Organic Growth Opportunities

Organic growth is the main driver of a firm’s market value because it reveals how well the management of a company is utilizing its internal resources to increase sales and output. There is no reason to accept low organic growth for your company, regardless of its maturity. Although mergers and acquisitions can provide a boost to a company’s sales and revenue figures, ultimately, for these acquisitions to succeed, acquirers must be able to stimulate organic growth in the businesses they buy.

Bigger is Not the Same as Value

Harvard Business School research suggests that in only 36% of acquisitions do companies realize enough cost savings to cover the premium they’ve paid; in the other 64%, annual total shareholder returns are, on average, negative 2%. Just getting bigger is not enough to satisfy investors and shareholders.

In a Harvard Business Review study using a sample of 3,000 acquisitions by U.S. companies from 2001 to 2011, only the companies that generated robust organic growth from their acquisitions also created value, as measured by total shareholder returns (TSR).

13% Average annual TSR of companies whose acquisitions led to organic growth that was higher than GDP growth

-3% Average annual TSR of companies whose acquisitions led to organic growth that was lower than GDP growth

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Focus on Organic Growth Regardless of the Economic Cycle

During downturns and busts, it is common for companies to become cost-conscious. If they are not careful, this can become the way the company operates even in upturns and booms. At the bottom, growth suffers because organizations are reluctant to invest in new products or market development. The lack of action during the downtimes makes it hard to mobilize the organization in time to take advantage of the upswing.

Various studies have found that market winners are usually those companies that have been in the top third for revenue growth and profitability over a five-year period. The implication: stay focused on growth regardless of the business cycle.

This doesn’t mean you aren’t concerned about costs, but smart companies invest these savings in growth rather than hoarding cash. Organic growth requires the leadership team to keep an eye on the big picture and resist being short-sighted when the business cycle goes south.

Marketing Should Take the Lead for Organic Growth

While corporate leaders need to drive the organic growth initiative, Marketing plays a critical role in achieving the organic growth targets. Setting the growth performance targets takes good data.

One of the first and most important data is where to look for growth. Identifying markets and customers to pursue falls squarely in Marketing’s domain. It is Marketing that can provide insight and guidance that answers questions such as whether the opportunity is to grow share-of -wallet among existing customers by offering more ancillary products or whether the opportunity is to develop a new offering to penetrate a new market and attract new customers.

As value-creating marketers, you are in the business of creating new benefits for current customers, finding new customers for existing products, and driving innovations that will keep your business ahead of the competition.

I believe the pressure for companies to improve organic growth is going to increase. This presents an ideal opportunity for Marketing to step up and take the lead by developing and orchestrating a disciplined process for selecting the best organic growth initiatives.

Here are five steps Marketing should help the organization take to identify and select the best options for organic growth:

Begin with a realistic assessment of the gap between the goals for growth and the current rate of growth based on your current strategy, plus the projects already in the portfolio of growth initiatives.
Set achievable performance targets for each source of future growth.
Evaluate how your company could achieve organic growth from these efforts:
- Deeper market penetration
- Expansion into adjacent markets and exploration beyond adjacencies. Often, adjacent markets offer the best combination of revenue and profit growth with a tolerable level of risk.

Establish a set of criteria for evaluating each option.
Screen each option using the criteria to identify points of weakness and flawed assumptions, and the risks that have to be contained. The screening criteria should include questions that address at least these five areas:
1. Is there a real market and a real product?
2. Can we win?
3. How much is the opportunity worth?
4. What is the level of risk?
5. What innovation strategies and conditions will we need to create that will contribute the greatest long-term financial value for the organization?
6. Assess the long-term economic value of each option and select the option that meets the criteria and provides the greatest monetary value.

With this approach, every company can become more skilled at growing organically, but this will require an ongoing commitment and a disciplined process, which we can help you with. Let’s discuss how we can help you and your company grow. Discover how VEM helped Northwest Federal Credit Union create a Marketing strategy and a measurable marketing plan to accelerate growth.

FAQ:

(written by Penn of Sintra.ai)

Q1: Why are organic growth opportunities so important to a company’s market value?
A: Because organic growth reflects how effectively management uses internal resources to increase sales and output. M&A can inflate topline results, but value creation ultimately depends on the ability to generate organic growth—especially within acquired businesses.

Q2: Why is “bigger” not the same as creating value?
A: Because acquisition premiums are difficult to earn back through cost savings alone. Research cited suggests only a minority of acquisitions deliver enough savings to justify the premium, and many deals produce negative shareholder returns unless they also stimulate robust organic growth.

Q3: What does research suggest about acquisitions, organic growth, and total shareholder returns (TSR)?
A: Findings cited indicate that acquisitions create value primarily when they produce organic growth above broader economic growth. In contrast, acquisitions that lead to organic growth below GDP growth are associated with materially weaker TSR performance.

Q4: Why must companies stay focused on organic growth regardless of the economic cycle?
A: Because downturn cost-cutting can become habitual, starving the organization of the investments needed for product development and market expansion. Inaction during downturns makes it difficult to mobilize quickly when conditions improve—while market winners tend to sustain top-tier growth and profitability over multi-year periods.

Q5: What is Marketing’s role in leading organic growth?
A: Marketing should help identify where growth will come from—markets, segments, and customers to pursue—and provide the data needed to set growth performance targets. Marketing is uniquely positioned to determine whether growth is best achieved through share-of-wallet expansion among existing customers, new offerings, or new market penetration.

Q6: What are the three primary paths to organic growth that Marketing should evaluate?
A:

Deeper market penetration (especially share-of-wallet growth with existing customers)
Expansion into adjacent markets (often the best risk/reward balance)
Exploration beyond adjacencies (higher uncertainty, potentially higher upside)

Q7: What five-step process should Marketing help orchestrate to select the best organic growth initiatives?
A:

Assess the growth gap: Compare growth goals to current growth trajectory based on strategy and existing initiatives.
Set performance targets: Define achievable targets for each future growth source.
Evaluate growth pathways: Penetration, adjacencies, and beyond-adjacencies options.
Establish screening criteria and test assumptions: Screen options for weaknesses, flawed assumptions, and containable risks—addressing:
- Is there a real market and a real product?
- Can we win?
- How much is the opportunity worth?
- What is the level of risk?
- What innovation strategies/conditions are required to create long-term value?
Assess long-term economic value and select: Choose the option that meets criteria and delivers the greatest monetary value.

Q8: What is the practical takeaway for leaders pursuing organic growth?
A: Organic growth improves with discipline: realistic gap assessment, clear targets, structured option evaluation, rigorous screening, and economic value comparison—supported by Marketing-led customer and market insight.