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Startups

Which Is Better Between A Horizontal And A Vertical Business

4 Mins read

So, you’ve got this great idea for a business and you are wondering Which is better between a horizontal or a Vertical business?. You know it can make you money. But is it horizontal or vertical? If your company only sells one product, they are most likely horizontal. On the other hand, if your company has more than one product line, then they are probably vertical. It may sound like semantics; but understanding the difference between these two types of companies will help you decide which type is best for you and your business idea!

What is a horizontal Business?

A horizontal business is a company that makes or sells only one product. Horizontal business are great for people who have a specific talent and want to start a business doing just that. You can hire people with different talents to help you diversify your products, but ultimately, you will be the one providing the service or creative work for your customers.

Very few businesses start out as horizontal businesses; usually, they begin as companies with a specific talent in mind. For example, let’s say you are a very good chef and want to start a business. You could go right to the Internet and set up an online restaurant and take orders for your food (horizontal business). But if you have an opportunity to join an already established catering company that has access to a professional kitchen, wait staff, food storage facilities, and other services (vertical business), it might be better for you in the long run.

A horizontal business is great because it allows you to grow your customer base quickly. If you have a service and can provide it to a large group of people, it will help your business grow faster than a vertical business. Also, since you are working on one masterpiece at a time, you will be very detail oriented with the product and customers will notice the difference!

What is a Vertical Business?

A vertical business is exactly what it sounds like: a company that produces or sells more than one product. That’s right, you read that correctly! A vertical business sells more than one product. The most common example of a vertical company would be a company that produces and sells clothes or jewelry. If you don’t, then you may want to consider starting your own local or nationwide chain of clothes stores.

A vertical business is different than a horizontal business because the focus transitions from one product to another. With a vertical business, it means that you are producing several products or services instead of just one. Most of the work that you put in for a vertical business is for each individual product and service. However, since you may not be able to do every task from start to finish, it is important to have good employees.

Which is easier to start?

You might think a vertical company will be more difficult to start up than a horizontal company. You would be right! Because everything that goes into the manufacturing or service of the product comes in at different times, it will take some time and planning before each item can go out the door.

Advantages and disadvantages of Vertical businesses

Advantages

1) You have to have many more employees in a vertical business.
Having extra hands to help with the product creation and distribution means that you can do more at once. The result is that it is going to be a smoother process!
2) Since everyone works on the same project, they will all know what is going on and how to get things done correctly.
3) Some customers prefer a business with a vertical focus.
Vertical companies have more products or services to choose from, and it allows them to really get everything that they want from one company.
4) You will be able to offer different price ranges for each product or service available.
5) Allows for potential for expansion.

Disadvantages

1) You will have a harder time breaking into an established vertical business.
2) It may be more time-consuming and complicated to create your own vertical business.
3) It will be easier to go out of business if you don’t know what you are doing.
4) If you don’t know what you are doing, it may be more difficult to determine why the customer isn’t ordering more of your product.
5) It may be harder to get people in each business that can help with the different services that you will be offering.
6) You will have more competition than a horizontal business

Advantages and disadvantages of Horizontal businesses

Advantages

1) A horizontal business can be started with few employees.
2) A horizontal company was probably started by an entrepreneur, and there is no real reason that this should create a problem.
3) The idea of who will take the credit for your product is less interesting to customers than one that has an established vertical focus.

Disadvantages

1) Horizontal companies sell many more products or services.
2) Due to the number of businesses, it will be much more difficult to get a customer base that is large enough and loyal enough for growth.
3) It may be harder to get employees to consider working for you since there are so many companies in the same industry.

Are there businesses that are both a horizontal and a vertical business?

Most businesses are actually a mix of both vertical and horizontal businesses. The best example of this could be a retail store that has an online presence. They sell the same products in the stores, but they also sell them online through their website. So while they have an online presence, you could say they are also a vertical business because they have more than one type of product or service available.

See more about horizontal and vertical markets here.

Can I take my great idea and make it into a horizontal or vertical company?

Most people wouldn’t think of a business that way. However, you can often times turn your business into an expanded name that covers every aspect of what you are doing.

Conclusion

You don’t have to choose one or the other when it comes to starting a business. Instead, you can create a business that handles every aspect of your idea. The best part of doing this is that you can often times charge more for your product or service because you are offering everything in one place.

Read more on whether startups are a worthy investment.

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