Internal growth: getting bigger out of the operations you already own

1. Every extra pound of revenue under internal growth comes from capacity the business has built and paid for itself, so nothing is bought in ready-made from another company.
2. Growth is measured by revenue, output, number of outlets, employees or share of the market, and internal growth lifts those figures one step at a time rather than in a single jump.

The two routes: new products and new markets

1. A firm growing internally has two routes open to it, and each one raises revenue by a different mechanism.
2. New products: adding a line the firm can sell through the shops, staff and customers it already has, so the same rent and wages are spread over more sales.
   1. Innovation turns an idea into something a customer will pay for, and research and development is the designing, prototyping and testing that gets it there, which is why Dyson worked through over 5,000 prototypes before the bagless vacuum cleaner reached a shop.
   2. Research and development is paid for long before the first sale, so a line that flops takes the money with it, which is why a firm often trials a new product in a handful of branches before a national launch.
3. New markets: selling the range the firm already makes to a different group of buyers, reached by changing the marketing mix, by taking advantage of technology, or by expanding overseas.
   1. Changing the marketing mix: a smaller pack at a lower price, or promotion aimed at a different age group, puts the same product in front of buyers who would not have bought the original version.
   2. Taking advantage of technology: selling through a website or an app makes the market the whole country instead of the streets around the shop, at a fraction of the rent of another unit, and social media reaches those buyers without a national advert.
   3. Expanding overseas: selling in another country spreads risk, because a fall in UK spending no longer hits every sale, though the firm pays for transport, translation and any tariffs and may find local tastes differ.
   4. Opening a shop, branch or warehouse in another town is the same route in physical form, reaching customers who live too far from the existing site to use it.
4. New markets are usually the cheaper route, because the product already exists and the spending goes on promotion and delivery rather than on years of development.

Advantages: control kept, cost low, and a pace the business can absorb

1. Control stays with the existing owners: no shares go to another firm's shareholders and no outside board arrives with different plans, so the way the founder runs the business survives the expansion.
2. It costs less: the firm pays for one shop fit-out or one product launch at a time, perhaps £80,000 for a small unit, where buying a rival means paying for its entire premises, stock, staff and brand in one deal.
   1. Much of that bill can be met from retained profit, so there is no interest to pay and no new investor asking for a say in decisions.
3. The pace is gradual: managers can train staff, settle supply problems and learn from a poor site before the next one opens, which means an early mistake stays small and can be corrected.
4. There is no culture clash: new branches are staffed and run the firm's own way from the first day, rather than merging a workforce used to different pay, rules and habits.

Disadvantages: slow, capped by your own money, and still a strain

1. It is slow: a new unit takes months to find, fit out and staff and a new product can take years to reach the shelf, while a takeover adds a whole trading chain on the day the deal completes.
2. A rival can take the opportunity first: if a competitor opens in that town or launches the same idea while your version is still being built, the customers there are already loyal to them when you arrive.
3. The pace is capped by what the firm can fund itself: retained profit only builds up as fast as the business earns it, so a firm making little profit grows slowly however good its plan is.
4. Growth still stretches cash and management: an outlet is paid for months before it takes any money, and the owner who once watched a single site now supervises staff in several towns, so standards can slip.