Business success depends on good growth plans, like the roots of a tree growing strong. A tree that doesn’t have strong roots can’t grow very tall, and the same is true for a company that doesn’t have a strong business growth strategy. There is no one way to grow a business; it must be customized to fit the company’s needs and goods. 

Before starting the growth process, you must understand two growth strategies: Vertical and Horizontal development. Vertical growth means getting more control over an established industry by buying suppliers or distributors. 

Horizontal growth, on the other hand, means entering new markets or offering a wider range of goods and services. Businesses and startups planning their growth opportunities can use these models as guidelines. They give businesses a way to deal with growth challenges in a constantly changing business environment. Let’s dive in!

Difference between vertical and horizontal growth

Vertical growth means that a company becomes powerful in its current business. This is usually done by taking over different parts of the supply chain. One way a company can combine technology vertically is to buy a supplier of important raw materials. The company now has more control over its supply line, which means it can ensure a steady flow of inputs.

Horizontal growth, on the other hand, is about entering new areas or offering a wider range of goods and services. One example of horizontal growth would be for a company that makes software for business applications to release a new line of software for the healthcare field. This helps the business reach a wider range of customers and become less reliant on a single market.

In the end, the goals and conditions of the business determine whether vertical or horizontal growth is best. Both methods are meant to help businesses grow, but they do so in different ways. This gives businesses options for how to achieve long-term growth.

What is a Growth strategy?

Define a growth strategy before digging into horizontal and vertical growth components. A growth strategy is a company’s plan to expand and increase revenue growth. It gives actionable methods and solutions to possible issues. 

Any firm that needs growth requires a strategy to identify prospects, how your team will get there, and how to overcome roadblocks. 

Growth strategies include vertical and horizontal growth through product expansion, service expansion, industry expansion, abroad expansion, and anything else that generates money.

Understanding a growth strategy’s components will help you construct an executable plan, even if it doesn’t mention “horizontal growth.” We want you to know more than just what a growth plan is. You should feel secure in creating a horizontal or vertical growth plan and implementing ways to increase your business.

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Horizontal Growth Strategy

Products or services are expanded to new markets through horizontal growth. Develop a new market or enter an existing one. Companies may consider horizontal growth when expanding into new industries or markets with a successful product. 

After working with banks, a financial tech company may establish a business case to expand into government. Market research is needed to identify barriers to entering new markets for horizontal growth. The same fintech company may need more security features or partnerships with security systems to succeed in government.

Horizontal growth may mean reaching a new audience, but it usually needs a lot of planning. New industries or markets may require new use cases, features, or functionality to meet your intended expansion. It could also involve localizing your marketing message for new markets or hiring multilingual sales and customer base success teams.

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 Pros or benefits of horizontal growth

• Get new customers and enter areas that haven’t been touched yet.
• Spread out your sources of income to lower your risk.
• Use economies of scale to save money and work more efficiently.
• Get people to know your business and purchase more of it.

Cons or disadvantages of horizontal growth means:

• High starting costs and needs for resources.
• Managing a wider range of tasks has become more difficult.
• More competition in brand-new areas.
• Possible loss of focus on what you do best.

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Vertical growth strategy

Vertical expansion involves scaling products/services in an established market. Companies usually add features or capabilities to current products/services. The organization may offer basic accounting tools in the fintech example before expanding into consultancy. Vertical expansion can be achieved via upselling product add-ons.

Imagine McDonald’s asking, “Do you want fries with that?” every time you order a cheeseburger. Vertical growth occurred when they added fries to their burgers. Fries pair well with burgers and increase income per customer. Your income increases by $500 if every 100 consumers pay $10 more per order. Imagine how quickly that adds up.

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Pros of vertical growth

• Boost the lifetime worth and loyalty of your customers.
• Premium products can help you make more money.
• Use the facilities and brand recognition that are already in place.
• Become an expert in your field and get ahead of the competition.

Cons of vertical growth

• It’s not a very big business, and it could get saturated.
• There is a lot of competition in the room you already have.
• Possible need to put a lot of money into research and development (R&D) or new ideas.
• There is a chance that higher prices will turn off current users.

When to value horizontal expansion

No one-size-fits-all answer exists for deciding between horizontal and vertical growth strategies. Both growth tactics can help your business grow. You must know when and how to prioritize each growth plan.

When should you pick one over the other? More specifically, when should horizontal growth trump vertical growth?

It would be best if you favored horizontal expansion in certain instances. This includes:

When you offer little goods and services, focus on your current products and services if you have a restricted selection. Expand into new markets in resource, time, and economic instability. 

When you’re having trouble starting a fresh business, horizontal growth may be better if you’ve “tapped out” your market.

You may be struggling to generate new business in your current market. Could you enter new industries to boost revenue?  

You are discovering a fresh market opportunity. Does one of your competitors dominate a separate market? If so, consider entering that market. (Hopefully, you succeed too!)

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Horizontal and Vertical integration

Horizontal integration involves merging with or acquiring competitors at the same stage. Vertical integration involves expanding into different stages of the production or distribution chain.

