Vertical growth: what it is, advantages and disadvantages

 


There are two ways for a company to grow: vertical growth and horizontal growth, and understanding them is essential for building efficient planning.

However, it is not uncommon to find managers who are still confused by these two concepts, or who unfortunately still do not know the differences and possible strategies that can help in the development of the institution.

With that in mind, we decided to create this article that will serve as a guide, explaining what vertical growth is, its advantages and disadvantages, as well as horizontal growth and best practices.

Read on.

What is vertical growth of a company?

The vertical growth of a company consists of a strategy focused on increasing sales in the current market.

In this sense, opening up other markets is not a focus of the company, which is only concerned with scaling up the services or products that already exist in its portfolio.

Thus, it is a more “conservative” growth model, without major changes, which often requires a slightly smaller investment by companies.

1. Advantages

There are three most striking advantages to vertical growth: cost, relationship, and organization.

In vertical growth, the cost is lower, because companies will increase their revenue using only the structure they already have, without the need to create new things.

In this scenario, an existing structure or a structure similar to the one the company already operates will be used.

Regarding the relationship with customers, it is also a positive point: customers already trust your business, know your products and services and already have security.

In the case of seeking to increase the clientele, it is also more relaxed, since potential consumers have a profile that you already know, facilitating the approach and creation of new communication strategies.

With regard to the organization, you are already more familiar with the region where you are inserted, and therefore you are able to identify new opportunities to expand the company's operations and achieve the objectives.

2. Disadvantages

Despite many benefits and a sense of security, vertical growth also has its drawbacks.

The first is the greater dependence on a portfolio of existing customers.

At that moment, we know that the ease of continuing to work with the same customers can also mean a great risk: if they decide to reduce the budget or end up having some kind of problem or financial unforeseen event, the company will have a setback.

At the same time, unfortunately, it is not uncommon to find companies that do not have more opportunities to grow within the same market.

Therefore, it is necessary to consider the possibility of a saturated market, which will prevent the company from growing as expected.

Why create a growth plan?

Having a growth plan is essential to achieve greater predictability and focus on the company's routines.

The objective of all institutions is, without a doubt, to maintain sustainable growth. For this, however, decisions must be made based on relevant information and strategically.

With a growth plan, whether vertical or horizontal, the company will have a properly traced path to be able to build a sustainable evolution, focused on numbers and real evidence.

It is essential that managers are aware of the company's real situation in order to identify possible evolutions and outline a feasible path.

One of the most common mistakes made by entrepreneurs is growth without planning.

Despite the focus on growth, when there is no strategy, knowledge of data, market analysis and understanding of the company's reality, achieving goals can become a little more difficult.

This is because, without a focus, efforts will be guided without strategy, and from that there is even the possibility of losing resources that are invested in actions that will not bring the result expected by the company.

That is why it is so important that we reinforce the need to create a business growth plan for the company.

How to grow vertically?

Vertical growth can happen on two fronts:

  • improving existing products;
  • developing new products.

Companies will be able to choose each of these types of vertical growth, or invest in both, depending on the context.

It is important to point out that there is no strategy that is better than the other. As we will explain below, everything will depend on the scenario in which the company is inserted, its needs and the real situation of the institution.

Let's understand each of these vertical growth alternatives below.

1. Improving existing products

The first strategy to act in a vertical growth is the improvement of the existing products.

In this scenario, the company will increase the resources and services to the products already made available by the institution, in order to be able to attract even more customers who, until then, could not be served by their company.

Through this strategy, the number of customers is increased, generating more revenue and helping to further explore the market in which the institution operates.

2. Developing new products

The other strategy for a company's vertical growth is the development of new products to meet demands within its current market.

It is necessary to identify whether the resources available in the company are sufficient to create new solutions for its consumers.

To do this, talk to your customers, understand their demands, see what types of solutions they are looking for and what are their opportunities for development in the market .

This is one of the best ways to discover how to optimize your portfolio of products and services according to the demands and needs of your current customers.

What is horizontal growth?

