Alexey Shalimov

/ 29th January, 2021

How to Scale Your Mobile Startup – Vertical vs. Horizontal Growth Strategies

The article was updated on January 29, 2021.

Let’s face it right away: scaling a startup is a tough task to manage. Although the global startup economy is still large ($3 trillion in value), many companies remain small and very few will achieve great success. Better sooner than later, any startup owner should consider a solid business strategy to present to potential investors.

In this article, we will review successful startup growth strategies, their types, and, most importantly, the sequence of steps you should make to build your strategy from the ground up.

What is a growth strategy?

A growth strategy is a long-term business plan that aims to increase the company’s revenue, audience, and market share.

Usually, strategies for startup growth differ from that of established companies. New businesses have to define their core proposition and value for customers before making any further steps – it is a road already traveled for existing businesses.

First, there are two types of growth strategies to choose from: organic and non-organic.

Non-organic strategies imply merging a startup with an established company. Basically, a fresh business idea enriches an existing product or product line.

Organic strategies mean that a startup grows within itself: by expanding to a new market or developing the main product. These are two types of organic strategies: vertical and horizontal.

Vertical vs horizontal growth strategy

Vertical growth

Vertical growth is considered to be a traditional strategy for a startup. This primarily means scaling your service/product within the existing line of business. By going deeper into the current market, you get a chance to increase the demand for your product and its adoption.

Namely, there are two ways to scale vertically:

by adding more features and capabilities to the existing product, and
by introducing new products to complement your core value proposition.

A good example of such an approach is Snapchat. Currently one of the most talked about startups, it started out as a person-to-person photo sharing service with a twist – the disappearing message. By adding more features such as video sharing, chat, stories, and its cutting edge feature – lenses (augmented reality effects added to the photos and videos in real time). Furthermore, the company was able to grow to a point where the long-established market leaders started copying the product.

Yet, Snapchat didn’t stop with growing the app’s functionality. The company further expanded its reach with another product (which is, however, complementary to the existing solution) – the Spectacles. The smart glasses with a built-in camera integrated with the app which allows users to record and share first-person videos on the go.

Thanks to Snapchat growth strategy (and, most importantly, years of hard work and a little bit of luck), the company was able to score $2.65 billion in funding and recently went public at a $29 billion valuation.

Read also: How to develop a social media app

Another example of the vertical growth strategy is a renowned Instagram app. It was created as a check-in app with a twist – you could share your photos there. Later on, the focus was set on the photos made specifically with a smartphone camera. It is still the app’s main priority.

The iOS app was first released in October 2010 gathering 25 000 users in just one day. Then, Instagram was launched for Android phones, and by March 2012, the app had more than 20 million users.

Instagram growth strategy has been always focused on new twists and features: photo filters, messaging (including audio), photo and video stories, multiple content pieces in one post, etc.

Yet, vertical growth isn’t the only way to scale your startup. There is one more proven strategy to consider.

Horizontal growth

Horizontal growth typically means expanding the product or service to new markets, be it new geographies or business domains. By scaling horizontally, you might face additional challenges, unique to the markets you are targeting. This might be product localization issues or industry-specific business aspects. However, a vertical growth strategy is typically more lucrative and can result in better long-term ROI.

Some of the most common ways to scale your startup horizontally include the following:

Bringing your product/service to new markets – this can be done by developing the new market or penetrating the existing one and trying to outcompete the local providers.
Applying the existing assets in new business domains (for example, going from a product to a SaaS model). If your product turned out to be successful in one field, you can try to extract its core and adapt it to serve other industry needs.
Bringing all of the business processes in-house – for example, you can build your own supply line or delivery service instead of depending on third-party providers.

An outstanding example of such a strategy is Uber. The startup launched its service initially in just one city and later rolled out to more locations across the US and worldwide – and the user growth strategy did not stop there.

Furthermore, the company introduced similar on-demand solutions in a different business domain (UberEats), applying the core logic of the existing app to the food delivery industry. UberPool is a taxi ride for several clients who need to go to a particular area. Uber Freight connects freight carriers and senders.

As for this type of horizontal growth strategy, the company is currently working on a concept of an autonomous car to get rid of third party drivers.

Read also: How to develop a taxi booking app like Uber

Netflix is one more example of the horizontal growth strategy and here is why. The company was founded in 1997, and its main idea is a subscription-based video streaming service.

As of now, Netflix is available in 190 countries, but the main product is still the same. Two pillars of the company’s success are original content and outstanding customer experience.

Even 24 years later, Netflix’s growth strategy has UX improvements in its core: powerful search and recommendation features. This streaming service is not for everyone – it is for you in particular. Modern technologies provide a personalized experience for every user, and they gladly come back again. Now Netflix is the most popular video streaming platform in the US.

Growing smart: which strategy is the right for you?

