I often get asked the question: “What’s better: organic or acquired growth?” It’s a good question and a topic I thought would be appropriate to address as we just closed our fiscal year at Marco on October 31.
Growth is part of our culture. It defines us and drives our vision: To be a growth driven technology services company admired for its people and performance.
We had another strong year in 2014 with over 20 percent top line and over 30 percent bottom line growth, most of which was organic. We’re confidently forecasting 2015 to also be strong as we break the $200-million revenue mark. It took us 39 years to achieve the first $100 million and only three to get the next $100 million. We have been on a growth track for nearly a decade now, with no plans to slow down.
Where the growth comes from matters. Here’s how we look at it:
- Organic: This is growth that comes from our existing businesses and markets. In a mature industry like ours, seldom is an organization making their first copier or technology services purchase. To grow organically, you actually have to take it from your competition.
- Acquired: This includes buying other companies or business units.
So, what’s better?
Of course the answer is both. I’ve found that maintaining a 50-50 organic vs. acquired growth ratio is a healthy balance for our company. So we try to stay close to that. Over the past ten years, our actual growth has averaged 55 percent organic and 45 percent acquired.
Here’s why I think organizations need both:
- Acquisitions drive market growth.
This has been our focus in recent years and allowed us to enter new markets or begin selling new products more efficiently. It’s proven to be more expensive to do a startup in a new market.
For example, when we plan to expand our territory, we look for opportunities to buy a business in a targeted area. Our most recent acquisition of Illinois Valley Business Equipment (IVBE) allowed us to expand our traditional copier and printer services to another state. On the flipside, this strategy can also be used when we decide to initiate and expand new business units. For example, we bought TelePro Communications to get into carrier services and InCompass IT to expand our cloud/hosted services.
Acquisitions are fairly straightforward. But if you’re only acquiring businesses and not organically growing your existing businesses, it’s not a healthy balance and, in my opinion, not sustainable long-term.
- Organic growth drives performance.
Organic growth is a better indicator of a well-run business. Improving market share has little impact if it cannot be sustained long-term. This means selling more to current customers. For example, we have been in the greater St. Cloud market the longest and it still delivers consistent strong growth. That means we’re selling more and additional products to our existing customer base, while also adding new clients.
Organic can also be a startup situation like we did in the Twin Cities. We opened an office there in 1999 and worked (really) hard to earn business and build a solid reputation. It took time, but today we are among the top providers in the market. That’s rewarding.
If I had to pick, I think organic growth is better than acquired, but doing both is even better yet. I promote a culture of double-digit growth at Marco and in order to do that, we need to do both. Plus, it’s more fun that way.
When done correctly, both types of growth are good. Acquisitions will certainly accelerate opportunities, but with the exception of a startup, organic growth is generally more profitable. I think our commitment to accelerated growth helps us create a performance-driven environment that attracts employees, customers and vendors.