The key to rapid business growth could be right under your nose if you play it smart and expand your products or services into areas that complement your existing business.
Vertical integration is all about looking above and below your supply chains to see if there are any complementary markets you can expand into.
Many business owners feel that to grow they need to get more customers to simply buy more of the same products and services they offer.
It’s a static approach, because essentially you’re selling the same old things. What vertical integration can do is both create new areas to expand into and effectively become your own supplier – achieving efficiencies for your business.
For example, I had a recent client who runs an advertising agency.
The agency was outsourcing the photography component of their clients’ work to another small business. This was hundreds of thousands of dollars a year they were giving away to another business.
I recommended that they bring this in-house by employing their own photographer and visual production person to do the same work.
After additional wages of employing two more people, they added over $200,000 in pure profit to their bottom line! That’s vertical integration.
It’s about cutting out a supplier that you heavily rely on by offering that service or product yourself and then reaping the additional sales and new customers.
It involves buying or setting up your major supply lines so you can now bring that growth in-house.
It’s called vertical because you look above and below your business in terms of what you are buying-in to see if you can ditch outsourcing a major business input by providing it yourself.
Here are some examples to get you thinking:
- A florist having its own delivery company
- A landscaping design company setting up its own landscaping supply company
- A hair salon launching its own products and selling them in the salon
- An electronics retailer setting up its own home delivery and installation arm
- An accounting firm with clients who want financial planning services so the firm start a financial planning division
- A law firm acquiring or creating an accounting practice, and offering financial services to their clients as well
- A motor mechanic opening a tyre retail outlet next door for its customers’ tyre needs
- A bookkeeping business offering accounting and tax return services
- A restaurant and catering business setting up a small-goods wholesaler
Sure, you may need to skill-up and invest in some additional equipment, but it could be worth it.
To get going, look at your Profit and Loss Statement and find what your business tends to spend most of its money on (apart from wages).
What supplies, direct inputs, and big supplier invoices do you tend to pay? Then ask yourself if you can efficiently provide it yourself and boost sales by vertically integrating this function.
Get started by looking above and below in your supply and delivery chain to see if there is a service you are currently outsourcing or giving away to competitors or suppliers.
Perhaps you can bring it in-house and thereby reap the benefits of growing a whole new customer base.