Horizontal Vs Vertical Market
“You shouldn’t focus on why you can’t do something, which is what most people do. You should focus on why perhaps you can, and be one of the exceptions.”
–Steve Case, AOL Co-Founder and CEO
As a startup, it is an incredibly hard marketplace to crack into and identify niche services that set you apart. There are primarily two modes of approach
- Horizontal market
- Vertical market
Both of these approaches work well based on a company’s competence and its abilities.
Horizontal Vs Vertical Market
What is a Horizontal Market?
As the name suggests, in this mode a business identifies a broad segment of markets. A simple comparison would be Tata’s and Reliance which have captured a wide variety of offerings in the Indian market. The range extends from everyday consumer goods to cars, mobile phones, consultancy services, etc. The range is absolutely huge and they have the capacity to pull it off and offer a customer a wide variety of services.
For a customer who is happy with one service, naturally, the association is more promising for another product to sell. In addition, the company already has an established customer base to which it can keep selling. This takes me back to the Pareto rule – 80% of business comes from 20% of your customers.
Not that this is a hard and fast rule but there are customers who will have a very good association with the company and look for a long term engagement
What is a Vertical market?
This market is more of a niche one. If I’m perfectly honest I’d be associating this market with a startup where you have a specialised service and can offer differentiation. The trouble with a horizontal market is that it is too wide to start competing in. It is almost the monopoly of large companies that have a lot of firepower to kick you out of business. Or if you’re really lucky and good they might end up buying you.
Either way, it is not the best idea to be scoping into a horizontal market if you are a startup. I’d be happy to be corrected if someone has an alternate viewpoint.
This market believes in the innate ability to create a difference and add value to a consumer. This works particularly well if you are playing to the strengths of what you can do really well.
The Balance
It is very easy and natural to be tempered to do everything and offer more services and products to customers. The thought of why not’ creeps in and makes you wonder if it is really worth venturing. Esp for a startup when there’s not a lot of income, the danger is the easy buck which can often distract us from the real business strategy. It is quite relevant to ask the question as to where your market lies – horizontal vs vertical market!
I can see quite a few challenges to this approach and start from the question of where your strengths lie and what you want the business to do
In addition, I’d throw in the question of – what was the purpose of your business anyway? It addressing your passions?
It reminds me of a song from Rocky – too many times it happens so fast that you change your passion for glory. Don’t lose your grip on the dreams of the past – we must fight to keep them alive !!
I appreciate that it is a dramatic comparison but I’d like to point out that it is not all false. It is easy to lose track of what you cannot do, but in what you can do lies your immense strength as a startup. And if you can do it much better than the rest of your competition, then you already start on a positive footing.
6 Key questions to ask! – Horizontal Vs Vertical Market
- What will I really lose if I don’t provide this to the customer?
- Are there other alternatives to choose from?
- Are the alternatives doing a better job at it than our business?
- What is the USP our business can offer and the pain it can resolve to the customer?
- What is the real value to end user? Is it a satisfier or dissatisfier?
- Can marketing and sales or professional services be able to convey this value to customer?
Most importantly – the real cost-benefit analysis takes precedence before jumping in to spend enormous resources on a business decision.
