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April 8, 2021Horizontal vs. Vertical Growth Strategy
Large or small, growth is important to any business. Startups need growth to stay alive during those first few months, but too much growth in the wrong direction can quickly tank your business. Larger businesses need sustainable growth over time so that they don’t have to invest too much capital to scale too quickly.
So, growth by itself is a good thing. There is such a thing as too much growth too quickly and in the wrong direction. The main thing you want with your growth is control. The ability to maintain consistent growth that doesn’t outpace your gains or over-leverage your supply chain while keeping you within markets that are going to make you profitable.
Before we break down growth strategy and how one or the other or both may help your business succeed, we’ll break down the two types of growth, how they impact your business, and what the risks and benefits of each are.
Table of Contents
Horizontal Growth and How it Works
This is essentially how businesses expand their brand. Horizontal growth means expanding outward into similar markets. Just as a practical example, if you sold sneakers exclusively, but then decided to branch out and sell sandals, you’d be committing to horizontal growth.
We see this often with big brands, they launch new product lines in a different space or increase services to draw in more customers in related fields. Doing it successfully is quite a task though. Just as we’ve seen big companies do it successfully, a launch failure can also happen.
Much of the potential for horizontal growth is determined by market factors. As an example, we’ve seen it happen before where a business expands into a new market, such as a fast-food chain that branches out to serve breakfast, they launch and run for a while with the new offerings, and eventually have to discontinue those new offerings due to being squeezed out by other players.
Taking the Right Measures Before Expanding
Expanding horizontally comes with a lot of risks, particularly if the intention of the move is to save a business rather than a logical progression of the brand. In other words, creating new product lines, expanding into neighboring markets, increasing services, or other endeavors shouldn’t be done as a last resort to boost profits.
See if the Demand is Out There
This should be your first step before even beginning to set up a horizontal marketing strategy. Do my customers want this thing from me? If you can’t answer that with at least a half-hearted yes, then you may be setting yourself up for failure.
Demand doesn’t always equal success, but it’s a good starting point for figuring out whether you should branch out into another territory. You may be wondering how you figure out if there’s a demand for new products and services.
The truth about it is, you already have everything you need to figure that out, even without being an expert marketer. You have tons of metrics available about site data, browsing habits, length of stay, product page visits, all sorts of things. Beyond that, if you’ve done your homework on the web, you have a presence where customers can comment, leave reviews on your business, and share input about what it is you do.
The best, and honestly, the easiest way to determine if demand exists is to go straight to the source. Check your business listings for reviews and comments, go through social media to see what folks are saying. If you catch a lot of folks going “gosh this business is great, I only wish they offered…” then you know you may be on to something.
If you feel like the data isn’t out there, or you don’t have enough to make a decision, then be direct. Post surveys on social media, send out emails asking questions, request feedback after a purchase, whatever you can do to get honest customer thoughts on your brand and what it can do better or provide more of.
The last thing to consider in regards to customers is that whatever growth you are attempting doesn’t massively disrupt whatever you’ve got going. This is the fastest way to turn potential positive growth into a massive downturn. The old expression “if it ain’t broke” does apply in some cases. It’s always a good idea to be mindful of what growth will do to your existing business.
Understand the Space You’re Entering
Too often even big businesses want to jump into a new market and attempt a takeover without fully understanding the weight of that decision and the market they are jumping into.
Even the biggest companies have to think strategically about entering into a new market. Sure, some brands can muscle their way in and take over, but customer backlash can stall even the mightiest of juggernauts.
The first thing you should consider after you find out whether there’s a demand is who the key players in the space are. Of course, this is relative to each niche, but take the shoe example, for instance, even if you have a sizable market share in the sneaker business, that doesn’t mean you can waltz into the sandal market like you own the place.
Many times, businesses will leverage their stake in an existing market to try and make a “power play” in an adjacent market. Sometimes this works and they are able to carve out a niche or even become the dominant player in that market. However, that is not without a serious amount of legwork and capital to go along with it.
Knowing the players involved and the risks you can afford to take before deciding to grow horizontally will save you a lot of time and money in the long run.
Having the Infrastructure to Succeed
The last thing you want to make sure of once you’ve made the decision to hit a new market is that you have all of the logistics in place to make the move a success. Part of this has to do with vertical growth and whether or not you can scale your supply chain to meet the new demand, but we’ll get into that later in the guide.
Besides the supply chain though, there are other issues to worry about. Particularly, do you have the basic personnel, capital, and marketing to manage the new market you are entering? On the surface, it may seem like a simple thing to jump from sneakers to sandals, but to actually do it, you need suppliers, packers, shippers, distributors, marketers, brand managers, and a host of other people and things helping you along the way.
Not having these things in place can end your expansion journey before it even begins.
Vertical Growth and How it Works
If you think about it as it sounds, vertical growth is about growing taller in the space you’re in. This means expanding supply chains to reach more outlets, adding new features to existing products, and offering new products in the same market. While this is the more common growth strategy since it doesn’t involve all the stressors of new market entry, it is not without its own unique set of challenges.
Vertical growth has the advantage of being within an existing market, meaning you know the space better, you already have customers, and your logistics are already in order, in most cases at least.
The problems that you run up against in vertical growth are more about the cost and the strain that it can put on your existing business. New products and features cost money and often require additional staff to facilitate that growth.
To help break this down a little better, we’ll discuss some basic considerations regarding vertical growth and how to succeed.
Vertical Growth Should be Logical
It sounds simple, but it doesn’t always execute that way. Think of one of your favorite social media apps like Instagram. They’ve added a number of features over the years, all revolving around the initial point of the app.
Now imagine for a moment if they decided to add a feature where you can send emails through Instagram. If that sounds odd to you, then you’re right. The purpose and function of Instagram is about being social and posting photos and videos while connecting with followers. Adding email would have been less than pointless.
