Internal growth strategies involve efforts taken within the business, such as new product development, other product-related strategies, and international expansion. Almost all businesses start by featuring internal growth, and many businesses stick with this strategy as they grow. Here are the most common internal growth strategies:

Many businesses prefer internal growth because it typically leads to an incremental, even-paced approach to growth. For example, many retailers start with one store and then grow by opening additional stores or by selling their products through distributors. By growing in this manner, the company can control its pace of growth and time its store openings and new distribution agreements to coincide with the resources it has available. It’s also easier for a business to control its culture by growing through internal means. If a business grows by adding employees as new products (or stores) come online, it can socialize the employees into its culture. Conversely, if a firm grows via an external strategy, such as an acquisition, it will have employees who have been raised in different corporate cultures and will normally have a more difficult time creating cohesion among its employees.

Almost all businesses start by featuring internal growth, and many businesses stick with this strategy as they grow.

The primary downside of internal growth is that it tends to be a slow form of business growth. While a slow, deliberate approach to growth has many advantages, in some industries relying strictly on internal growth does not permit a business to develop sufficient economies of scale or broaden its product offerings fast enough to remain competitive.

External growth strategies rely on establishing relationships with other firms, such as mergers, acquisitions, strategic alliances, and franchising. It is increasingly common for businesses to utilize one or more external growth strategies as soon as the early growth stage of its organizational life cycle. Here are the most common external growth strategies:

A business can normally grow faster through external growth than internal growth because it immediately adds a product or capability that might have taken months or years to develop internally. For example, when eBay acquired PayPal, it acquired PayPal’s proprietary electronic payments system, something PayPal worked diligently to perfect over a period of several years. Similarly, by forming a strategic alliance or joint venture, a firm can tap into the resources of its partner and reach new markets without having to build out its own infrastructure. For example, many American food companies have strategic alliances with large European food companies to gain access to their European distribution networks.

A business can normally grow faster through external growth than internal growth because it immediately adds a product or capability that might have taken months or years to develop internally.

The primary downside of external growth is that by relying on other firms to help develop its growth, a business loses some of its flexibility and decision autonomy. It also complicates its business and runs the risk of joining with a partner that is either unreliable or doesn’t share its core values. The net result of engaging in external growth is usually to speed up a business’s pace of growth. As a business’s pace of growth increases, the challenges of growth, such as cash flow management, are usually exacerbated.

Many businesses blend internal and external strategies for growth as they pass through the stages of growth and expand their businesses. The important thing to remember as a business owner is that you should select the means of growth that is best for you and your company, given the conditions you face and the lifestyle decisions you’ve made.