In an era of rapid competition and shifting markets, borrowing strategically can be the key that unlocks a business’s potential. When executed with care and foresight, debt can become not a burden, but a catalyst for transformation.
Developed at INSEAD and the Rotman School of Management, the Build, Borrow, or Buy framework offers entrepreneurs a structured approach for evaluating growth strategies. Within this model, borrowing emerges as a powerful mechanism, enabling organizations to leverage external resources and capital without overextending internal capabilities or resorting to full acquisitions.
Recent survey data illustrate how prevalent borrowing and partnerships have become among global leaders:
These figures underscore a collective shift toward collaborative expansion and shared risk, rather than isolated growth efforts.
Strategic borrowing adopts two main forms: direct debt financing and partnerships or alliances. Each path carries its own advantages and considerations.
Debt financing for growth involves borrowing funds to be repaid over time, typically secured against business assets such as receivables, inventory, or equipment. Asset-based lending (ABL) is particularly suited to firms with significant tangible assets but fluctuating cash flow requirements.
In parallel, strategic partnerships and alliances represent a different flavor of borrowing—sharing capabilities without exchanging cash. Joint ventures, licensing agreements, and research collaborations allow companies to tap into established markets and expertise swiftly.
A prime example is Starbucks’ alliance with Nestlé, where the coffee giant leveraged Nestlé’s distribution prowess to accelerate global growth in packaged goods.
When wisely managed, debt and partnerships can fuel expansion without sacrificing long-term health.
Debt financing offers:
• Complete control and decision-making authority, since equity remains with existing owners.
• Tax-deductible interest payments boost resources, effectively lowering the net cost of capital.
• Predictable repayment schedules, which help business leaders plan cash flows with confidence.
• Dynamic access to more capital through lines that grow alongside receivables or inventory.
Alliances and joint ventures bring benefits such as:
• Faster market entry, using partners’ established networks.
• Shared investment risk, reducing individual financial exposure.
• Access to new technologies and competencies without the need for heavy in-house R&D budgets.
• Enhanced innovation through collaborative problem-solving.
With great power comes great responsibility. Overleveraging during economic downturns can strain cash flows, and reliance on a partner may expose you to unexpected disruptions.
Key challenges include:
• Overextension of repayment obligations when revenues dip.
• Loss of autonomy if partnership terms require compromise.
• Potential cultural misalignment leading to friction and inefficiency.
To navigate these risks, follow a disciplined approach:
Implementing ongoing reviews ensures that borrowing remains a strategic tool, rather than a looming liability.
Consider a small manufacturer specializing in high-end wedding bands made from meteorite fragments. Facing costly material waste, they secured a loan to purchase a precision cutter. Within a year, waste was halved, while available material doubled—transforming a risk into a game-changing investment in efficiency.
Another firm doubled its marketing budget by tapping into a working capital line. For every dollar spent on pre-roll streaming ads, they generated three dollars in revenue—demonstrating that thoughtfully allocated debt can deliver remarkable ROI.
Every business must find its unique equilibrium between debt and equity.
By blending both instruments, companies can secure liquidity for expansion while preserving strategic decision-making power.
Responsible repayment generates an increased credit profile over time, unlocking ever-better terms. As businesses demonstrate reliability, they progress from simple lines of credit to major asset financings at preferential rates.
A robust planning framework addresses three essential questions:
Answering these with honesty and precision sets a solid foundation for sustainable borrowing.
Daniel Salazar of JPMorgan Chase advises: “Clarity in borrowing can drive the path to growth. Define the purpose of the loan, then allow your banker to identify and advise on the most effective debt solution.”
Regular, candid conversations with financial partners keep your strategy adaptive and resilient, ensuring you seize new opportunities as markets evolve.
Debt need not be feared. When approached with discipline, insight, and vision, it becomes a driving force that propels businesses into new realms of possibility. Assess your needs, weigh your options, and embrace strategic borrowing with confidence—the growth you seek may lie just a thoughtfully structured loan away.
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