If you want your business to grow, the real question isn’t just how much you should grow—it’s how you should grow. Should you focus on selling more to your existing customers, or should you put your energy into finding new ones? Do you double down on what’s already working, or do you take the risk of entering new markets? These questions define the difference between vertical and horizontal growth, and I learned firsthand how crucial that distinction is.
A Hard Lesson on Growth Strategy
When I started my first employer-based company, Horizon Interactive, I was just focused on getting more business—the idea of different types of growth never really crossed my mind. But looking back, I can see that we pursued an almost entirely vertical growth strategy, and while that worked for a while, it eventually came back to bite us.
Our first client when we started Horizon Interactive was Digital Equipment Corporation (DEC), and they weren’t just a big client—they were our only client. We started with one contract in Colorado, but as we built relationships within DEC, more and more engineering groups brought us on. Eventually, we expanded to Massachusetts, where they were headquartered, to better serve other DEC divisions. Eventually, we did have a few other smaller customers in the computer industry, but DEC accounted for a whopping 70% of our revenue.
This worked fine—until it didn’t. When we began marketing our business, our business broker warned us that most potential financial buyers wouldn’t be interested in a company so overly dependent on a single client. And they were right to be skeptical. DEC was struggling, and within a few years, they were acquired by Compaq and later HP, which meant some of the contracts we relied on disappeared over time.
The good news was that Horizon Interactive was acquired by a publicly held company—but as a strategic acquisition, not a financial one. They weren’t entirely focused on our short-term revenue; they were acquiring us for the infrastructure we had built—including well-documented standard operating procedures (SOP), a structured 401(k) program, and solid healthcare and other social benefits required to attract top-shelf employees. At the time, they were actively acquiring businesses like ours to strengthen their own operations; however, the other companies they acquired were smaller and not as well managed. That made Horizon Interactive a more attractive target, even with its client concentration risk.
Years later, when I had the opportunity to reacquire Horizon Interactive’s assets, I made sure not to repeat that mistake. My partner and I started IC Interactive, but this time, we made a conscious effort to diversify our client base. Instead of relying solely on Horizon Interactive’s existing computer industry relationships, we also acquired a Wisconsin-based company with industrial and manufacturing clients, including giants like Manitowoc Cranes, Case New Holland, and Kohler.
Now, we were growing both vertically and horizontally. We still leveraged the deep connections we had in the electronics industry, but we also built relationships in entirely new sectors. The result? A much stronger, more resilient business. When we eventually sold IC Interactive to a financial buyer, the company’s risk profile was much lower. DEC was still our biggest client, but they only accounted for 30% of revenue—not the make-or-break 70% we had at Horizon Interactive. Because our revenue was diversified across industries and geographies, the valuation was significantly higher, and we walked away with a much better deal.
That experience taught me a fundamental lesson: growth isn’t just about getting bigger—it’s about growing smart.
How to Grow Your Business the Right Way
So, what’s the difference between vertical and horizontal growth? It comes down to who you sell to and how you scale your operations.
Vertical Growth: Selling More to Existing Customers
Vertical growth is all about deepening your relationships with your current customers and maximizing revenue within your existing market. This often involves:
Customer Loyalty & Retention – Bain & Company found that increasing customer retention by just 5% can boost profits by 25-95%. Loyalty programs and exclusive offers are great ways to keep existing customers coming back. Starbucks’ Rewards Program is a perfect example of this—encouraging repeat business while strengthening brand loyalty.
Upselling – Upselling comes in three forms. Cross-sales are sales where you recommend your customer consider buying a product or service that supplements their initial purchase. Add-on sales are items that are ancillary to the main product or service that are sold to the customer. Bundle sales are a strategy where companies sell several products or services together as a single combined unit. Amazon’s recommendation engine, which suggests “Customers who bought this also bought…” is responsible for 35% of their total sales.
Subscription & Membership Models – Moving from one-time transactions to recurring revenue can provide stability and predictability. Adobe successfully transformed its business by switching from single-license software sales to a Software as a Service (SaaS) model, increasing its long-term revenue potential.
Horizontal Growth: Finding New Customers
Horizontal growth, on the other hand, is about expanding into new markets, industries, or geographies. It’s more challenging but reduces dependency on a limited number of customers or market segments. The key tactics here include:
Brand Awareness & Marketing Expansion – Investing in brand awareness campaigns that introduce your brand to new audiences is essential. Nike’s “Just Do It” campaign wasn’t just about selling shoes—it was about creating a brand recognition so powerful that others could sell their products for them. By positioning the company in front of an entirely new set of customers, Nike didn’t just expand its reach—it built a brand identity that retailers, athletes, and influencers could leverage to promote and sell Nike’s offerings on its behalf.
Expanding into New Industries or Locations – Geographic and industry expansion can unlock untapped revenue. McDonald’s tailors its menus to local tastes—offering McSpicy Paneer Burger in India and Teriyaki McBurger in Japan—to appeal to diverse customer bases.
Strategic Partnerships & Acquisitions – If organic expansion is slow, acquisitions or strategic partnerships can accelerate horizontal growth. Our acquisition of a Wisconsin-based company at IC Interactive allowed us to instantly enter new industries. Similarly, Red Bull and GoPro’s partnership helped both brands expand their reach in adventure sports markets.
Which Approach Is Best?
The best growth strategy isn’t either/or—it’s a combination of both. Startups and new businesses typically begin with vertical growth, deepening relationships with their first customers to maximize revenue and refine their offerings. Once they’ve established a strong foundation, they expand horizontally, reaching new customer segments and entering new markets. Established companies continue strengthening vertical growth with existing customers while strategically pursuing horizontal growth to diversify revenue streams. Long-term success comes from balancing the two, ensuring steady expansion without becoming overly reliant on a single market or client base.
“The purpose of business is to create and keep a customer.” Peter Drucker, the father of modern management.
The key takeaway? Don’t just grow—grow strategically. If you expand too narrowly, you risk over-reliance on a few customers. If you expand too broadly, you might spread yourself too thin. The smartest businesses strike a balance between deepening their current relationships while always looking for the next opportunity.
That’s the lesson I learned from Horizon Interactive—and it’s one that shaped the way I approached every business after that.
Do you plan to grow your business horizontally or vertically?
