Organic versus Acquired Growth: how both strategies have a place in today’s market

Leaders have taken two prominent paths for growth: organic and acquired. Growth by merger or acquisition (acquired) has gained significant traction. We witnessed the largest accounting firms go from eight to the final four. The same thing happened among law firms as major players merged. Acquired growth is now commonplace. The lure of the merger has overshadowed organic growth. Striking a balance between these strategies is key to creating a thriving firm.

Expansion by Acquisition

Acquisitions play a critical role in strategy growth and gives firms the opportunity to move into new markets, expand client bases, and add service offerings. A properly planned acquisition provides a shortcut to achieving growth goals and securing new revenue streams, not to mention the desire to achieve economies of scale, optimize operations, boost profitability, and add new skillsets.

Studies have shown that approximately 70% of mergers fail to achieve the desired goal and, in fact, often result in the loss of both clients and talent.

The Power of Organic Growth

Organic growth is the bedrock of firms achieving sustainable growth. By definition, organic growth means increasing revenues by expanding the services and the value of those services to one’s existing client base. Solid organic growth happens through a combination of strategy, value, and innovation around service offerings.

Strong Strategies

Both growth initiatives require strategies that begin with the current state and drive toward the future state. It is also important to ensure that your strategies cover certain key areas to ensure success.

1. Client Relationships. Organic growth hinges on strong client relationships. Firms must continuously engage with clients, as well as have a deep understanding of client industry shifts, and evolving needs as a result of those shifts.
   
   
2. Service Innovation. As client industries evolve, so too must service offerings. It is not enough to just do more, successful firms focus on innovating their services, technology, and approach to not only remain relevant, but also be seen as the proverbial ‘trusted advisor.’
   
   
3. Talent Development: As service offerings are enhanced, expanded and even created, we must think about the impact on the types of skillsets needed. The most innovative accounting firms are now hiring data and computer scientists, and AI experts to work hand-in-hand with their CPAs.
   
   
4. Market Expansion: Firms should re-evaluate where they sell their services. Non-traditional skillsets present opportunities to expand into untapped market segments.
   
   
5. Non-Traditional Acquired Growth: As industries, services, markets, and talent evolves, leadership must cast a wider net by exploring non-traditional opportunities. This means looking beyond your industry segment and considering acquisitions in sectors that give your firm the strategic edge. We have already seen this as firms have acquired technology, transaction advisory, and even digital marketing firms.

Client demands, services, technology, and skillsets will continue to evolve at an unprecedented rate. It is not as simple as choosing between organic versus acquired growth. To thrive, firms must expand their strategy to include both.