Overview

Organic growth is an absolute necessity of every business: big or small, old or new, high tech or low tech.   For the vast majority of businesses, it is the largest source of profitable growth, requires less investment than inorganic growth, and achieves the highest returns.   To provide steady growth over time, the business must continually invest in organic growth and develop new potential growth avenues.  

The real question is not whether to grow but rather where and how to invest in growth.   Avondale has advised companies on a number of organic growth strategies.   Our past client work has addressed the following issues:

•  Core business growth

•  Growth through adjacencies

•  Customer value enhancement

•  Growth through innovation

Our Perspective

Gaining an understanding of the best opportunities for organic growth starts in the core of the business.   The opportunities with the highest return on investment and likelihood for success are those that leverage the strengths of the core business.   Often, these opportunities lie within the business's existing markets or in a more broadly defined market space than the business has traditionally targeted.   In our experience, management teams are often surprised by the amount of potential growth that is left in the core business, through increasing market share or enhancing margins.   Also, some businesses have historically underestimated the size of their markets by defining their addressable markets too narrowly.   Depending on the business and industry, 50-75% of organic growth opportunities may be found within the core business.

The next best source of growth opportunities is within adjacent markets where the business can leverage its core strengths. Many businesses must turn to adjacency growth when core growth opportunities have been fully tapped. Adjacency growth often involves entering new customer markets by tailoring and targeting existing product offerings or entering new product markets by offering additional products to the business's existing customers. A management team can gain a better understanding of their best adjacency growth opportunities by defining the core elements of their business, or parts of their business that they could best leverage in entering adjacent markets. The core elements of the business will likely be the areas where the business is the most profitable and the most advantaged relative to competitors. These core areas often make the best leverage point for adjacency growth.

A management team must develop a robust set of strategic alternatives for further penetrating existing markets or entering adjacent markets.   The key to this is employing an innovation process that identifies new or better ways to provide value to customers.   Any organic growth solution must stem from an enhanced offering that provides greater customer value.    Transferring this customer value into company value requires attracting more customers or increasing revenues per customer.  

Typical Questions to Consider

• Where are profits concentrated within the core business (e.g., products, customer segments, channels, etc.)?
• What are the strengths of the core business and which adjacent markets best leverage these strengths and provide the best opportunity for investment?
• What is market size and growth of the business's core and adjacent markets?   What are the relevant market trends?
• How do customers assess the relative value they receive from the business vs. competitors?   What are the key drivers of difference in customer value?
• What are the alternatives for investing in organic growth?   What product or customer innovations would provide the greatest opportunity for profitable organic growth?
• What is currently constraining organic growth?   What can be changed to allow the business to grow effectively?
• What investments are necessary for each potential organic growth opportunity?   Given knowledge of the markets and the business's relative strengths, what is the expected path and return on investment from each potential opportunity?