Organic Growth Definition
Almost every business blog on the Internet will offer you a definition of organic growth, but they’re usually vague at best and downright nonsensical at worst. Advantage Media Group reframes the meaning of organic growth to teach you the basic components of growing your business organically. We break down each part of our definition to show you how organic growth works.
What Is Organic Growth?
Investopedia defines organic growth as “the growth rate that a company can achieve by increasing output and enhancing sales.” This is a basic definition for organic growth, but leaves out some critical aspects.
Business Dictionary goes a bit further, qualifying that organic growth must come from a firm’s “own (internally generated) resources, without resorting to borrowing or acquisition of other firms.” Again, this is an accurate definition, but focuses more on what organic growth isn’t – mergers and acquisitions – rather than what it is.
Forbes simply defines organic growth as “growth from within.” This is a simpler but perhaps more accurate definition than the previous two. We draw from these (and several other) sources to come up with an organic growth definition that is more than just “not inorganic growth.”
Organic growth expands a company’s size and profits via internally produced resources.
What Is Growth?
All these definitions mention growth, but none actually define it. What is business growth? If you hire more employees, is that growth? Not if you don’t actually need them. What about offering more products? You can offer thousands of products, but if you’re only selling a few of them, adding more doesn’t really grow your business. You can increase your marketing efforts, but if it doesn’t have a significant (and positive) effect on your bottom line, it doesn’t count as growth.
For true organic growth, your company must be growing in both size and profitability. There are many ways this can come about, and one often leads to another. For example, you may expand your customer base by adding a new product line. As demand for your product grows, you need to hire more employees to keep up with it. Your company has grown – in size and profitability.
What Are Internally Produced Resources?
Internally produced resources haven’t necessarily been with your company from the beginning. If you hire a new marketing manager, for example, the materials he creates become internally produced resources. When your business earns money, anything you spend it on can be considered an internally produced resource. Plow your savings and returns back into the operating unit that achieved them, and the returns will be even greater.
This organic growth definition is still just a basic framework. For more detailed information on internally produced resources, methods of organic growth, and the difference between organic and inorganic growth, follow the Advantage Media blog!