All eggs in one Basket : Does strategic expansion saves startups from failing?

Imagine a Manager setting targets for its team every month and realizing that earlier its team used to give 50% growth from the previous months but now the team isn't even close to what the targets are already set.

A careful analysis on data helped him realize that the team is actually performing good, it has majorly exhausted the market they were into. Now the next step could be to either move towards a new product in the same market or a new geography to take the same product. (Yes, we are getting on point!)

So majorly, we are talking about Expansion!

Expansion is the only logical step a startup takes once it has achieved their Product Market Fit and exhausted the initial market defined. But the question lies on the fact whether the expansion has to happen in their "niche exploring other markets- Vertical Expansion" or "in other related markets- Horizontal Expansion"

To explain the above :-

Vertical Expansion

Swiggy : Food delivery platform, Swiggy started with just two cities in 2014 and gradually expanded to over 500 cities in India by September 2021. This vertical expansion enabled Swiggy to tap into a broader customer base while leveraging its expertise and logistics network.

-> Outcome : Swiggy's vertical expansion strategy resulted in an impressive 2000% increase in the number of cities served over a span of seven years.

Industries suitable for Vertical Expansion : E-commerce and Retail, Manufacturing, Healthcare, Hospitality, Telecommunications, Energy, Automotive, Real Estate, Financial Services, Agribusiness, Media and Entertainment, Education

Horizontal Expansion

Paytm : Digital payment platform Paytm, which initially began as a mobile wallet, expanded horizontally into financial services, e-commerce, and digital banking. This diversification allowed Paytm to reduce market risks and explore untapped growth opportunities.

-> Outcome : Paytm's horizontal expansion strategy led to a massive increase in its user base, crossing the 500 million mark by 2021, making it one of India's leading fintech players.

Industries suitable for Vertical Expansion : Food Delivery, Ride-Hailing, Online Grocery, E-commerce Marketplaces, Online Travel Booking, Healthcare Services, Fintech, Logistics and Delivery, EdTech, Real Estate Technology (PropTech), Renewable Energy, Digital Payments

The Bootstrap Expansion

But the above were just heavily funded startups expanding their way through. Lets take a different startup model like the bootstrapped one. What does bootstrapped startups rely on when expansion is considered?

Well, first they focus heavily on profitability from the existing market (the toughest to achieve), then they create a lean scalable model with tested product and strong distribution channels. One such example is Zoho.

Zoho : It expanded by focusing on profitability and independence, offering a diversified product portfolio for global markets. Their customer-centric approach, affordability, and word-of-mouth marketing fueled organic growth. They embraced remote work culture and continuous innovation, strategically acquiring other companies for accelerated expansion and sustainability.

Indian startups are increasingly looking beyond national borders for expansion. According to a report by NASSCOM, Indian startups expanded to more than 50 countries across the globe.

Ways to Expand

To see similar expansion, startups are now looking to expand in many ways to reach out to new markets. Startups adopt several ways to Expand their Market like :

1. Increasing Digital Transformation and Online Presence
2. Geographical Expansion by Entering new cities
3. Entering into Strategic Partnerships and Collaborations

Example of a Startup that successfully expanded in the above ways,

Ola, a trailblazing Indian startup in ride-hailing, has impeccably demonstrated a multifaceted expansion strategy. By prioritizing digital transformation (1), Ola ingeniously crafted a user-friendly app, fostering its commanding online presence. Geographical expansion (2) followed suit as Ola ventured beyond its Bengaluru roots to conquer major cities across India, redefining urban transportation. The startup thrived by entering strategic partnerships (3), collaborating with automakers to pioneer electric vehicle fleets for environmental sustainability.

Conclusion :

Whether a startup takes up Vertical Expansion or Horizontal Expansion is a matter of the industry they are into and the capacity of resources the startup has to expand in a certain way. When a company seeks to reduce costs, improve supply chain reliability, and maintain higher levels of quality control - Vertical Expansion generally helps by integrating backward or forward in the value chain.

However, if a startup seeks to leverage its existing infrastructure, resources, and customer relationships to drive growth - a horizontal expansion with more product and services can improve the metrics. But the ultimate decision comes from startup resource capacity like funds, human resource, partners, model to expand etc. than startup's decided own goals.

Or Rather when Expansion is the focus, what matters is,

Resource Capacity > Startup Goals (Obviously!)