Article

How to break through a business plateau with inorganic growth

June 8, 2017 · Authored by Timothy Meyers

After years of strong growth and increased market share, many successful businesses ultimately find themselves plateauing and unable to maintain the growth that made them successful. The revenue plateau figure varies, depending upon market and industry, but the symptom is universal: year-over-year growth becomes ho-hum. Changes in the business that once yielded significant upside now barely move the needle. The base business has grown to a size that only significant and “unnatural,” or unforeseen, changes will have the potential to yield the growth that had come in the past.  

These “unnatural” changes could be what is described as inorganic growth strategies. These strategies, when properly planned and executed, can help companies grow and increase enterprise value, ultimately creating an organization positioned for strong compound growth.

Partnerships and purchases

Companies can pursue inorganic growth in several ways, from strategic relationships that benefit both parties to traditional mergers and acquisitions (M&A).

Many businesses have used strategic partnerships as a method to leverage their business. These partnerships allow complementary organizations to generate mutually beneficial revenue synergies and cost savings. In some cases, this is a great way for a potential acquirer to better understand the partner’s business.  In the software world, many of these strategic relationships create channels into new markets. Fonteva, a software company that builds membership and event management solutions, uses referral and implementation partners to expand its customer base. A strategic partnership with Salesforce has allowed Fonteva to take its product previously focused primarily on associations and charitable organizations to new markets—state and local governments, including municipal utilities and recreational departments. This has helped Fonteva increase its addressable market exponentially.

Growth through mergers and acquisitions

M&A offer a means to expand into new markets and/or to improve buying power. In addition to acquiring new customers, talent, intellectual property and the ideas that come with these, purchases of another company can optimize the supply chain by eliminating pass-through charges or improve efficiency and economies through scale.

M&A can also increase the metrics by which the valuation of the organization is based. For example, a $100M revenue company that has similar margins as its public competitor of $500M will be valued at a lower multiple of earnings or revenue. As that $100M company grows through M&A, its value multiple will increase and may overtake its public company competitor based on their respective growth rates. Through the ability to sell each company’s products and services into the other’s customer base, the combined company has the ability to grow revenue and reduce costs much better than if they stayed independent.