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Is horizontal growth or vertical growth right for your company?

November 10, 2022 - 18 min read
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    Every successful, sustainable company has a foundational growth strategy. 

    Yet growth strategies don’t come in a one-size-fits-all for companies. Many factors go into determining which growth strategy might be best. For example, product, economic climate, and market share all are determining factors. For many organizations, business leaders will choose either vertical or horizontal growth strategies. 

    It’s more important than ever that business leaders understand the long-term ROI of each growth strategy. In a time where constant change makes running a business more challenging, your company’s growth strategy matters.

    We know that companies that don’t have the right growth strategy risk becoming another failed business statistic. According to data, one in five companies fails in their first year. And nearly half of all businesses fail within five years.

    To have the right growth strategy, company leaders need to understand the different ways to grow, scale, and expand. That includes both horizontal and vertical growth, which means it’s critical to understand what both mean. Especially in a volatile market, it’s more important than ever that businesses make smart, calculated decisions. 

    We know that both horizontal and vertical growth strategies can be extremely effective. With the right business acumen, they can both support expanding and growing your business.

    But what’s the difference between the two? How do you determine which integration strategy is the best fit for your organization?  And how can you leverage both to take your business to the next level?

    What is horizontal growth?

    First things first. Before we dig too far into horizontal growth, Let’s quickly define what, exactly, horizontal growth is.

    There's no need to develop anything new. You grow your business and business strategy by bringing those products and/or services to new customers. 

    For example, let’s say you have a SaaS company—and your flagship product is an agile project management software. 

    A horizontal growth strategy would involve either consulting in a new geographic area or in a new industry.

    For example, let’s say your current customer base is entirely made up of accounting firms. You might expand to offer your software to businesses in other industries to gain more market power. Sometimes, organizations lower costs to be able to introduce the existing product into new market shares. 

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    Horizontal growth vs. vertical growth

    Horizontal growth can be an effective growth strategy. But it’s not the only way to grow your business. Another alternative expansion strategy? Vertical growth.

    With a vertical growth strategy, you scale your business by building off of your existing products and/or services. You can expand the products and/or services you offer, like adding a new feature or expanding a product line. . 

    Some companies also create new products or services and launch them in your existing market to drive business growth. Vertical growth allows you to build off the brand recognition and loyalty you already have with your customers.

    So, let’s use the project management software example from above. If you were leveraging a vertical growth strategy, you would choose to expand your existing product. If done well, this could grow your business and create increased value for your customers. For example, you might add chat functionality to make it easier for hybrid and remote teams to collaborate effectively

    Alternatively, you might create a net new product. Then, you could sell your new product you could sell alongside your existing project management software. For example, you might expand into another type of productivity software—like a sales enablement tool.

    Horizontal growth and vertical growth are unique in a few different ways. Here are six differences between horizontal and vertical growth. 

    Horizontal growth

    • Creates opportunity by launching products or services in new markets

    • Allows you to grow without changing any of the fundamentals of your product or service

    • Expands your business by growing “out” 

    Vertical growth

    • Creates opportunity by expanding current products and/or services 

    • Allows you to grow within your existing market share

    • Expands your business by growing “up” 

    horizontal-growth-colleagues-in-front-of-strategy-presentations

    2 examples of vertical and horizontal growth

    Now that you understand the definition of each strategy, let’s look at some examples. Here are two examples of organizations using horizontal and vertical integration in today’s market.  

    Horizontal growth: Uber

    When Uber first launched, it was a local service. The rideshare app was only available in San Francisco.

    But their expansion strategy revolved around launching in new markets across the country. And, eventually, across the globe. Uber is currently available in more than 10,000 cities in over 80 countries around the world.

    This is a prime example of horizontal growth. Uber took their popular product — and grew its business, power, and reach by offering that product in new markets.

    In addition, Uber launched UberEats, an application that used Uber’s core technology and applied it to food delivery. UberEats allowed users to order food, which would then be dropped off at their residences by an Uber driver.

