Why Vertical Business Is Better Than Horizontal
If you want one of the most solid pieces of advice to carry with you as a young entrepreneur, remember to always think vertically first. This applies to everything. By “vertical,” I mean this literally and figuratively. Think vertically, build vertically, and spread vertically as far as you can until there is nowhere to go but out.
Why should you think vertically?
Because you still aren’t absolutely certain. The main theme to thinking and acting vertically is to prevent being overwhelmed. Tackle one issue at a time so nothing is overlooked. Even organize your business notes vertically. Let’s create a sample hierarchy of needs for the business:
- Overhead Costs
- Variable Costs
- Storage
- Distribution
- Networking
- Marketing
This is just a very small sample of what you should consider when you are dealing with a vertical approach. For each item on the list, think CAN I do this? How will I do it? When should I do it? With what means will this be accomplished? Then break the category down into subcategories until you have covered every facet of the plan. Once you have completed this, you are ready to start your business.
Why would you build your business vertically?
Simple - to prevent a total disaster. You should not expand a business that hasn’t yet maximized its potential locally. It doesn’t make sense. If you don’t have an understanding of how to maximize your potential, why would you expand out? Expanding horizontally incurs more cost from property tax, state tax, international shipping costs, mileage (insane gas prices), distribution considerations, and management. Basically, you get a giant headache and your profit margins decrease. Way to go.
So when should you consider expanding horizontally?
There are many equations used to determine when you should expand horizontally. The basic answer is when you have minimized the cost to produce your product or service, you have expanded your production cycles up (maybe added more people to create your product or another machine), you have enough money to cover the cost of your current plan AND the future one, and your orders are very close to outweighing your capacity to fill them. Of course, this is a vague definition that tries to cover as many forms of expansion as possible; but you hopefully get the point.
The basic point of thinking vertically is too keep you from becoming overwhelmed. I challenge my readers to come up with ways that initially thinking and proliferating horizontally would benefit your business!
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POSTED IN: Food for Thought
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