When choosing between vertical or horizontal growth strategies, there is no definite answer. Moreover, the best solution would be to try and combine both, at the right time, using the proper approach.

Judging by our experience working with startups, the algorithm for successful and manageable growth typically includes the following stages:

Concept verification includes launching an MVP for a limited market, at a limited scale. Thus, you will be able to prove the viability of your product at a reasonable cost and pivot without any risks if needed.
Growing the product’s functionality to introduce the full-featured product to the existing markets. This will help you retain users and set up your primary revenue streams.
Expanding horizontally to new locations (if the initial product was limited to only one city/country).

As soon as you have built a full-fledged product and have established your presence across the priority markets, you can scale your startup to relative domains, outside of your initial business line. The strategy for further growth will greatly depend on the type of product or service you are offering.

From theory to practice: How to create a startup growth strategy?

These inspiring success stories are highly sought after – entrepreneurs all over the world crave to grow their business and make changes in our everyday lives. But what stands behind a startup idea? Here is a practical plan on how to grow your intentions into something bigger.

1. Decide on your value proposition and make it clear

What is so special about your business? There should be one point that differs you from the competitors, and, more importantly, brings value to customers.

Imagine that you are one of the clients: why would they choose you instead of other companies on a similar market? Are you sure the value is clear? You should reveal your unique selling proposition (USP): a distinctive trait that differs you from other competitors.

Three characteristics of a good USP:

it solves a problem,
it helps cope with a certain pain point, and
there is something about it that you cannot find in the competitors’ products.

Read also: Corporate Identity for Startups: How to Build a Brand that Can Compete with Market Leaders

2. Check the market and competition field

Will your business idea be popular among customers? You can answer this question if you make research before making further efforts.

Here are the points you should check:

Are there similar companies on the market already?
How successful are they?
Can you add something new to the existing market proposition?

You should realize at this stage that your idea does not have to be a huge revolution. Sometimes, it is only a well-thought improvement of the already existing product.

3. Define your target audience

To get further, you should define the demographics you want to begin with.

Let’s say you are about to release a new mobile app and want to test the waters first. In this case, you can try a soft launch. It means that you pick a small group of people who you believe to be your target audience and let them try out the product.

How do you find such a group? Your competition research will give you a hint: figure out who uses similar products and offer them a test run.

What expectations do they have and are they satisfied in the end? Did they clearly understand the benefit of using your product? This feedback allows you to make product improvements before the launch and better understand your potential clients.

4. Take care of the product itself before the start

Now you know enough about the forces that surround you – it is time to double-check your final offering. We will continue discussing a software startup as an example. These are the critical points to check:

Responsiveness. A website should be responsive for any device used by a customer. Nowadays, mobile-responsive websites are not an option – it is a user experience imperative.
Clear product description. One glance – and people understand what you sell and what the core offering is. The key message can be in the name and/or on the starting page.
Quick goal achievement. You should not only mention your USP but make it clear and straight to the point. Your product’s navigation has to be intuitive and smooth, including buttons, fonts and colors, CTAs, page load time, and available contact information.

5. Create a roadmap

Where did you want to be a month or a week ago and where are you now? These are the vital questions to ask yourself after launching a startup. You should have a startup growth roadmap in mind to know the progress you have made.

A startup growth roadmap is a strategic instrument where company executives add their business goals for a long-term perspective. It is similar to a business plan but provides a bigger picture.

Here you can add qualitative and quantitative targets for every department (sales, marketing, product) considering certain milestones. This document is a good foundation for your pitch deck. SMART goals first, achieved results second, and you are ready to properly showcase your business.

6. Track your progress

If you cannot count it, you cannot control it. Any business owner has to set key performance indicators (KPIs) that will identify the startup growth rate. These numbers do not only demonstrate your progress, but they also give you a hint on the weaknesses and areas that need your attention.

Here are common business KPIs, but you can modify this list with time according to your business needs and industry peculiarities:

Customer acquisition cost ($): the price you have to pay to attract one customer to your platform;
Conversion rate (%): it is the number of clients who finished a purchase out of the total number of people who contact your business and/or visited your website.
Customer lifetime value ($): the amount of money a customer is likely to spend using the product.
Gross profit margin (%): it is a ratio between gross profit and revenue. The higher the ratio is, the more money a company has for instruments and further growth.
Burn rate (%): an indicator that shows how quickly a company spends money (possibly, an invested capital).

Summing up

While it is good to be inspired by other startups such as Snapchat or Uber, it’s important to remember that there is no one-size-fits-all growth strategy. An approach that proved to be beneficial to one company might be a dead-end track for another.

So, if you are looking to grow your startup, consider hiring professionals to help you choose the right strategy and help with its implementation.

We at Eastern Peak have a proven track record of successful startups across a number of domains, from on-demand services to social media apps and eCommerce. In order to get professional help from our team, contact us now.

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