Horizontal Integration Examples

1. Marriott, Starwood. Marriott International (MAR) bought Starwood in 2016, forming the largest hotel chain. Marriott had a strong luxury, convention, and resort presence, but Starwood had a large international footprint. The combination increased customer choice, employee opportunities, and shareholder value. After merging, the companies owned 5,500 hotels and 1.1 million rooms globally.

2. AB InBev and SABMiller. Established in October 2016 with $100 billion in capital, Newbelco trades today. Before the merger was permitted, each business had to sell off popular beer brands like Peroni and Grolsch to comply with antitrust regulations. Anheuser-Busch InBev wanted to boost its market share in developing countries like China, South America, and Africa, where SABMiller already had access.2

Vertical Integration Examples

1. Google, Motorola. Google (GOOG) bought Motorola Mobility in 2012. Motorola invented the first cell phone and invested in Android technologies that Google valued.
2.  Netflix makes content. One of the biggest vertical integration examples in entertainment is Netflix (NFLX). Netflix was at the end of the supply chain before opening its content studio because it distributed other firms’ movies and TV series. Netflix understood it could make more money and be less dependent on others by creating its content. Four series were the company’s first original programming in 2013.6
   “The Story of Netflix.”

How to embrace horizontal growth

Here are some steps on how to achieve this effectively:

1. Targeting and researching the market

Find Possible Markets: To begin, look into new markets that might be a good fit for what you have to give. Think about demographics, business trends, and the landscapes of your competitors. It would be best to look for markets with unmet wants or where your product could add value that no one else has.
Divide and prioritize: Don’t try to do everything at once. Divide the possible markets into groups based on how appealing and easy it is to get into them. Pick the ones that have the best chance of working out and put most of your efforts there.

2. Adapting to new markets

Product Refinement: Check if your service or product will work in the new areas. Think about cultural differences, rules, and the specific wants of your customers. Change things as needed or offer different options without losing sight of your main value offering.
Localization: Make changes to your advertising and writing to connect with the new group of people. This includes changing the wording, making cultural references, and sending the right message.

3. Building Your Presence

Distribution Channels: Determine which channels will help you reach your target group across different markets. You could do this through web platforms, partnerships with local distributors, or store openings.
 Sales and marketing strategy: Make a specific marketing and selling plan for each new market. Consider the budget, channels, and messages that will work best for the local crowd.

4. Continuous Learning and Optimization

Tracking and Analysis: Keep an eye on how things are going in the new markets. Track important data like how many new customers you get, how many you keep, and how engaged they are. Look at the facts to discover what’s working and what needs to change.
Agility and adaptability: Be ready to change how you do things based on what you learn. If people give you feedback in the real world, don’t be afraid to change your goods, marketing plans, and distribution channels.

Use partnerships: Working with local businesses or companies already in the new market can help you get started faster and gain trust.
Adopt technology: Use online platforms and tools to make your business run smoothly and attract more people.
Plan: It takes time for horizontal growth to happen. Building a long-term foothold in new markets takes time and work. Be patient, determined, and dedicated to always getting better.

Remember that for horizontal growth to work, it needs to be carefully planned, carried out, and constantly changed. Following these steps and staying flexible will help you get more customers, reach new markets, and grow your business in a way that lasts.

Grow your business with the right strategy. 

The appropriate expansion plan can save or sink your organization. You now understand horizontal and vertical growth and how to use them to expand your business. You have all the information you need to grow your business horizontally and vertically.

You may choose your organization’s ideal vertical or horizontal expansion strategy now that you know the difference.

Successful company change is expected when your team implements your growth strategy. Your growth strategy can help you maximize business success.

Different-sized firms utilize horizontal and vertical growth tactics to grow their brands. Planning, building, and growing your firm is cost- and time-efficient with this technique.

You must invest in people to maximize your company’s potential. Provide virtual coaching to keep your business on track. BetterUp can assist you in achieving business success.

After learning about your business’s right vertical and horizontal expansion tactics, your best brand growth strategy is up to you.

FAQS

What are vertical and horizontal growth strategies?

Vertical growth strategies involve expanding within different production or distribution chain stages. Horizontal growth requires strategies that expanding horizontally within the same stage, often through mergers or acquisitions.

What is horizontal career growth?

Horizontal growth means expanding and advancing within the same job level or role without significant job title or responsibility changes. It emphasizes gaining expertise and experience within a specific role.

What is vertical career growth?

Vertical career growth involves advancing to higher positions or levels within a hierarchical structure. It entails promotions, increased responsibilities, and progression to more senior roles or leadership positions.

What is the difference between vertical growth and horizontal growth?

Vertical growth involves expanding within different stages of a hierarchy or production chain progressing to higher levels. Horizontal growth involves expanding within the same stage or level.

Advantages of horizontal growth strategy?

Advantages of a horizontal growth strategy include increased market share, economies of scale, enhanced bargaining power with suppliers, and the potential for cost synergies by eliminating duplicated functions.

Advantages of Vertical growth strategy?

Advantages of a vertical growth strategy include improved control over the supply chain, cost efficiencies through internal coordination, better quality control, and reduced dependency on external suppliers, leading to greater stability.

The post Beyond Your Borders: Mastering the Art of Horizontal Growth in 2024 appeared first on Inner Mastery Hub.