Learn: Organic and External Growth

Welcome!Today we'll learn about organic and external growth in business. This is an important topic that explains how businesses expand and develop over time. Let's explore the key concepts together!

What is Business Growth?Business growth means a company is increasing its size, market share, or profits. It is a key objective for many businesses as it allows them to become more competitive, increase revenue, and achieve long-term success.

Organic GrowthOrganic growth happens when a business expands naturally by increasing its output, sales, or customer base. It often involves strategies like opening new stores, launching new products, or improving marketing efforts. This type of growth uses the business's internal resources rather than relying on external help.

External GrowthExternal growth occurs when a business grows by joining with or buying another business. This can happen through mergers (two businesses combine to form one) or takeovers (one business buys another). External growth is often faster than organic growth but can be more expensive and risky.

Comparing Organic and External GrowthBoth types of growth have benefits and drawbacks:Organic growth is often less risky and easier to manage but can take longer to achieve.External growth is faster but can be more expensive and challenging due to integration issues.

Methods of Organic GrowthCommon methods of organic growth include:Franchising: Expanding the business by allowing others to operate branches under your brand.Opening new outlets: Increasing the number of stores or locations.Developing new products: Attracting more customers by offering innovative goods or services.

Methods of External GrowthExternal growth can involve:Mergers: Two companies combine to form a single business entity.Takeovers: One company purchases another to gain control.These methods enable rapid growth and access to new markets or products, but they often require significant investment and can lead to challenges in integrating different business operations.

Economies of ScaleAs businesses grow, they may benefit from economies of scale. This means the cost of producing each individual item decreases as production increases. For example, they can buy raw materials in bulk at a lower cost, or use more efficient equipment to produce goods faster and cheaper.

Diseconomies of ScaleHowever, growth can sometimes lead to diseconomies of scale. This happens when businesses become too big to manage efficiently, causing problems like poor communication, low employee motivation, or inefficiencies in decision-making processes.

Unit CostUnit cost is the cost of producing one item. It is calculated by dividing the total cost by the number of items produced. Economies of scale can help businesses lower their unit cost, but diseconomies of scale can increase it if they're not managed well.

Review Time!Great work! You've learned about organic growth, external growth, economies of scale, diseconomies of scale, and unit cost. Now let's test your understanding with a few questions.