Start-ups are designed to grow quickly, but successful start-ups grow smart. This course is designed to provide you with an understanding of the essential elements of successful scaling, including an overview of demand generation, customer acquisition, adoption, diffusion and forecasting demand. You’ll also learn how to market effectively using best practices of digital marketing, social media, PR, SEO, and pricing. Finally, you’ll cover the nuts and bolts of building a sales process, partnerships and supply relationships, and examine the crucial components of attracting, developing and retaining talent. By the end of this course, you’ll have an outline of an expansion strategy for your idea or enterprise, and also be ready for Entrepreneurship 4: Financing and Profitability
Venture Scope and Expansion Strategy
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Entrepreneurship 3: Growth Strategies
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Module 4: Creating and Scaling Company Culture
This module explores the best approaches for attracting and retaining talent, creating a company culture that is conducive to growth, and how company founders and early employees can learn to delegate authority and manage the people-based growing pains that many start-ups experience. You'll learn how to scale up strategically, and how to you decide whether to expand to different segments once you establish a foothold in your target segment. You'll also examine the differences between vertical expansion and horizontal expansion, and learn how to decide which path to pursue. By the end of this module, you’ll be equipped to make the tough decisions required to manage a start-up’s personnel roster and strategic direction as your business grows.
Conheça os instrutores
Kartik HosanagarProfessor
Wharton School
Lori RosenkopfVice Dean and Director, Wharton Undergraduate Division
Simon and Midge Palley Professor of Management
David HsuRichard A. Sapp Professor of Management
The Wharton School
Laura HuangAssistant Professor
Management
Ethan MollickAssociate Professor
Associate Professor of Management- Wharton School
David BellXinmei Zhang and Yongge Dai Professor, Professor of Marketing
Marketing
Karl T. UlrichVice Dean of Entrepreneurship and Innovation
The Wharton School
David Hsu here with a lecture on expansion strategy.
Here's the phenomenon.
Suppose that you are able to be get some traction with your first segment that you
enter into as a entrepreneur company.
What guides whether you should remain in that segment or
start thinking about going into a different area all together.
Let me illustrate this.
Walt Disney Company, when it enters, is initially a film studio.
They achieved excellence in their animation.
They are quite detailed in their investments in becoming a studio.
Subsequently decades later they decide to integrate into theme parks.
And, at first blush, you might think that this is quite a surprising move.
And so the question that animates this particular lecture is, under what
circumstances should you be going deeper into the first area that you succeeded in
and how could you know whether it makes sense to get into a different area?
We'll talk about the first phenomenon
of staying in the same area as an instance of vertical expansion,
remaining in the same initial vertical, in this case, the studios.
We'll talk about the horizontal expansion.
We're getting into a different area.
As an instance of horizontal expansion,
that would be the example of getting into Disney World or Disneyland.
One important aspect of thinking about the distinction between vertical versus
horizontal expansion is the set of circumstances you might pay attention
associated with each of the different expansion strategies.
So under vertical expansion, remaining in the same industry but
getting into different geographies, getting into different segments of
the same industry is very different than the decision to go horizontally.
And so let me say a few words about each.
Vertical expansion, you might think about offering the same products but
in a different geography or
thinking about backward of forward integration in the same vertical industry.
Let me illustrate this with the example of easyJet in Europe.
So easyJet entered the market, they were very successful and
made a reputation and brand associated with being a no frills or
low frills provider of getting passengers from point A to point B within Europe.
Now they could have in terms of expansion strategies be thinking about should we
take that the same formula and go to Asia or Africa or North America that would
largely be retaining the same competitive position in the exact same industry.
Another example of vertical expansion could be, let me as easyJets go
integrate backwards into the supply of the various
inputs to servicing the passengers in this industry.
Or forward expansion maybe getting a bit into
some of the downstream type of activities associated with servicing exact same
customers in exact same vertical industry.
By contrast, a horizontal expansion is very much like the Disneyland or
Disney World play.
That is, getting into a different industry vertical relative to your home base.
And it's driven by different set of logics, so one would be diversification.
So, in contrast to vertical expansion, if you are able to expand horizontally,
maybe you've know some of the portfolio in which the assets that you hold do not move
together, and that could be beneficial from a diversification standpoint,
much like what you probably know from financial theory.
The other consideration when you think about horizontal expansion is
brand extension.
Is it actually logical, from the consumer standpoint,
that you're in one asset class, or vertical as compared to what you know or
are known for in your home vertical in case of Disneyland,
maybe because you have these assets of Mickey Mouse or Donald Duck.
Maybe that makes sense when it comes to entering into
the theme park type of category.
Now, one underlying construct both in terms of the vertical and
horizontal expansion is paying attention to your evolving core capabilities.
And so that is essentially answers the question, what is actually distinctive
here and hard to replicate as the enterprise, because after all,
when you enter into different aspects of a vertical market or
horizontal expansion path, you're going to bump up against competitive rivalry.
And to the extent that you can carve out something that's distinctive,
that you're known for, that you can extend your brand in.
That's going to serve you well.
Associated with that, you often think about these notions of fit or
consistency between what you're doing on an organizational basis.
That is, does it actually make sense as the Walt Disney company for
example, that you're getting into theme parks because do they share
a set of activities as what you're doing on the studio business?
