How to make organic growth work for you – tips for established companies and for startups
August 25, 2014
Having worked with small and large companies alike, I have come to appreciate the difference between the two in terms of growing businesses organically. Obviously, large established companies have greater resources at their disposal to make organic growth work, and their approach tends to be more cautious, hugging traditional means more. Startups, by their very bootstrapping nature, exclusively apply organic growth principles to their business and their approach would be less conventional, slicing the approach into bite-sized execution. Yet both will find results with organic growth. Hence, I have come to realise that there is no fixed five-step approach to organic growth and to make it happen, you might need to understand the nuances of organic growth. Therefore, in this article, I offer up some insights into how organic growth can be approached for both larger, more established companies, and for the startups (and startups at heart!)
What is organic growth?
Organic growth means to grow your business using your internal resources - including existing customers - and not purchasing it, which is inorganic. We all know about mergers and acquisitions – that is inorganic growth. Inorganic growth can lead to results very quickly, but there are usually integration issues. When you purchase a big company for hundreds of millions of dollars, one of the key things you want to do is to streamline the two entities, often resulting in shedding people and realigning operations. Suddenly, what made the acquired company such an attractive target, now becomes lackluster.
In small businesses, inorganic growth can be as simple as purchasing Google ads to drive people to your website. Again, the results are fast, but if you didn’t have a strategy to integrate the visitors, to convert them and then to engage them over and again, you would lose the investment. And one more thing; the minute the tap runs dry, your visitors stop coming. Immediately!
So essentially, inorganic growth is buying your way to growth.
Organic growth, by contrast, is just the opposite. It is using your internal resources to enable growth. This usually takes more time and effort, but not necessarily so. It ultimately costs less in dollar value, but in some instances, when you consider the time spent on it, it may not be as cheap. However, there is greater intrinsic value, and therefore, is less likely to be fleeting.
In this article, I shall be discussing three key elements in organic growth: new product, growth engine, and customer experience; and the difference between how an established company and a startup can approach them.
Innovation is a key element to new product development. While we can talk a lot about it, we will not be focusing on innovation per se in this post. Instead we use a design thinking approach to new product development.
An established company has a slew of current products that it can use. One of the fastest ways to achieve growth is by repackaging. Bundling current products into different configurations allows the company to reach out to different market segments differently without making many changes internally. The company should first therefore first look to exploit growth through bundling.
The next way it can do is to see how their customers are currently engaging with their product. Are there things that you can do to increase the value of your product to them by incorporating activities done before or after using your product? For example, the iPhone came about because engineers looked at the iPod and identified that if any of the phone companies were to tack a music player to their phone, they could kill the iPod. Hence they decided to kill it themselves, rather than to wait for Nokia or Motorola to do it.
For the startup, they don’t have this portfolio of products, or a slew of customers. In fact, many of them may still be grappling with WHAT to offer. For them, the key is not so much as to have a perfect product as it is to have one on offer. Start with a hypothesis, e.g. “Teenagers want a simple way to earn their own money legitimately” and then go out there and test it out. Test the idea; and if the idea is sound, build a platform and test it; and if that is sound, then test its scalability. Finally, test ways to defend the concept.
That is the key to building a new product.
A growth engine is a means of getting people to buy from you, repeatedly if possible. While these engines remain the same for both established companies as well as startups, there are operational differences that can make the two look as different as chalk and cheese.
The traditional growth engines are your product, the market, your processes, your people and your finances. Find the right mix for all five engines and you will have a successfully growing product.
For established companies, you have had the opportunity to find this out and over time, created your channels to reach your customers. What you have with you is a veritable source of information and you look for your next engine of growth, developing new products (see above), finding new markets, tweaking your processes and leveraging the ideas of your people.