That’s what we mean about logical vertical growth.
Some products and features come out as a natural progression of what already exists. Others can seem as though they come right out of the left field and surprise customers and other businesses alike.
If you’ve reached the end of what is logical, then it’s time to put in the work to figure out where to go next.
Test New Products and Features so You Don’t go in Blind
Even the most logical or even innovative extension of a brand or product can crash and burn if nobody wants it. Beta testing is a major component nowadays, but not testing in the right audience or doing too narrow of a test can sometimes lead to disastrous results.
How many of us can remember New Coke? Exactly. An idea may seem brilliant and a sure-fire hit, but until you test it, and test it thoroughly, you won’t know whether you’ve got a hit or a flop on your hands.
We’re not talking about just testing it in-house either. Hire an outside contractor or professional service to market and test your new product, or launch a new feature to a select group of users and get real-world feedback before you go live with it. Before you commit to a new idea, use all the tools at your disposal to make it a success.
Prep Up for Possible Demands and Problems
We see it happen daily even with big businesses, a new product launches and sells out immediately, or a new feature launches, only to crash or have tons of bugs. This is a quick way to fall into disfavor with your customer base. Bolstering your supply chain or creating a reasonable backstock of a new item can help you avoid this problem (though you don’t want to overstock in case demand isn’t what you’d hoped).
Additionally, crash testing and good QA can help prevent bugs and other issues with new features. It doesn’t hurt to have your tech team on standby either monitoring user reports and working to solve problems quickly within the first few hours of launch. Customer dissatisfaction grows the longer an issue persists, so handling it quickly and efficiently can save your business.
This is where much of the increased cost of vertical growth comes in. Prepping a new feature or a new product requires a serious investment in time and money and if the results aren’t spectacular, it can impact your existing business. Whereas in horizontal growth, expanding into a new market has its own challenges, vertical expansion means taking risks in a space that you’re already in. Losing ground in your space can be seriously damaging to your business.
You could liken it to adding on a new bedroom to your home, but accidentally torching your kitchen in the process. The gains do not outweigh the losses.
Talking Strategy: Horizontal vs. Vertical
Now that we’ve talked a lot about the ins and outs of horizontal and vertical growth, let’s talk a bit about forming an actual strategy to grow and which one is right for your business.
The Pros and Cons of Horizontal Growth
If you see that you have an adjacent market that it makes logical sense to grow into then forming a strategy around horizontal growth can be a great long-term benefit for your business.
Pros: Horizontal growth allows you to fully explore, and hopefully capitalize on new markets, the potential for growth is much larger in a new market where everything is fresh and the customer base is more energized. The initial profitability, as well as the long-term ROI, are greater than in your existing space, and exploring one market can lead to openings in others with the right strategy.
Cons: Launching into a new market carries with it the risk of being squashed by the competition. Additionally, product lines are usually smaller, making it tough to carve out market share. Brand recognition in a new space can also be a struggle without proper marketing. Slow starts can often lead to a collapse in a new market unless there is a space already carved out that allows for slow consistent growth.
Strategy: Apart from what we’ve already covered, the best advice we can give is to go into a new market as prepared as possible. This includes arming yourself with all the information possible as well as the right partners to help you with establishing yourself in a new space. This can mean getting help from marketers, brand agencies, product launch specialists, web specialists, or any other facilitator of goods and services that allows you to hit the ground running and make your mark in the space.
Industry leaders do not become that way through half-measures and second-guessing.
The Pros and Cons of Vertical Growth
Growing outward in your existing market can sometimes be the better option when you already have the pieces in place to do great business. If you have things to add to your existing market, then vertical growth is the way to go.
Pros: Vertical growth is the more popular of the two growth strategies as it is seen as easier to expand an existing market than to grow a new one, the devil you know, so to speak. Expanding into your existing market also allows you to capture more market share and to grow interested in your brand as a whole without taking the risk of a new market. There is a chance through clever marketing and the right innovations that you may be able to position yourself as a leader in the space with a timely new product or feature that outdoes the competition.
Cons: Expanding in your existing space can cost a great deal of money. New product launches require time, research, and investment, not to mention the marketing, shelf space (or inventory space if you aren’t brick and mortar), and the logistics of carrying new products and features. This can cause you to run into staffing and personnel issues as well. Putting too much of your business weight behind a new product can even damage your existing revenue streams too if you aren’t careful. There is also the worry of limited growth. How many products can you come up with in the same space? How many features can you add before the product becomes stale? This can eventually stall any growth opportunities in a given space without proper innovation.
Strategy: To take full advantage of a vertical growth strategy, you need to do the legwork beforehand. This means testing the product to ensure people want it and that it works as designed. Second, beef up your infrastructure to handle demand and problems that may arise, hindsight may be 20/20 but a little foresight is what keeps you afloat. Lastly, don’t stand idle. New products don’t appear from anywhere and new features don’t invent themselves. To prevent yourself from stagnating in your own market, spend the time and money to market the new products and features effectively so they sell, and then parlay those sales into more research. Complacency is the enemy of progress.
Final Thoughts
That’s the end of our guide to horizontal vs. vertical growth strategy. Hopefully, we’ve provided you with some tips and insights into which one will work for your business and how best to capture and take advantage of potential growth.
Growth can be a great thing if you manage it right. Don’t be afraid to grow and expand, it’s how businesses thrive. Just be smart enough to use all the tools and information at your disposal to do it right.
He is a recurring speaker at the Search Marketing Expo conference series and a TEDx Talker. Today he works directly with high-end clients across all verticals to maximize on and off-site SEO ROI through content marketing and link building. Connect with Sam on Linkedin.
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