1.5.2—Internal and external growth

Internal growth expands a business using its existing operations; external growth changes scale by combining with, acquiring or partnering with another organisation.

Internal growth is usually slower but keeps systems and culture under the firm's control. External growth can add customers, assets or capabilities quickly, but integration, finance and culture create risk.

Ask whether the extra capacity is built by the business itself or obtained through another organisation; then compare speed, control, cost and integration risk.

A café opens three more branches using retained profit: internal growth. Buying a local bakery to gain its ovens and customers is external growth; the buyer must still integrate staff and standards.

A larger sales figure alone does not reveal the growth method; trace where the new capacity came from.