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Vertical integration and your business

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By Katherine Pilnick

You’ve probably heard of vertical integration, a trend to minimize middle-man work and bring products to the marketplace in as few steps as possible, and you may be wondering if it’s right for your business. Vertically integrated companies have control over more than one part of production. They may partner with companies that work with the product before or after them, or they may take care of more than one step of the process in-house.

Vertical integration gives manufacturers more control over their products, including reducing costs. Customers also benefit, as they can discover otherwise lost local business and may enjoy price cuts because of lowered production costs. However, vertical integration isn’t always the best option, and its effects should be considered for each unique set of circumstances.

Vertical Integration in Modern Markets

One of the most prominent examples of vertical integration is Apple, which designs and develops the hardware and software for all its products, and also puts out the final products. While specific parts of production may be outsourced, Apple’s overall vertical integration gives the company more control over its product. It also ensures that the company has unique products that customers cannot find elsewhere.

Amazon is another well-known example of vertical integration. Its online marketplace and its Kindle products act as book distributors, and the company has evolved to publish books, as well. In this way, it took over another piece of the production line.

Amazon and Apple are prime examples of companies that have become significantly more involved in their product lines than is typical at other companies.

Choosing to vertically integrate your business is a big decision, and one which involves a lot of thought. It requires access to resources that small startups often lack, but it expands opportunities for future growth and success.

The main advantage of a vertically integrated business is that it will make your product unique, so that no other company can offer exactly what you have to offer. That way, you can build a loyal customer base as your company grows.

Despite its pros, vertical integration won’t help every company, especially one that’s already on thin ice financially.

Key Considerations

Vertical integration requires a company to take on new responsibilities in production. While this can save money for business in the long run, it requires an immediate financial investment to pay for additional equipment and labor.

Likewise, entrepreneurs must be careful that vertical integration does not spread the company’s resources too thin. The company must set its priorities and stick with them, without allowing its new responsibilities to take over the core business goals.

Unless your business is already hugely successful, you’ll have to determine if vertical integration is right for your particular scenario by weighing the pros and cons.

Discuss it with others at your company to gauge how willing they are to take on the risk and responsibility. You can also seek professional advice at a bank, since the new endeavor is likely to require a small business loan. And remember that there is no need to rush the decision. In most cases, the opportunity to expand will always be there. If you don’t take advantage of it now, you can change your mind in the future.

Author’s Bio: Katherine Pilnick is a writer, blogger and editor for Debt.org, a debt help website.

Should I Follow My Dreams and Open a Small Business?

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The dream never dies for many individuals who envision the thought of starting up their own business and realizing part of the American dream.

With the present state of the economy, however, there are many who fear that the timing for opening a business is not good presently and may not be good for some time to come.

The present timing, however, may actually be good for starting up a business, especially given the fact that the job market continues to remain sluggish at best.

If you’re contemplating thinking about opening a business, here are some things to consider:

  • Compile a professional business plan – Never go into battle without a solid plan, especially when opening your own business. The most important aspect of the plan should be the financial angle, detailing how you will see a return on investment (ROI) sooner rather than later. Unfortunately, too many individuals fail to put together a winning plan or even a plan in general, leaving them ripe for failure;
  • Employees or all on my own? – One of the big questions for individuals is deciding if they will go it alone or have staff on board to help them with their business. On the plus side of going it alone, you are saving on salaries and possible health benefits, along with not having to look after others, whose decision making can impact your business at times in a negative manner. On the down side of going it alone, you are tasked with much more work and effort, leaving you little time for anything else;
  • Don’t be afraid to seek advice – For too many people starting out on their first small business venture, they’re afraid to get advice from other like professionals, including possible competitors. While you don’t have to ask 100 questions, do not be afraid to have some discussions with others who have successfully turned their dreams of owning a small business into a reality. Owning a small business is a continuous learning process, so be prepared to learn seven days a week;
  • Have a Plan ‘B’ in place – While you have to have a clear and positive attitude when opening up your new small business, don’t forget to have other options should things not work out. How will you cope financially if the business does not take off or even has to close? Do you have enough financial resources in place to support you and/or your family if things fail? What timetable do you have in place if things are not working out to pull the plug on it? These are just some of the things you need to be able to answer sooner rather than later;
  • Stay positive – This is likely the most important but less thought of matter. It is very easy to turn negative when the bills start piling up, you hit a lull in customer sales, and the outlook is bleak. Throwing in the towel on your lifelong dream should only happen when you have exhausted every alternative and then some.

