How 2 companies leveraged organic and inorganic growth

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.

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.

The exponential growth of Outside, Inc. through aggressive vertical acquisitions offers a prime example of how acquisitions can catapult a media company into a different league. Formerly Pocket Outdoor Media, the Colorado-based creator of active lifestyle content acquired over 10 different companies specializing in outdoor and cycling publications, as well as online platforms for hikers, road racers and bikers. The brands included AthleteReg, creating capabilities around athlete event registration for the expanding company, and Peloton Magazine, a reputable name in cycling media.

But founders should also keep in mind that the work isn’t over once a deal is signed. These brands still exist and will continue to create content now bolstered by Outside, Inc.’s new capabilities, creating a network of active lifestyle content that can build upon different, adjacent content.

In another case, Reader’s Digest’s parent company, Trusted Media Brands, acquired streaming and social video company Jukin Media in August to expand its advertising base and diversify its content. The common denominator here was user-generated content. The company was coming off a year of significant organic growth, seeing 40% user growth in brands like Taste of Home and Family Handyman, as well as a corresponding commerce business that grew 75% in the past year.

Jukin Media was a success in its own right, with 220 million online viewers and over 2 billion minutes of views each month. Both companies had seen solid growth from user-generated content and sought to capitalize on that with an inorganic booster.

Inorganic and organic growth complement one another and aren’t mutually exclusive. An organization enjoying steady, measured organic growth, like Trusted Media Brands, can catapult itself into new revenue streams through a strategic merger, such as that with Jukin Media.

But inorganic growth spurs organic growth in other ways, too. Sometimes an acquisition fills a capability need for a company, taking workload off employees and redistributing responsibilities. When employees see and sense success, it generates excitement, fosters loyalty, increases productivity and boosts morale. That’s simply human nature — everyone wants to be part of something important.

Gone are the days (mostly) where a significant portion of acquisitions failed, but that mindset still clouds our perception of deals. Enterprises are more mindful than ever of the importance of post-acquisition integration, so that both companies collaborate closely to harmonize management and operations from day one rather than gutting employee rosters through mass layoffs.

That means meticulously restructuring to retain top talent with valuable knowledge and skills, and expanding their roles through internal promotions. Human capital is scarce, so nurturing key contributors across an organization is essential to its continued success. Google, for instance, has retained the founders and chief executives of many companies it has acquired, to spectacular effect.

Early-stage startups shouldn’t fear inorganic growth, but they need to make the right decision based on their needs and business model, taking into account the target company’s values and structure, and whether there’s strategic alignment. Growth isn’t always linear, and certainly isn’t always a perfect rising metric quarter over quarter.

In my experience, the most successful inorganic growth strategies always center around complementary needs and shared values. There is no single formula for successful growth, but better understanding how organic and inorganic growth interplay, connect and complement one another will be critical in pushing a smaller startup into a much bigger playing field.