Growth heroes: Making the right moves for scale

This article is a part of our Risk + Reward series. Capital One Business and Inc. partnered to survey 314 business leaders in November of 2024 to explore the factors that affect how they weigh business risks and rewards in navigating modern business landscapes. View our key findings and other articles in this series.

There is more than one way to grow a business. However, choosing the right path for you and your company can be challenging. Should you scale organically or expand through acquisition? And when is it the right time to seek outside money to fund that expansion? Michael Ly, founder of Reconciled, a virtual bookkeeping and accounting services provider for small businesses and entrepreneurs, was thoughtful in seeking answers to these questions for his business.

Ly ultimately chose to augment organic growth through acquisition, primarily funded through business loans. And his approach paid off. 

Reconciled now has about 50 team members in the U.S. and South America serving hundreds of U.S.-based small business customers. The company also has made the Inc. 5000 list of America’s fastest growing private companies three times. But fast growth isn’t always a smooth ride. “Growth feels like a roller coaster. You go up, you go down, you go up, you go down,” he says.

A merger and acquisition (M&A) strategy can make sense for companies in industries with high levels of consolidation. This was the case for the accounting industry during the pandemic. Ly found that a number of business owners, particularly owners of firms with central offices in metro areas, were open to selling, creating M&A opportunities. Since 2020, Reconciled has acquired three firms and is in the process of acquiring another.

When assessing a potential acquisition, Ly determines if the average cost of obtaining a new customer through the acquisition is cheaper than the average cost of acquiring a customer through sales and marketing. Cash flow is a consideration, too. “The other benefit of acquiring customers is you can use debt to do it,” he notes. “When you are getting customers through marketing or sales, you rarely can use debt to do it unless you’re using a credit card to pay for the advertising fees.”

Ly relies on his Capital One Spark Miles credit card for access to working capital. When assessing potential financial partners on behalf of clients, he looks for trusted partners that make it easy to deploy capital. He also considers the ease of working with the partner, including the usability of the banking app and website.

To fund his acquisition strategy, Ly sought outside capital through Small Business Association loans and other credit sources. While large venture capital raises often make headlines, Ly says small businesses like nail salons or restaurants—and his own—are often funded without fanfare, with many opting for loans or lines of credit that are backed by the collateral of the business owner.

That’s not to say a VC windfall is off the table for funding. But business leaders need to understand what investors seek: the potential for fast and considerable return on investment. “If your goal is to open up a profitable, slower growing business—maybe it’s a restaurant or retail store—then self-funding or funding through debt instead of giving up your equity is a better choice because you are not going to have the growth rate required [by most VCs],” Ly says.

Ly’s expansion decisions are often guided by the company’s goal of working with 10,000 business owners so they can grow, create jobs, and improve their communities. Ly believes that growing through acquisition will help Reconciled reach this goal faster than it could through organic growth alone. He also accepted a few small equity investments from investors who believe in the company’s mission and the future of virtual bookkeeping.

When choosing your own path to growth, consider your mission and vision, Ly says. Additionally, he suggests reaching out to people who have faced similar business scenarios, even if they aren’t in your industry, and seeking their input.