A buy-and-build strategy is a growth model in which you grow your business by acquiring other businesses, rather than relying solely on organic growth through marketing and sales. For most businesses, achieving double-digit growth on their own is difficult. An acquisition often delivers a predetermined level of revenue growth within a year, whereas organic growth is slower and more uncertain.
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 has started a business from scratch will agree: building a business takes years of blood, sweat, and tears. Long workweeks, a lot of stress, and you’re just happy if you can pay all your bills at the end of the month. Anyone who wants to continue growing their business after that will have to keep working very hard. There are no shortcuts to success.
This traditional entrepreneurial wisdom—that growth is the result of hard work—is also frequently echoed by business consultants, instructors, and coaches in growth programs for entrepreneurs. Most growth plans for small and medium-sized businesses (SMEs) therefore often focus on organic growth through increased marketing and sales efforts. And if executed properly, these activities will certainly contribute to the business’s continued growth and success in many cases.
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.
What growth strategies are there?
If you want your business to grow—and especially if you want to grow by more than 10% per year—you’ll first need a plan. That plan starts with formulating a strategy: the path you choose to reach your goal. Developing a strategy involves making choices. You can’t do everything at once, so you have to set priorities. Or, as the renowned American strategy professor Michael Porter puts it: “The essence of strategy is, above all, choosing what you’re not going to do.”
From the economic literature, there are three different strategies for a business to grow:
- Organic growth: Often seen as the standard growth option. An organic growth strategy involves growing based on internal resources and capabilities.
- Mergers & Acquisitions: Achieving growth by combining two previously independent businesses, resulting in a change in ownership structure.
- Strategic alliances: Growth through collaboration between two businesses. This can be achieved by establishing a new entity (joint venture) or through a business partnership (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.
Frequently Asked Questions
What is a buy-and-build strategy?
A growth model in which you grow your business by acquiring other businesses, rather than (solely) growing organically through marketing and sales.
What’s the difference between organic growth and growth through acquisitions?
Organic growth is growth based on your own internal resources and capabilities, and it typically happens slowly. Growth through acquisition adds another business’s revenue and market share all at once, with a much greater certainty that you’ll achieve your growth target within a year.
What are the benefits of growing through acquisitions?
An acquisition is generally faster, cheaper, and less risky than organic growth, because the revenue growth to be achieved is calculated in advance and is therefore much more certain than the results of additional marketing and sales efforts.
What are the disadvantages of organic growth?
Organic growth takes a lot of time, is a slow process, and you can’t be sure in advance whether the extra effort will actually lead to the desired growth.
What growth strategies are available to a business?
Economic literature distinguishes three strategies: organic growth, mergers and acquisitions, and strategic alliances (such as joint ventures, franchising, or licensing).
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