As you can see, opening your own small business, especially in today’s up-and-down economy, is challenging at best.

Then again, don’t you like challenges?

Photo credit: yourpassionatebusiness.com

Dave Thomas writes extensively for B2b lead generation online resource Resource Nation that provides expert advice on purchasing and outsourcing decisions for small business owners and entrepreneurs. He is an expert writer on items like factoring services and is based in San Diego, California.

Priorities for Entrepreneurs #4

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I recently had the opportunity to review a book for entrepreneurs that had some great advice, a list of seven priorities for the critical first year of business. The more I thought about this list, the more important that it seemed to me. So I have decided to create a series of posts elaborating on this theme. While “Young Guns“, by Robert Tuchman, is targeted to a just-out-of-college-and-wondering-what-to-do market, I believe that these priorities apply to anyone starting a new venture.

Talk to absolutely everyone about what you do.

During the first year, you must be the mouthpiece for your business. Talking to people about your business at parties, at family gatherings, at outings like sporting events should become second nature. Consider every person who crosses your path a sales opportunity, even if he or she might not ever be the end customer. In addition to continual word-of-mouth marketing, pick up the phone and call reporters to let them know what you are doing.

This strategy of always talking about your business is essential. Blog about it. Tweet about it. Leave comments on other people’s blogs to show your knowledge and credibility.

I also like Tuchman’s advice about reaching out to reporters. In fact, Free Press Release.com has a service that allows you to publicize your business and Peter Shankman has a pretty cool service called Help a Reporter Out that allows you to answer questions or provide interviews to journalists looking for help with stories. [Ed. Note: I do this all the time, it is fantastic]

Do you have any other suggestions for getting the word out about your business? Share them in the comments.

Priorities for Entrepreneurs #3

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I recently had the opportunity to review a book for entrepreneurs that had some great advice, a list of seven priorities for the critical first year of business. The more I thought about this list, the more important that it seemed to me. So I have decided to create a series of posts elaborating on this theme. While “Young Guns“, by Robert Tuchman, is targeted to a just-out-of-college-and-wondering-what-to-do market, I believe that these priorities apply to anyone starting a new venture.

3. Get your website up and running

Your website has to say “This is who we are” to the world in a way that is compelling. A great web design doesn’t have to cost a fortune. If you don’t have the HTML skills or graphic talent in-house, look for a young and hungry web designer who’s looking for a shot, as you are.

Expect to update your website regularly and improve it constantly over time. Having a website with months-old or irrelevant content is a real deal-killer. It makes your company look stagnant, at best.

website-screencapAt the worst, it makes your company look unprofessional and incompetent. Your website is your online brochure, your 24-hour answering service, and your business resume, all rolled into one. There are also compeling reasons for your website to include a blog.When considering content for your business blog, you should consider calling one of your customers and asking them for an interview.

You can then ask some questions and post the Q & A right on your website, with a link to the customer’s site (sharing is good!). I recommend that these interview questions should be along the lines of:

  • How can our business help you succeed?
  • Why is our product/service important to you?
  • What is the impact of this decision upon your own business?
  • What happens if you don’t do something about this situation by using our product/service?
  • If you were to identify the business tactics most critical to your success, what would be number one?

When you understand your customer’s emotional connection with your product/service and how it influences their need to buy, you can position your product/service in the market for what it will do to address that emotion.

If you can help them address their “need-behind-the-need,” then a prospect becomes a probable purchaser and, ultimately, a customer. Your website is a very powerful tool for doing just that.

First Year Priorities for Entrepreneurs #2

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I recently had the opportunity to review a book for entrepreneurs that had some great advice, a list of seven priorities for the critical first year of business. The more I thought about this list, the more important that it seemed to me. So I have decided to create a series of posts elaborating on this theme. While “Young Guns“, by Robert Tuchman, is targeted to a just-out-of-college-and-wondering-what-to-do market, I believe that these priorities apply to anyone starting a new venture.

