The Importance of Organic Growth

Organic Business Profits

The Term Organic Applies to More than Food

Having been around for 125 years, Sears is even older than I am. Despite its rich history, it’s now under the supervision of the bankruptcy courts, and its eventual demise seems almost like a sure thing. Failing to effectively compete with many companies, ranging from Amazon to Walmart, it has been surviving largely by closing stores, laying off employees, and selling off some major properties, such as the Sears Tower in Chicago. Profits are unknown to Sears at this point; its somewhat-questionable survival is focused on cutting losses. This practice is certainly not organic.

While a behemoth like Sears can cut losses in this way for a long time, small businesses need to maintain a laser-like focus on organic profits. Let’s examine the meaning of organic, and its importance to your company’s survival and growth.

What Does Organic Growth Mean to Businesses?

The term organic means specific things when discussing food products. While the term has its roots in the same place, this business buzz word applies specifically to how you achieve a positive bottom line. Simply stated, organic growth relates to profit achieved from the successful sales of your company’s products or services. Any profit realized from other activities, such as unwisely pinching pennies — or getting acquired — does not represent organic growth.

So, if your books are in the black because you sold enough goods or services at a profit, you are growing organically. If your books show black solely because you avoided spending or sold business assets, then your business is not even a weed. Keep this up too long without addressing issues that prevent profitable sales, and your business can eventually spiral downward into an abyss.

How Do Businesses Grow Organically?

The short answer to this question is to avoid using your books as the sole indicator of how your business is doing. Look behind the bottom-line numbers to get the real story.

Maybe expected wild success of a new product required significant extra spending, causing losses in the early months. After that, you start seeing profits because you accurately assessed your market, and priced the product high enough to repay the early spending, leading to eventual profits. This kind of planning and execution leads to organic growth.

On the other hand, what if the product turns out to be a sales dud? You might decide that you can cut the price by using inferior materials, laying off some employees, or even cutting back on office supplies for the whole company. Your books may look better for a short time. But, unless you can resolve the real issues that caused the product to fail, getting out of the red is not an indicator of organic growth. Yes, failure can lead to success, but you also need to learn when to let go.

Can You Grow Organically Without the Necessary Funds?

The truth is that many small businesses would be unable to grow without judiciously taking on occasional debt. You may be on a strict budget, but if you’re turning business away because you don’t have the equipment or staffing to keep up with it, your business cannot grow organically. You may need a cash influx that will help you address obvious financial limitations. Of course, an income increase that is created when you deposit the check does not represent organic growth.

If you are absolutely certain that your business can repay debt because it will pay whatever you need to achieve explosive organic growth in a reasonable time period, then go for it. But, it never hurts to seek professional financial advice. A Virtual CFO, for example, might see concerns that you don’t recognize — and help ensure that you get the right type of loan or even an equity investment that best protects your long-term bottom line.

Of course, don’t forget that you should first check every crack and crevice in your business for the funds that you need. For example, you might find that it makes sense to discontinue unprofitable pursuits and apply those freed-up funds to invest in a more promising venture. Still, layoffs cost money, too, so make sure that you will really net enough money from this type of decision.

Maybe your office services company is paying a word processing pool to sit around waiting for the next book-typing deal to appear. It may sound harsh, but perhaps you should consider laying off some or all of those employees to fund a paralegal pool during a time when existing and new customers are clamoring for people who can accurately complete mountains of confusing legal forms.

Organic Growth Can Be a Complex Pursuit

Achieving organic growth is not always as simple as planting a seed and watching it grow. Just last month, Tesla announced plans for a seven percent workforce reduction in order to afford production of a more affordable model. Why choose to lay off 3,100 employees while attempting to increase sales? This sounds counterintuitive.

It’s actually more complex than it sounds. The company is hoping to tap into an expected influx of European sales even as the U.S. market is disappointing. They have customer pre-orders now, and there are signs that Tesla has corrected earlier production woes, so maybe they’re not concerned about maintaining current production staffing. Would a reduction in workforce create new issues? With about 1.5 billion of debt due in 2019, Wall Street has some concerns that more financing might be inevitable. But, big businesses can get away with more risk … at least to a point.

Scale these big business concerns to those of your small business, and you can still see how deeply you need to look into your plans for growth. But with plenty of planning and forethought, organic growth is possible — and maybe even inevitable. Spend as much time as necessary to envision challenges and how to offset them. With the right mindset, you don’t need a multimillion dollar hothouse to grow a rare orchid.

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