Probably one of the more common means of achieving inorganic growth that I’ve studied recently is selling to new buyers, i.e. entering new markets. The idea of course is to do this with little or no change to our products (otherwise we’d be talking about inorganic growth through product change), answering the question, “who would like to buy the products that we sell today that we’re not already reaching?” Similar to inorganic growth through product change, we can think of this in both a vertical and a horizontal sense.
A vertical market change might be defined as entering a new market that is only a slight change in demographics of our existing market, such as customer size (going up or down market) or selling to 20-somethings when you’ve previously focused on selling to 30- and 40-somethings. For B2B software companies (the arena I work in) this might mean only that change in customer size, but it could also mean moving up or down the supply chain or even moving into complimentary markets. The key is minimizing the disruptions to current product functionality and processes, keeping the change to simply reaching (and appealing to) the new audience.
A horizontal market change, on the other hand, might be defined as entering a new market without regard to the demographics of our customers. This might be a geographic change, such as going into the EU market and focusing on the same clients (same demographics) as we do in the US. This might also be an industry change, such as a software company who currently focuses on the home healthcare market deciding to open assisted living facilities. Even a radical change–such as that same home healthcare company deciding to sell the software they’ve written for in-house operations to other home healthcare companies, resulting in a completely new and different customer demographic–would fall under this definition.
Deciding on an inorganic market move of course starts (and ends) with the cost benefits analysis (hmm, sounds like good fodder for a future blog). The cost-side impacts to consider include changes to your marketing and branding (particularly for vertical changes: how will you get in front of the new demographic you’re focusing on?), distribution channels (how will you deliver products to the new demographic or the new geographic market?), and product localization or specialization to make it work (horizontal and vertical respectively). I’m sure there’s more: what am I missing?