    UberEats was a win-win. Uber already had a fleet of Uber drivers and a loyal customer base. So, they launched a new product, Uber Eats, that offered a service that was complementary to their core offering (food delivery vs. rideshare).

    And this horizontal growth strategy proved to be a huge success. In 2021, UberEats was responsible for nearly half (45 percent) of the company’s total revenue.

    Vertical growth: Amazon

    It’s easy to forget, but Amazon started off as an online marketplace for books. But as the company grew, it became a case study of a wildly successful vertical growth strategy in action. 

    Amazon continued to expand its products and services. And today? The company is one of the world’s most valuable brands. Amazon offers products and services across multiple verticals. This includes e-commerce to cloud computing to streaming media, just to name a few.

    4 pros and cons of a horizontal growth strategy

    Considering a horizontal growth strategy for your company? This type of expansion has some definite benefits. But it also has some drawbacks. If you want to successfully grow your company horizontally, it’s important to understand the pros and cons. 

    Pros

    • Drives long-term ROI. A horizontal growth strategy can drive serious revenue in the long run. Because you’re expanding into new markets, you’re getting new customers — and bringing more revenue into your business.

    • Virtually limitless opportunity. With a horizontal growth strategy, there are virtually limitless markets to expand into.  So if you’re willing to continually expand into new markets, the opportunity is yours.

    Cons

    • New markets present new challenges. Different markets present different challenges. They require different approaches to problem solving. Every time you expand into a new market, you’ll need to identify — and overcome — those challenges.

      There will always be a learning curve. And in some markets? Those challenges may not be manageable — and you may fail to expand.

    • May require multiple strategies. What works to gain market share in one market may not work in another.

      So, if you’re going to leverage horizontal growth, you may need different strategies for different markets. This requires a lot of time, strategic planning, and resources.

    horizontal-growth-woman-in-front-of-strategy-presentations

    5 pros and cons of a vertical growth strategy

    Vertical growth strategies also present unique benefits and drawbacks.

    Some of the pros and cons of a vertical growth strategy include:

    Pros

    • Allows organizations to leverage their existing customer base. A major pro of vertical growth strategies? You can build off of the satisfied customers you already have.

      If your customer base is already satisfied, it can be easier to get them to buy your new products or services. In the end, it can help drive more sales

    • Allows organizations to leverage existing distributors. . If your business involves manufacturing or physical products, you have another serious pro. Being able to leverage your existing distributors.

      There’s no need to start your supply chain from scratch. If your distributors sell your current products, chances are they’ll be willing to sell your new products, too. 

    • Unlocks continuous opportunities for innovation. Vertical growth is all about creating new things — whether a new product, new service, or new feature. This focus on newness drives innovation.

    Cons

    • Requires continual investment. As mentioned, continuous innovation is one of the pros of a vertical growth strategy. But all that innovation comes at a price. When you’re constantly expanding or developing new products, it’s going to cost you.

      For example, you may have costs associated with research and development, market testing, and the hiring process

    • Not every new product or service will be a hit. Innovation isn’t just expensive. It can also be risky. When you launch new products or services, there’s no guarantee what you launch will be successful. 

    When to prioritize horizontal growth

    When it comes to choosing a horizontal growth strategy vs. a vertical growth strategy, there’s no one-size-fits-all solution. In fact, both growth strategies can be an effective way to expand and grow your business. You just have to know when — and under what circumstances — to prioritize each growth strategy.

    So, the question is, when should you prioritize one over the other? And, more specifically, when should you prioritize horizontal growth over vertical growth?

    There are a few different situations where you should prioritize horizontal growth. These include:

    • When you have a limited range of products and/or services. If you have a limited range of products and/or services, focusing on your current offerings should take priority. Especially if resources, time, and economic uncertainty are looming, find ways to expand into new markets. 

