Chris Legg works at Progress Partners as a senior managing director and as a common associate at Progress Ventures, the firm’s venture financing arm. Mergers and acquisitions activity is at an all-time high – global mergers and acquisitions have already surpassed 2020 levels, with around $4.4 trillion in deals completed as of October 2021. So, how can startups, particularly those in their early stages, get involved?
The answer is to develop a growth plan that considers inorganic, organic, and natural growth never depending on one over the other. For more than 20 years, I have worked as a venture capitalist and a project money investor, and I have seen businesses use these distinct types of development to their advantage — and to their demise.
In essence, businesses may grow in two ways: organically and inorganically. For our purposes, organic and natural expansion refers to internal efforts to increase revenue, such as raising output, expanding solution options, creating infrastructure and customers, and hiring more employees. Mergers and acquisitions of other providers, as well as partnerships, drive inorganic growth. Natural growth takes longer, however inorganic progress usually serves as a push, moving businesses forward. Startups are now utilizing both to promote innovation and market development, but not all development is created equal, and one is not mutually exclusive from the other.
Businesses can expand in two ways: organically and inorganically. Internal attempts to enhance revenue, such as increasing output, extending product options, creating infrastructure and customers, and adding people, are referred to as organic growth in our context. Other companies, as well as joint ventures, fuel inorganic development through mergers and acquisitions.
Organic growth is often slower, but inorganic development frequently serves as a push, propelling businesses ahead. Both are presently used by startups to drive innovation and market expansion, however, not all growth is equal, and the two are not mutually exclusive.
Inorganic growth has traditionally been used to help businesses in slower-growing industries, such as media companies, grow faster. For increasingly software-focused companies, acquiring new technology or clients through a merger or acquisition allows them to outperform their competition. In the current flurry of M&A activity, it is critical for founders and CEOs to understand when inorganic development makes sense, as well as how to adopt a careful, balanced approach to developing your company sustainably. Although the days of a large percentage of acquisitions failing are long gone (mainly), our impression of transactions still clouded that thinking.