Mergers and acquisitions activity is at an all-time high — global mergers and acquisitions have already broken 2020 levels with about $4.4 trillion worth of deals as of October 2021. So how can startups, especially early-stage startups, get in on the action?
The answer is a growth strategy that takes both inorganic and organic growth into account, never relying on one more than the other. In my role as a growth equity expert and venture capital investor for more than 20 years, I’ve seen companies leverage these different kinds of growth to their advantage — and their downfall.
Essentially, businesses can grow in two ways: Organic and inorganic. For our purposes, organic growth refers to internal efforts to increase revenue, like speeding up output, expanding product offerings, building infrastructure and customers, and hiring staff. Inorganic growth is driven by mergers with or acquisitions by other companies or joint ventures.
Organic growth tends to be slower, whereas inorganic growth often acts as a booster shot, propelling companies forward. Startups are currently harnessing both to drive innovation and market growth, but not all growth is created equal, and one is not mutually exclusive from the other.
Gone are the days (mostly) where a significant portion of acquisitions failed, but that mindset still clouds our perception of deals.
Inorganic growth has traditionally been a strategy to accelerate the development of businesses in slower-growth industries, like media companies. For more software-focused firms, the new technology or customers acquired via a merger or acquisition helps it leapfrog its competitors. It is essential for founders and CEOs to understand exactly when inorganic growth makes sense in the current glut of M&A activity, and how to take a thoughtful, balanced approach to growing your business sustainably.