As many Americans prove daily, it is easier to grow wider than it is taller.
Silicon Strategies Marketing is currently consulting with a company that has a fairly wide reach in their market, which is the foundational side of their industry. They serve companies at the middleman and retail level, and on a regional basis are fairly dominant, though they have both room for improvement and the option of growing geographically. Their other option is to go vertical, to begin competing with their existing customers and earn money they otherwise help their customers earn.
The trade-off for companies in such positions is complex. To grow, a company needs to provide new value and by doing so attract new customers. Or they need to gather more customers of the type they currently serve, which typically involves taking them from competitors. The last option is to find ways of making money by adding more of the total supply chain to final product.
Horizontal growth is not always possible. There are limits to the number of customers in any market. Some companies do not have the fortitude to grow geographically as it requires releasing more control to more middle managers and junior executives. Due to legal and jurisdictional issues, some companies cannot grow beyond certain borders. Yet horizontal growth is the fastest and safest method since it basically involves doing what the company already does well. There are no new operational modes to master, no new disciplines to learn, and no new brands to build. But there is a limit to how widespread some companies can be.
Growing vertically is a big challenge, but one that redefines entire industries, and as any savvy marketing maven will confess, changing the rules of a market is a great way to win. Some companies grow vertically by taking work away from their suppliers (imagine a smartphone maker buying a chip manufacturer and thus becoming their own supplier, or HP opening their own string of retail outlets). This approach is complex because it requires entering markets and developing processes unfamiliar to the core company. This isn’t to say it is impossible – Apple was not a retail operation, but their stores have become a success in selling goods and deepening the Apple brand. In the process, Apple earned revenues normally forfeited to retail channels.
There is no rule of thumb, but two realities are plain enough. Growing horizontally is simpler and safer. But competitive and market shifting realities may start a consolidation of the value chain above or below a company, and thus require them to grow vertically. If Apple’s retailers had suddenly consolidated, they would have great leverage over Apple. Likewise if mobile chip companies had consolidated, their supply chain might be compromised. Growing vertically can be profitable and occasionally necessary.
The strategy lesson herein is that marketing executives need to monitor both their growth opportunities (horizontal and vertical) as well as over/under market shifts and calculate trade-offs between growth paths. They also cannot afford to play it safe if their markets are becoming unsafe.