Internal growth, also referred to as organic growth, is the process by which a business expands based on its own resources. It happens when a business uses its current resources and capital to expand. In many of these situations, a company uses up a large portion of its resources without borrowing from outside sources in order to expand its operations and grow the business.
This entails boosting production value, developing fresh goods or services, or concentrating on other developmental techniques. Business owners must first assess the company’s growth potential, come to a strategy, and only then implement the growth plan. Internal growth, however, is typically feasible and can enhance the business’s overall growth. It ought to be the obvious course to take for any company’s growth trajectory to take once the time is right.
Internal Growth v External Growth | Business Strategy
Advantages of internal growth
There are several advantages to implementing an internal growth strategy. Consider these benefits of pursuing internal growth for your organization:
What is internal growth?
Internal growth, also referred to as organic growth, happens when a business uses its own resources and tools to grow. Most frequently, this entails raising production, creating new goods or services, or using other developmental techniques. Internal growth can take some time because the business must first assess its growth potential, choose a strategy, and then put the strategy into action. Internal growth, however, is typically sustainable and can enhance a company’s success in general.
Internal growth vs. external growth
Both internal and external growth aim to increase the size, market share, and profits of a company. However, these two growth categories’ approaches and tactics greatly diverge:
Internal growth is the organic expansion of a business through strategic choices made to increase its size, typically in a particular sector like production, clientele, or region. The company uses its own resources and strengths to grow rather than depending on outside forces, which is a unique undertaking.
When a business seeks to expand externally—also known as inorganically—it collaborates with another organization to accomplish its objectives. This kind of expansion is most frequently accomplished through mergers or acquisitions. While external growth has many benefits, it also restricts the amount of exclusive control the original company can exercise.
Five internal growth strategies
Companies can use a variety of unique strategies under the aegis of internal growth to accomplish their objectives. Consider these five strategies for internal growth:
Increasing production of your business’s current product or products is one method for internal business growth. This is especially helpful if your product is in high demand and you know that increasing production will boost sales. Before increasing production, spend some time reviewing your sales figures because this is one of the most expensive and time-consuming strategies. But if successful, it can lead to some of the greatest levels of internal growth.
As an illustration, Shortys Shoes wants to expand internally. To meet rising demand and seize the expansion opportunity, it decides to increase production of its toddler shoe line.
Developing new products
The addition of a new product or products to your sales line is a further internal growth strategy. Depending on the sector you work in, there might be a clear path to take, while in other sectors you might need to apply more inventive thinking. Whatever the case, launching a new product into the market can draw in a different type of customer and grow both the size and value of your business. Internal product development is typically a high-risk, high-reward strategy for growth. Before investing in development, make sure your company thoroughly investigates the revenue potential of a new product.
For illustration, Hannahs Hats is well-known for producing winter hats for both adults and kids. In an effort to boost sales and perhaps its clientele, it decides to create a summer sun hat for adults.
Establishing new markets
Another internal growth strategy that many businesses use to expand their businesses is to create a new market. A new market is a region or group of people that your business has not yet engaged with. Depending on your product or service, this might involve moving your marketing efforts to a new location within your current geographic reach or even to a different state, region, or country. Since it doesn’t require any R&D or production, creating new markets is one of the most affordable ways to promote internal growth.
Example: The majority of sales at the neighborhood bookstore Bobbys Books have traditionally been made in person. To attract clients from outside the region and expand its business, it recently revamped its online platform.
Increasing current market share
Gaining market share is another low-cost internal growth strategy for your business. The majority of businesses do this by assessing their brand recognition, conducting in-depth market research, and stepping up their marketing initiatives. It’s best to take the time to establish a comprehensive marketing plan that makes use of both digital and conventional methods of customer connection in order to reach more customers in your company’s current market. Typically, one of the faster methods for internal growth is to expand your reach in your current market.
Example: Sues Socks has a niche following amongst active adults. Although it has a devoted following, it wants to attract more people in its target market. A new marketing strategy is developed by Sues Socks in an effort to reach active adults who aren’t yet aware of the brand.
Creating a new business
Making a brand-new company in addition to your current business is another internal growth strategy. Although this approach is frequently one of the most expensive and time-consuming, it has enormous potential for overall growth and ongoing profitability.
Example: Brittanys Bakery sells homemade breads and pastries. It makes the decision to expand its business by opening a related restaurant that serves baked goods from its bakery.
What are some examples of internal growth?
- Increasing sales revenue by enhancing products and services and increasing customer appeal.
- Better marketing of its product range.
- Investment in research and development.
- Improved training of its workforce.
- Expanding the number of offices, factories and outlets.
What is internal and external growth?
There are several ways for a business to expand, including: Internal (organic) growth, where the company expands by adding personnel and equipment to boost output. External growth occurs when a company acquires or merges with another company. Combining two firms increases the scale of operation.
What are the benefits of internal growth?
- Without interference from stakeholders, a business can uphold its own values.
- Higher output enables the company to take advantage of economies of scale and lower average costs.