2. Take daily action on your business plan

What separates successful entrepreneurs from floundering entrepreneurs? A daily commitment to fulfilling the benchmarks, both short- and long-term, you have set for your company. Every day, you have to be willing to put the time in and do what needs to be done to move your business forward, in a measurable way. For some people, this means making 10 sales calls a day, no matter what. For others, it means conducting a daily status meeting and troubleshooting with your team.

What, you don’t have a business plan? That is okay, get a piece of paper and write down the answers to these questions:

  1. How would you describe the people that your business will serve, either with a product or service?
  2. Where will your company be at this time next year? In five years?
  3. What is your primary goal for your business to accomplish in the next six months?
  4. List three smaller, more specific, goals that you need to accomplish in 30-, 60-, and 90 days to achieve the six-month goal.
  5. Do the same for your one-year goal.

There, now you have a business plan. This piece of paper should be handy at all times, and you should be referring to it frequently. I also recommend that you put reminders in your calendar for one week before the due dates of your “smaller, more specific” goals. Now, about that daily action. “I just created 6 short term goals, what is there to do every day?“, you might ask. Well, each of those 6 smaller goals should be a project in itself – a group of actions & tasks that make up the sequence of activities that accomplish the goal. A project called “Optimize Keywords for Website” is a good short term project, but “Review Analytics and Referral Logs” (for example) is not  very specific. A better set of actions and tasks would be something like this:

  • Review analytics – collect keywords from search results, measure frequency of keywords, look for unusual uses; Review referral logs for inbound links, visit those sites and leave comments/join in the discussion

You will find that by incorporating daily, tactical actions your strategic goals will start to move closer to actualization.

7 First Year Priorities for Entrepreneurs

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I recently had the opportunity to review a book for entrepreneurs that had some great advice, a list of seven priorities for the critical first year of business. The more I thought about this list, the more important that it seemed to me. So I have decided to create a series of posts elaborating on this theme. While “Young Guns” is targeted to a just-out-of-college-and-wondering-what-to-do market, I believe that these priorities apply to anyone starting a new venture.

In the book Robert Tuchman writes:

1. Build a culture of action and enthusiasm – During the first year, you will face a lot of questions about your experience.The best – and probably only – way to overcome them is to impress your clients with your vigor and dynamism. If you want to be perceived as youthful, forward-thinking, and results-oriented, be proactive! Reward your people for taking the initiative. You’ll have a huge competitive advantage over established companies. Many cliets will pay, and even take a bit of a risk, to get young, energetic minds on their side.

Indeed. In fact, you don’t have to be young, just have that “youthful” mind-set and a good grasp of the new tools and tactics of business and marketing. If you are here reading this you are probably involved with the “Social Media Scene” and, no matter what your age, you have something to teach older companies – by way of eating their lunch.

Action and Enthusiasm Can Be Contagious

action-260Cultivating and maintaining a pro-active and empowered team in your business have the potential to take your business over and above your competitors, especially those that have been around for a while and may have slipped into some bad habits. A personal example: When I used to work for a Marriott hotel we were encouraged to take care of our guests in every way. One of our guiding principles was (I am paraphrasing here), “If you encounter a guest with a problem you own that problem until the guest is satisfied.”

In theory, this meant that the employee who discovered/encountered the problem was in charge of solving it to the guest’s satisfaction. In practice this meant that our staff went out of their way to make sure that guests didn’t have problems, and if they did every employee knew how far they could go to fix it, and when they would need to reach out for help. In any case, I saw many front-line employees handling guest issues that may not have been entirely within their job description, either by themselves or with the help of the staff members who were responsible for that area of service. I believe that this policy was largely responsble for the high level of morale and pride that the staff had in their jobs and workplace – and the Triple A 4-diamond rating the hotel received.

What are you doing to cultivate a culture of action and enthusiasm in your business? Please share in the comments.
(You can read the review and enter a contest to win an autographed copy of the book at this link Book Review: Young Guns by Robert Tuchman.)