By Marc Empey
Stagnation is never an option in business. Yet, many small businesses lack the capital to grow at all costs. Small businesses must consider their needs today while still planning for growth in the future. It is like a three-legged stool where one leg is speed, one leg is cost and the final leg is quality.
Advantages and Disadvantages of Organic Growth
Small business owners need to consider different reasons that organic growth may be right for their business.
First, growth through opening a new market or introducing new technology allows for employees to deepen their knowledge.
Secondly, organic growth offers greater flexibility and the spreading of investment at a sustainable rate. Except for their customers, growing organically is not reliant on others sharing a vision of what is possible.
Compromises need not be made to keep partners happy. Since the small business owner is still the chief executive, cultural clash may be avoided.
Organic growth has its limits. Speed, especially in some industries like informational technology, can be a problem because business people either have to find experts to help them or trust that their people can figure it out as they go which is usually unsuccessful. Cost depends on how easily a new market can be harvested. Keep in mind that costs can also involve the loss of key personnel and time. The largest disadvantage to organic growth, however, is usually that people do not have the knowledge of how to proceed.
Advantages and Disadvantages of Mergers and Acquisitions
Like organic growth, mergers and acquisitions (M&A have advantages and disadvantages:
- One of the advantages is the ability to build a global reach.
- It can also be used to decrease competition while increasing efficiency and bargaining power with suppliers.
- An M&A can also be used to eliminate the cost of developing new technology.
- M&As can change industry landscapes very quickly often leaving competitors in the dust.
- An M&A can be used to build capabilities cheaper than developing the technology.
- M&As can be used to change landscapes of complete industries.
- The financial gains from a M&A can yield tax benefits, financial efficiency and asset stripping or unbundling.
M&As also have limitations. Some companies have trouble with being able to integrate rapidly. The cost of hiring new talent can be enormous. The buying company needs to learn all tacit knowledge quickly. Contact one of our Palm Springs mergers and acquisitions lawyers for a consultation on your next M&A.