to grow their business after that will have to keep working very hard. There are no shortcuts to success.
You also often find this traditional entrepreneurial wisdom - growth is the result of hard work - among business consultants, teachers and supervisors of growth programs for entrepreneurs. Therefore, most growth plans of SMB businesses often focus on organic growth through increasing marketing and sales efforts. And in many cases, if done properly, these activities will certainly contribute to the continued growth and flourishing of the business.
But the fact is that it is not yet so easy for a mature business to achieve double-digit growth on its own (autonomously). To get an idea: 97% of all Dutch businesses with employees grow less than 5% per year. Of all businesses with more than 10 employees, only 13% are growing at more than 10% per year (CBS). Anyone who, as an entrepreneur, wants to accelerate their growth rate to 20, 30 or 50% - growth is a choice - will therefore have to look for other ways to do so.
Growth strategies
If you want to grow your business - and especially if you want to grow by more than 10% per year - you will first have to have a plan. That plan starts with formulating a strategy, the route you choose to take to reach your goal. Formulating a strategy involves making choices. You can't do everything at once, so you have to prioritize. Or as the well-known American strategy professor Michel Porter puts it, "The essence of strategy is, above all, choosing what not to do.
From the economic literature, there are three different strategies for a business to grow:
- Organic growth: often seen as the default growth option. An organic growth strategy is growing based on internal company resources and capabilities.
- Mergers & acquisitions: achieving growth by merging two previously independent businesses where ownership changes.
- Strategic alliances: Growth through collaboration of two businesses. This can be through the creation of a new entity (joint venture) or based on a business commitment (franchising, licensing).
Do it yourself or acquire it?
With all the growth strategies mentioned, the question for entrepreneurs is: am I going to do it myself or am I going to acquire a business that is already active with this product or in this market? Organic growth often involves less risk for businesses than other types of growth. It is also easier to manage, easier to finance through internal profits and less disruptive to staff and regular business operations. Biggest disadvantage of organic growth is that it takes a lot of time - it's slow - and you also have to see if it becomes a success.
To get an idea on growing by acquisition the following example. Suppose you have built a business in ten years with revenues of 4 million euros. You are ambitious and want to grow 50% in the coming year. Via Brookz you have found a comparable business with a revenue of 2 million euros that you can buy for 1.5 million euros. So 50% growth in this case costs you 1.5 million euros with an almost 100% certainty that you will realize this within a year.
The alternative to this acquisition is to achieve 50% growth (= 2 million in revenue) the traditional way, through increasing marketing and sales efforts. But how much is that going to cost you? And how long is that going to take? And how likely is it that with this additional marketing and sales effort you will also achieve the targeted growth? Very likely less than 50% - if not even less.
This example illustrates well what large businesses have always known: growing a business through acquisition is faster, cheaper and much less risky than expanding on your own.
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