A STARTUP JAWN

The Unbeatable Vertical Integration Strategy for Founders

Implement this, like, yesterday.

A chessboard and pieces, symbolizing strategy.

Providing a community with a mission is the key to maintaining active engagement. This is a sensible, universally understood tactic. But what if you infused vertical integration into your community mission?

mindblown scientist

To understand how this method works, let’s first break down the meaning. According to Investopedia, vertical integration is:

“a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers.”

Essentially, vertical integration means keeping the process in-house.

Consider Amazon. The $1.56T company has its own internal processes — from production to distribution. Over the years, Amazon would reduce its need for third-party entities by replacing them with their own internal version. In logistics, for example, companies typically use third-party logistics (3PLs) for storage, picking and packing products for customers, and shipping. Instead of using 3PLs, the company created Amazon-owned warehouses, fulfillment centers, and delivery services, eliminating intermediaries from its distribution process.

Apple also uses vertical integration in its production and distribution strategy. Instead of manufacturing electronics and disseminating them to third-party retailers, Apple has its own stores. The added caveat to this scenario is Apple’s hybrid distribution channel. Other authorized retailers sell the brand’s products (in other words, people can purchase iPhones at places like Best Buy and T-Mobile). For the sake of simplicity, the focus is on the company’s choice to distribute products in-house, mitigating potential costs incurred from using only external resources.

While Apple and Amazon present clear examples of how vertical integration works at large companies, the question remains: how does this strategy work for startups? And how can Founders leverage their community to optimize this effort?

Buy other companies or startups. Suppose a founder regularly outsources administrative duties to one virtual assistant boutique. It may make sense to purchase the boutique when the startup experiences rapid growth and an increased workload. Founders can also use this strategy to create an in-house software development team (or marketing team, property management team, or financial processing. You get the idea. The possibilities are endless).

Purchase groups or communities for distribution. Think newsletters. Perhaps a founder builds a CRM product for home chefs. The founder may purchase a newsletter that publishes content for home chefs. The acquisition provides the startup with a ready subscription list of customers in its target market, while the newsletter provides a distribution channel to purchase the product.

Activate your community. When a startup designs its community with uniquely talented members, Founders can elicit their subject matter expertise. Maybe the community consists of a handful of talented web designers, photographers, writers, or influencers, and the team is looking for help with a new marketing campaign. Offer your engaged members the opportunity to take ownership of the campaign. Enlisting their help sends a message of trust, inclusivity, enthusiasm, and value in the community as a whole.