Horizontal growth , on the other hand, consists of increasing sales by entering a new market, in new places or even in different commercial sectors.

Through this strategy, the company will be able to increase its customer base by creating new products and services that help other audiences.

Unlike vertical growth, which is more conservative, horizontal growth is a way of innovating and taking risks in different areas of the market that have growth potential.

1. Advantages

There are three major advantages of horizontal growth in a company: increased clientele, improved positioning and expansion of market share.

With the increase in the range of products and services, together with operations in different markets, the number of customers also increases.

More diversified customers provide greater security for the company, which now does not have most of its profitability focused on just a small group.

The increase in squares and the improvement of products and services also helps the company to become more and more specialized in its sector, in addition to strengthening its positioning.

Finally, in addition to increasing the clientele and strengthening itself in the market, horizontal growth also allows the institution to expand its market share, which will now expand its operations and conquer new territories and markets.

2. Disadvantages

Horizontal growth, despite having several advantages, also has its disadvantages.

In this scenario of exploring new markets, it is possible that sales and marketing expenses will end up increasing: it will be necessary to hire other professionals, invest in qualification, training and publicity.

To reach new regions, it is necessary to create a logistics strategy to be able to distribute products and services in other markets.

With increased investment in these issues, it is possible that the final price will be affected, or the profit margin in these new markets will not meet expectations.

Vertical growth VS horizontal growth

Having an efficient business growth plan is essential to achieve the company's goals.

However, managers need to know the difference between vertical growth and horizontal growth so that, from then on, they can make the best decisions for the company.

It is by knowing the reality of the company that it will be possible to choose the best alternatives. Both growth models are interesting, but they must be analyzed calmly.

With vertical growth, the company will increase the number of sales without necessarily increasing the customer base, since it will explore an existing product or service within a market where it is already inserted.

Horizontal growth, on the other hand, is an option for those who want to dare more or are in a stagnant market, aimed at growing the consumer base, also increasing sales.

This horizontal growth, however, will require some changes in the company: from creating new products and services to operating in different markets in order to actually be able to expand horizons.

It is important to point out that one type of growth does not exist better than the other. Everything will depend on the needs and the moment in which the company is.

It may be that the company invests in one type of growth now, and another in a while.

It all depends on the context of the institution, its objectives, its needs and other details.

What is the best vertical growth strategy?

As explained earlier, there are two vertical growth strategies:

  • improving existing products ;
  • developing new products.

There is, however, no better alternative. Everything will depend on the moment the company is in and what the possibilities are.

If existing products can be optimized and, from there, we see greater purchasing potential, it can be an excellent alternative.

However, if the market is already saturated for current products and the need to create new options in product lines has been identified, this may be the way to go.

Note that, in neither of these two cases, is one alternative “better” than the other: it is solely and exclusively about the needs and current situation of the company.

The context in which the institution is inserted is the key point to choose the best vertical growth strategy for the company.

For this reason, it is extremely important that managers and decision makers are aware not only of the company's results, but also of the current market situation.

After all, it is through this data that the most interesting decisions will be made to discover which vertical growth path the company will follow.

How about considering a strategic partnership?

Building strategic partnerships is also a way to develop a company, in addition to vertical and horizontal growth.

It is possible, of course, to apply partnerships to these two other types of growth, but in themselves they can be a new alternative to build a successful company and increase the possibilities of the institution.

A strategic partnership consists of a long-term agreement between institutions to share some intellectual and physical resources based on a common objective: to increase market performance, client portfolio and profitability.

What are the benefits of a strategic partnership?

A strategic partnership can bring many types of benefits to both companies.

Are they:

  • the expansion of the company's reach, since it is possible to reach new markets and different physical points;
  • reducing costs or optimizing investments through the sharing of technological or financial resources ;
  • the possibility of conquering new clients and opportunities in different sectors and markets;
  • the possibility of increasing brand exposure, which will now be reinforced in other scenarios where it did not used to be inserted;
  • the possibility of reinforcing your brand through marketing campaigns together with the partner company, which will now have greater reach.

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