1.3.3 Why some businesses grow and others remain small

This section explores the reasons why some businesses achieve growth while others remain small. We will examine the advantages and disadvantages of various methods businesses can use to expand.

Methods of Growth

Businesses can grow through several methods. These include:

• Internal Growth: Expanding using existing resources and capabilities.
• External Growth: Expanding by acquiring other businesses or partnering with them.

Internal Growth Methods

These methods rely on the business's own resources and expertise.

• Increasing Sales: Selling more of the existing products or services to existing or new customers.
• Expanding the Product Line: Offering new products or services to existing customers.
• Increasing Market Share: Gaining a larger proportion of the total market for a product or service.
• Opening New Branches: Establishing new physical locations to reach more customers.

External Growth Methods

These methods involve combining with or taking over other businesses.

• Mergers: Two or more businesses combine to form a new entity.
• Acquisitions: One business buys another business.
• Alliances: Businesses agree to work together on a specific project or goal.

Advantages and Disadvantages of Growth Methods

The following table summarizes the advantages and disadvantages of the different methods of growth.

Method of Growth	Advantages	Disadvantages
Increasing Sales	Relatively low risk, utilizes existing resources.	Limited growth potential, may face competition.
Expanding Product Line	Attracts new customers, increases revenue streams.	Requires investment in research and development, potential for product failure.
Increasing Market Share	Greater control over the market, economies of scale.	Increased competition, potential for price wars.
Opening New Branches	Reaches new customers, increases brand awareness.	High initial investment, ongoing operational costs.
Mergers	Synergies (cost savings, increased efficiency), wider market reach.	Integration challenges, potential loss of company culture.
Acquisitions	Instant market share, access to new technology or expertise.	High cost, potential for difficulties in integrating the acquired business.
Alliances	Shared costs and risks, access to new markets or technologies.	Potential for disagreements between partners, limited control.

The choice of growth method depends on the business's specific circumstances, including its financial resources, market conditions, and strategic goals.