Growing a startup into a successful and viable long-term business is the goal of every entrepreneur. Expanding your idea from a single concept into an expansive business with multiple different revenue streams and geographic distribution is a fun and exciting challenge. Exploring new verticals is an excellent way to grow and protect your business from market fluctuations and changes; diversification is the key to success.
Finding the right time to move into a new vertical can be challenging, though. Move too soon and you risk overextending yourself, but move too late and you risk your business stalling. In the following article, we’ll provide you with some advice on how to find the best time to move your business in exciting new directions.
Vertical expansion is the process of moving your business into a new field, with the goal of diversifying your operations, risk, and revenue streams. When executed at the right time and into the right areas, vertical expansion can take your business to a whole new level, complementing and synergising with your existing business operations.
Aaron Babb, Director of Aevum Health had this to say on the importance of expanding his business, even when he was in a comfortable situation – “New verticals relating to new markets or revenue streams are an incredibly powerful business growth technique that allows for expansion without significant additional costs. In a small to medium-sized business often your biggest issues are cashflow. Seeking out and finding new verticals allows for additional revenue once set overheads have already been established boosting business cash flow.”
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Test the Market
As most startup entrepreneurs will know, not every idea is a golden one. Some things appear great on paper, a sure-fire path to success, but once they are moved into the marketplace they fall apart. Testing your idea for vertical movement is important to not only evaluate whether it is a viable idea that the market will accept, but also if the timing is right.
Gary Vaynerchuck, prolific social media magnate and business advisor has this to say on testing the market “If you’re worried you won’t be able to communicate your idea to the existing market, maybe your idea needs some rethinking.”
A small market test may demonstrate that while the move is something your customers are ready for, your business isn’t in a place to make the move with the attention and focus required.
Get the Timing Right
Timing is everything when it comes to expanding your business into a new vertical. If you make the move too soon into your startups’ lifecycle then you risk derailing your core concept by spreading your resources too thin. If you make the move too late, though, you risk being too heavily integrated into the core business platform. Keep vertical expansion constantly in your plans, regularly assessing when the best time is to move forward without diverting mission-critical resources, but while you are still small and agile enough to move and adapt into a new area.
Identify the Motivators
One of the most important questions to ask yourself when considering moving your business into a new vertical is why you are doing so? Identifying the motivations behind the move will help you to thoroughly assess whether now is the best time to be making a change.
Tim Ferris, author of the 4 hour work week “The question you should be asking isn’t, “What do I want?” or “What are my goals?” but “What would excite me?”
If the motivation for exploring new business avenues is the wrong thing, then you risk the idea falling flat. Vertical expansion should be done at a time in the business when you have a solid footing in the core business vertical and have maximised your current potential. If the motivation for expanding into a new vertical is because your competitors are doing so or you are just looking for a new challenge then the timing may not be right.
Moving your startup into a new vertical will almost certainly be harder than it was launching the idea initially. When a business is just starting it can afford to be much more dynamic in its movements and decisions. It can also afford to make mistakes and recover from them with relative ease. Once a business has been established, pivoting into a new vertical is much more difficult as you have to carefully balance the existing business operations, staff, and customers while trying to launch something new. The cost of failure is much higher, but the benefits of success are too. Identifying the right time to make the move is critically in boosting the chances for a successful expansion.