Organic growth vs acquisition. Which is better for companies that want to scale during the time of the Covid-19 pandemic?
It is tempting in the present climate to forget about growth and focus purely on survival. Batten down the hatches, cut costs and try to weather the storm. After all, the Covid-19 pandemic has blown through the global economy, cutting swathes through once vibrant, profitable industries leaving a trail of destruction. It is this very destruction, however, which perhaps presents the biggest opportunities of all.
In a recent webinar series, tech entrepreneur and leadership consultant Michael Anderson and I compared the current situation to a natural disaster like an earthquake or a hurricane rather than a typical recession. Despite the destruction, for the most part the infrastructure of growth is relatively intact. There is demand for products and services and the mechanisms for funding still exist — unlike the 2008 recession, for instance.
What we found was that companies that react by cutting costs, shedding jobs and curtailing their growth plans often come out of recessions significantly worse off, or not at all. We suggested that companies that looked to the future and factored growth into their strategies were the ones that, on balance, had the best chances for coming out of the pandemic recession intact.
Invest where you can
The very mechanisms which allow companies to grow are the ones that are the most easily curtailed; research and development, marketing and training and development for instance. Cutting these activities may cut costs in the short term but they hinder the potential for growth and recovery in the medium to long term. Likewise, straying outside of core activities or acquiring other companies because there is a bargain to be had also typically resulted in poor results.
On the other hand, companies that invest in their talent and growth activities and who look to the future are the ones that more often come out on top. These are the companies that recognise that Schumpeter’s “gale of creative of destruction” presents an opportunity. New markets, new customers, new products or services. For those businesses that take a long hard look at their internal processes, their skills and resources and then match these to what customers now need and want, there may be a significant chance for growth. For those that stick with the tried and trusted in industries that have been decimated may not be so lucky.
Revolution, evolution and opportunity
That is not say that it will be easy. Many very good companies will cease to exist. Indeed, there may even be entire industries which struggle to emerge from this pandemic. In essence, what we are seeing is a decades long natural process of evolution and revolution taking place over months. Just look at how the market for photographic equipment has changed over the last 100 years.
From plate photography to digital cameras to the very latest phones. This is an industry which has changed beyond recognition but, by and large, this took many years. Those companies which adapted and looked to the future or who seized opportunities have done very well. Those that did not, well, Kodak anyone?
Now what if that decades long evolution happened over a few years or even a few months? What opportunities would present themselves? Companies that have slashed their workforces, cut development and stopped R&D may well find it difficult to seize opportunities. Those that have invested may find that the world is very suddenly their oyster.
Take Zoom for instance. In January 2020, the Zoom platform was still seen as a niche platform but by June 2020 it was the de facto default communication platform for many companies. It has been able to innovate to keep up with an explosion in demand, keeping ahead of many of its competitors by recognising what customers now need and want. What customers wanted in January was quite different to what they needed by June. Other platforms have perhaps suffered as they struggled to keep up with the pace of innovation that Zoom is able to set. Had Zoom neglected to innovate and adapt their offering to what their new customers wanted then they would have found that other companies would have taken advantage.
Organic growth vs acquisition
Ask yourself this. Have you had a conversation about growth? Is it something you have built your strategy around? Perhaps the question isn’t organic growth vs acquisition but rather seizing opportunity where it reveals itself. It is tempting to see growth by acquisition as a straightforward route to market leadership and it might very well be. But what is it you would be acquiring? Does the potential acquisition fit with your strategy? Does it enhance your core offering? Is your culture robust enough to integrate a new company? If not, you may want to take a step back even if the potential acquisition is a bargain.
Organic growth may be the smart choice for many companies at the moment. Other companies’ losses may be your gains. An influx of talent in the job market may present you with the ability to enhance your offering and take advantage of the opportunities presented. If you have the talent and you are innovating your product or service and investing in technology, then organic growth may well be there for the taking.
Who is your customer and why do they use you?
First of all you might want to take a step back and answer one final question: Who is your customer and why do they use you? Have you spoken to your customers lately? Do you still deliver the value they require or solve the pain that they are facing? That is where the growth starts.
- Think about what your company should look like in three years and work backwards
- Growth needs to be part of your strategy
- Invest in your culture and your own growth
- Make sure your managers and team has the tools & skills they need to thrive
- Invest in R&D, marketing and technology
- Only acquire what enhances your offering to your customer
Dr Nick Quinn is a lecturer in entrepreneurship at the Adam Smith Business School, University of Glasgow