HORIZONTAL VS VERTICAL: THE "GROWTH" DILEMMA OF STARTUPS IN 2021
BY RAMAN PATHAK
Which direction should you scale your startup in 2021 - horizontally or vertically?
The months ahead continue to look challenging for companies of all shapes and sizes and across most geographies. The Middle East and North Africa region, too, will continue to grapple with challenges intrinsic to the on-going pandemic situation. Not to forget, the UAE faces an unique problem of a shrinking population because of the region’s typically higher expat vs resident mix.
Markets are not at a complete standstill, leaving substantial scope and room for growth. For example, according to the Dubai government’s statistics, the emirate’s GDP is expected to increase by 4% in 2021. This is encouraging news considering Dubai’s 6.2% GDP contraction last year. A Lazard Market Research study noted that the UAE would most likely recover quickly once vaccine distribution occurs. It attributed this sunny outlook to Abu Dhabi’s “deep pockets and 100s of years of oil reserves” and the Dubai government’s potential to take quick action that will aid recovery.
However, it is quite challenging to identify an actionable strategy that can promote stability and profits despite the constraints and uncertainties presented by the pandemic. So, the biggest question that lies before startups is:
How to strategise the business growth plan - horizontally or vertically?
Horizontal growth denotes the process of using existing assets to cater to new or newly relevant needs. For instance, globally, hotels are being used for ‘institutional quarantine.’ Companies that typically make clothes are now using their resources to manufacture high-quality face protection masks
Startups that want to pursue lucrative and sustainable long-term ROI from a horizontal growth approach will also need to confront the teething problems that accompany new markets. Also, you cannot forget the bigger fishes who are playing on home turf. Startups looking to align their strategy with the horizontal growth approach are essentially looking to enter new geographies and new markets, which - on the face of it - might not be ideal at this time. However, some of the questions that startups that are keen on this route might want to consider are:
1. How much physical movement is essential to marketing the product in the new geography or the new market?
2. Will the pandemic affect their logistics and supply chain infrastructure?
3. Will the rates for distribution and marketing be inflated if one attempts to break into a new market or geography?
4. Will the restrictions on movement negatively impact the quality of the finished product?
The availability of pre-pandemic costing, logistical and supply chain roadmaps, marketing and sales plans, and product quality standards will aid comparison and better decision-making as per the above checklist.
On the other hand, a vertical growth strategy aims to scale products/services within an existing market.