Unfortunately, whatever made them successful in the past may also be the source of their undoing now. Over time, established companies would have learnt the “right way of doing things”, and once identified, built a whole system around optimizing it. Then they enshrine the process; and what started out as a flexible learning-by-doing experiment becomes locked into manuals, knowledge platforms, and operational systems. The people start developing a fixed mindset, trusting that the process and the numbers will prevail; sometimes in the face of mounting evidence to the contrary.
And here’s where the startup can get a leg up. According to Eric Ries in his book The Lean Startup, there are three engines of growth for the startup – the sticky engine; the viral engine and the paid engine.
As we already mentioned, paid is an inorganic solution and so we will not consider that in this post, even if it may at times be a great booster. So there are two: the sticky engine and the viral engine.
The sticky engine is one that acquires a customer and holds onto him/her as long as possible. They have a high customer retention rate. This requires that the customer comes back to you time and time again. This presupposes that you have a product that can be acquired on a continued basis.
For example, Microsoft Office used to be sold as an expensive standalone product. Purchase one license and you can practically use it forever. There is no stickiness to this product. Hence, it had to be priced high. However, Microsoft 365 now treats software as a service (SaaS), thereby charging for use, rather for ownership. This has made the product stickier, because once you have someone hooked on it – and how can you not unhook yourself from it when everyone is using it, and continues to do so? - you can continuously earn from them. Over the lifetime of this product, you will have earned more than the one-time ownership model.
This is an example of stickiness.
The other engine is the viral engine. This is using word of mouth and other social means to get others onboard. So you don’t have to do it yourself but get your customers to get more customers for you. The impact of social proof on organic growth has fuelled the growth of many of today’s biggest companies.
Let’s look at a rather common practice these days. When you sign up for any SaaS, they will always ask to use your contacts and invite all the people in your list that you are using their service and to also invite them to use it too. This is using the viral engine. Somewhat underhanded, some might say, but it is very effective. Research has shown that if you want to get more sign ups, automatically include them in, and then get them to unsubscribe. For example, countries who have an opt-out scheme of organ donation have many times more registrants than those countries that use an opt-in scheme (96% vs 30%). Why? Because most people will not go out of their way to sign up even if they know it does good. By doing it for them, and then giving them the option to not have it, it would increase the chance of going viral.
Why is the viral growth engine so popular? According to Stan Chudnovsky, Ooga Labs co-founder and VP of Growth for Paypal says, “The most powerfully growing products do three things at once: they make you look smart to the people you invite; they give real value to you when the people you invite join; and they give real value to the people you’ve invited once they sign up.”
And this brings us up to the third thing we want to discuss in this post: customer experience.
For either of the sticky or the viral strategies to pay off, there has to be excellent customer experience. You don’t need to have a perfect product to do that; perhaps a less than perfect product may be a great opportunity to showcase your excellent experience. Established companies will also find that customer experience will be the tipping point to maintaining organic growth or not.
To create a great customer experience, you might like to do a customer journey map. First identify the steps you think that your customer (or potential customer) takes to interact with your product – right from the start all the way to the end.
Next, call a segment of your customers and confirm the steps that they take. Many a time, there are discrepancies, and it is through these that you will already see where your and your customers diverge in thinking.
Once you have confirmed the steps, choose a time to see how other customers interact with your product. Once they have completed the experience, ask them to rate each step of the journey on three levels: good, average, or bad. Collect this from several different customers. You don’t need many; just 10-12 would do. This is not a customer satisfaction survey, after all. You will also need to know more about the customer – the demographic and psychographic elements. Once you are done, overlay the different maps and see the overall picture. Focus especially on areas where most people found the step “bad”. Then brainstorm ways to move it up.
By doing a customer journey map, you can start to map out an excellent customer experience that will have them singing rave tunes to make your product sell even better.
There we are, three tips to help your company or startup grow organically:
Develop new products either by looking at ways to package or bundle them better; or by advancing a hypothesis and testing it in the market.
Tweak current growth engines in product, market, process, people and finances; or embrace new growth engines in stickiness or being viral;
Create excellent experiences for your customers (or potential customers) by doing the customer journey map