Horizontal vs vertical growth
Rapid expansion without due foresight can hamper profitability
How are you building your organisation? Too many times I find people who are trying to build their organisations horizontally, long before they have spent enough time trying to build them vertically. For the purpose of clarity, let us first define what horizontal and vertical growth is.
Horizontal growth means working to make your organisation broader by opening more and locations. It means development of your customer base by going after more and more new business. It means building your network by going to more and more events held by different organisations. It means building more new products; offering more new services; doing everything for everyone you can.
Vertical growth, on the other hand, is digging deeper into what you have. It means taking your existing location and working harder and harder to grow the business in that area.
It means working your customers for referrals and leads and looking into their organisations to see how much more work there is for what you provide. It means working your current networking organisations harder; getting to know more people in the organisations you are already involved with; it means spending more time, effort, energy and money on making your existing products and/or services better.
The problem is that too many times it is easier to grow and build horizontally. Many times it is so much more fun that we get sucked into horizontal growth long before we are ready. Perhaps we need to stop and make sure we have the strength in our vertical before we try and go horizontal. Here are some points for us to consider.
Locations: Before we think about branching out or expanding, we need to make sure we have pushed our existing market to at least a high percentage of what we feel it can do. Why do we want to go to the expense and effort of another location when we have so much opportunity where we are? Why split the resources we have?
A second location will cost us more money; it will thin out our resources and cost us time, effort and energy exponentially. Yes, there are times to expand. But when we still have so much potential where we are, why not use that?
I remember a services company in Saudi Arabia that was performing well in Dammam. It prematurely opened up branches in Jeddah (over 1,000km away) and Riyadh (over 400km away), incurred additional set-up expenses and staffing costs, etc. only to close down the entire operations two years’ later. These new branches drained away the resources, profitability and sustainability.
Customers: So many times we put all our effort into getting more customers, when our existing base still has so much potential. In one organisation I worked with, we were able to increase sales 70% in 18 months, simply by expanding the business we did with our existing customer base.
Networking: So many times we think we have to join every organisation that exists. Maybe it might make more sense for us to find a few organisations and get really involved with these.
Products/services: Too many times we try and do it all. We start with a product/service and before we spend enough time, effort and energy developing the market for it, we go off into newer lines. The big question is: are we doing any of them better than anyone else?
Vertical growth is the key. It does not mean we cannot expand; first it is important we make sure we are profitable vertically. It means keeping a single operation until we have to expand. It means working harder on our existing customers for more business, as they already know us.
It means becoming known for what we do. It is amazing how much more profitable we can then be!
Anupam Sharma is business development manager for a major EPC company in Saudi Saudi Arabia.