Methods of Growth
How does a small firm become a big one? Compare organic and external growth, weigh mergers against takeovers, and see how growth is paid for.
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From small to big
Most businesses want to grow: more customers, more sales, more profit. But there is more than one way to do it, and each has its own risks. The big split is between growing from within and growing by joining with others.
Two kinds of growth
Learn the four key terms:
Match each method to its meaning
- Merger
- Takeover
- Organic growth
- E-commerce
- Two businesses agree to join together
- One business buys control of another
- Growing with the business's own resources
- Growing by selling online
Name it
What is a takeover?
- One business buying control of another
- Two businesses merging as equals
- Opening a new shop of your own
- Closing a business down
Ways to grow
A business can grow organically by: - opening new branches or stores; - entering new markets (new areas or countries); - selling online through e-commerce; - launching new products. Or it can grow externally through mergers and takeovers.
Organic or external?
Which of these is an example of organic (internal) growth?
- Opening a new branch of your own shop
- Buying a rival company
- Merging with a competitor
- Being taken over by a bigger firm
Paying for growth
Big growth needs money. A business may become a public limited company (PLC) and sell shares on the stock exchange to raise finance; it can also use retained profit or loans. The trade-off: external growth is faster but riskier, while organic growth is slower but keeps more control.
External growth
Select the TWO examples of external (inorganic) growth.
- Merging with another business
- Taking over a competitor
- Opening a new store yourself
- Launching your own new product
Match each term to its description
- Organic growth
- External growth
- A new market
- Retained profit
- Slower, lower risk, keeps control
- Faster, but higher risk
- A new area or country to sell in
- Profit kept to reinvest in growth
Growth frame
_____ growth uses a firm's own resources, such as opening branches. _____ growth means joining with or buying another firm through a merger or _____. External growth is faster but carries more _____.
Choose how to grow
Advise different businesses on how to grow.
- A cafe owner wants to grow slowly while keeping full control. The best method is to...
- A firm wants to grow fast and gain a rival's customers. It might...
- Compared with organic growth, external growth is generally...
A path to growth
Put one common growth path in a sensible order.
- Start as a small local business
- Open more branches nationally
- Expand online through e-commerce
- Merge with or take over a rival
Recommend a method
A small bakery wants to grow. Recommend ONE method of growth and explain your choice, weighing a benefit against a risk.
- Name a method (organic growth or external growth)
- Give one benefit of your chosen method
- Note one risk or drawback