    • When you’re struggling to generate new business in your current market. If you feel like you’ve “tapped out” your current market, you might consider prioritizing horizontal growth.

      For example, let's say you feel like you’re having a hard time generating new business in your existing market. Could you consider expanding into new industries to help drive revenue?  

    • When you see an opportunity in a new market. Is one of your competitors extremely successful in a different market? If so, you should definitely consider expanding into that market. (And hopefully, you find the same success!)

    How to lean into horizontal growth

    Have you decided horizontal growth is the right move for you and your business? Here are some tips to help you maximize your horizontal growth strategy — and take your business to new heights in new markets:

    Do your research

    Before you launch into a new market, you need to understand that market. And that means doing your research.

    There are a few different things you’ll want to research when expanding into a new market, including:

    • Customer demographics. What are the customer demographics in this market?

    • Competitors. What competitors exist in your new market? How successful are they? How are they similar to your company? How are they different?

    • Challenges. What are some of the challenges present in this market?

    The more research you do about a new market, the more you’ll understand how to succeed in that market. 

    Build out your growth strategy

    Once you’ve done your research on a potential new market, it’s time to actually build out your strategy.

    An effective strategy will depend on your business and industry. There are, however, some universal elements you'll want to consider. These include:

    • Ideal customer. Before you launch into a new market, it’s essential to define your ideal customer. Who are you trying to reach — and where do those customers exist in this new market?

    • Marketing plan. It’s also important to define how you’re going to reach those customers. Or, in other words, your marketing strategy.

      Before you move into a new market, make sure you’re clear on what marketing avenues and channels you’re going to explore. This includes mapping out how to leverage those avenues or channels to reach potential customers.

    • Point of difference. What makes you different from all the competitors in the market? What can you offer your customers that no one else can? This is your point of difference (or POD).

      As you expand into new markets, your POD needs to be front and center in all your marketing — so make sure to define it before your expansion.

    • Budget. Expanding into new markets costs money. So make sure you know how much money you have to spend on your expansion; that way, you can allocate your resources accordingly.

    Make new connections in your new markets

    As you expand into new markets, you’ll also need to expand your network. Depending on how and where you’re expanding, look for ways to build out your network and connect with people.

    For example, are you launching a physical product in a new city and need to secure retail distribution? You might use social media to research popular retailers in the area. Then connect with the owners on LinkedIn. 

    Are you expanding your fitness studios with new locations in new areas? Research well-attended community events (like farmers’ markets). Find events you think will attract the customers you're going after. Get in touch with the organizers and see if you can sponsor a booth to introduce yourself to the community.

    The point is, if you want to succeed in a new market, you need to put yourself out there and network. That’s how you make the connections that will ultimately help drive your success.

    Adjust your approach as necessary

    As mentioned, new markets present new challenges. Every market is different — and if you want to embrace horizontal growth? You need to be able to adjust to those differences and adapt your approach as necessary.

    As you expand into new markets, track your progress. Keep a close eye on the growth and marketing strategies that are working. And, just as importantly, keep an eye on the strategies that aren’t working. Stay adaptable and be willing to adjust and change the strategies that aren’t working as needed.

    The more willing you are to change your approach as necessary? The more you can tailor your approach to each market — and that market’s unique challenges. And the more successful you’ll be as a result.

    horizontal-growth-you-need-a-coach

    Use these tips to grow your business

    The right growth strategy can make or break your company. And now that you understand both horizontal growth and vertical growth — and how to leverage each to grow your business? You’re armed with all the information you need to grow and expand your business — both horizontally and vertically.

    No matter how you choose to grow your company, BetterUp can help. At the end of the day, your big-picture thinkers are people. 

    And in order to unlock your organization’s full potential, you need to invest in your people. Provide access to virtual coaching to help make sure your business is on the right track. Together, BetterUp can help you reach new heights and better business outcomes.

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    Published November 10, 2022

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