And so the outcome of that decision or discussion in your company as you think
about expansion, will actually help guide your expansion path forward.
That is, are you extending something that's hard to imitate,
something that is at the essence of what you're doing in terms of a core skill
that's going to be difficult for others to come in and replicate.
Let's talk little bit more about vertical expansion.
So, here we're talking about forward or
backward integration, maybe getting into different geographies.
This is going to be driven by a number of considerations.
So perhaps first and foremost, will it extend your brand?
Are there some activities that you should be doing on a vertical basis
that is going to increase your skill set and
be reinforcing in terms of the brand that you are building.
A second consideration is what's known as scale economies.
We've confronted this before.
Here, are you from a operation standpoint, better leveraging your fixed assets?
Maybe it's machinery, maybe it's people.
Are you able to get some leverage in terms of utilization rates, learning,
as a result of engaging in more of this activity and deepening that activity.
So in the language or in the context of say, easyJets as you think about going
across geographies, are there some shared back office type of considerations,
whether that be analytics, software that you have in your operations that's
now being more utilized as a result of your expansion across geographies.
Now taking that easyJet example, you could very well think about remaining
in the airline industry, but moving your positioning.
Not just in the no frill segment, but staying in Europe and
migrating upstream or downstream from the position that you've carved out.
And that will in turn be really shaped by these issues of core capabilities and
your positioning in the marketplace as well as scale economies.
Now, when you think about prioritization and sequencing your expansion pads.
You're going to want to take into consideration what is logical,
what is going to be easier, and what is going to be harder.
Particularly important for an entrepreneurial company,
you'll want to try to think about going to the lowest hanging fruits.
Then kind of sequencing your activities so that you are picking up the skills,
developing your core capabilities.
So that you are prioritizing the easier things first and prioritizing
the more difficult, but perhaps higher pay off type of activities later on.
But it's actually also important to be mindful of differences as you think about
the vertical pathway that you go in, because after all, take it for
example the geographic locational differences.
There's going to be differences in regulatory environment, there's
going to be differences in the consumer base that you're going to be reaching.
So you don't take it for granted.
That just because you've been successful in one geographical occasion,
say you're up for easyJet, that you're going to be automatically successful
with that exact same business model or competitive positioning in Asia or Africa.
Be mindful of those differences.
And the same thing will be true in terms of your positioning.
One of these alternatives we talked about is,
you can stave in the airline industries easyJet.
In the same airline vertical but, to what extent as you try to move upstream
from the no frill segment or even if it's possible to move downstream for that.
Don't take for granted that it's going to be automatically easy
even if you stay within your home geographic location, Europe,
in the case of easyJet, that you'll be successful.
Because after all, it may be the case,
that you are successful in your first home market and
position precisely because you've aligned your activities as an organization
to meet well the customers that demand what you're doing in your first market.
In the case of easyJet, it's the no frills segment in Europe,
whereas it may be quite difficult for you to achieve as equally successful position,
as you move to different segments, competitively in that landscape.
Now, let's think about the horizontal expansion decision.
Here, remember, it's the idea of Disney moving away from their home vertical,
that is, the movie studios and cinema operations,
into doing something that's quite different.
That is, the example of theme parks.
And so here you want to think about three considerations as
it points to Whether it makes sense to expand horizontally.
The first goes back to the idea of leveraging your evolving
core capabilities.
Is there some logic in which you could think about leveraging what
you're good at or could be potentially good at in that other category?
Is there an overall notion of synergy so
that you should really be involved in that other activity?
And let me make these concepts more specific by proposing
two very specific tests that will guide horizontal expansion.
The first test is the better off test.
Would it make sense to have the combined activities under one organizational roof
or will there be more value creation if there is not common ownership?
That is, in the language or the context of the Disney example,
would it actually make more sense or lead to more
value creation if Disney did not integrate into the theme park business,
but instead redeployed or really channeled and focused all their resources into
getting much deeper into the vertical, that is their home studios, right.
Is there some logic of synergy so
that there's spill-overs between the proposed horizontal segment,
that is the studios, and what they're doing in their movie business.
Is there some reason, either from a scope economy type of shared
platform type of logic that is cost cutting or brand extension so
that it actually makes sense to have both activities under one organizational roof.
That's the better off test.
The best alternative test is, now that you've decided that common
ownership may be desirable from a value creation standpoint.
Does it stand the test of the best alternative?
That is, you could for example license the activity in the theme park or
have a strategic alliance with the operator that operates the theme park.
With those alternate forms of organizing the transaction actually would be better
from a value creation,
value capture standpoint relative to actually owning it yourself.
And so let me give you two examples within the Disney
context that can illustrate the best alternative test.
So in terms of the theme parks, maybe Disney doesn't want to license
a specialist in the operator of a theme park because they want to have control
over how their characters are represented, control over the rides in the theme parks.
Because if they left it to a third party
even if the incentives are aligned through a joint venture or
strategic alliance maybe that third party doesn't take the same level of care
as Disney would himself in terms of preserving the core assets.
The core assets being the characters themselves in the way that they're being
portrayed in the rides, in the experience associated with this name, Disney World.
And maybe that's one reason why as Disney World,
Disney actually owns for that asset.
Another dimension that synergy could be that, they could cross promote.
In Disney, they get more traction in promoting their
valuable characters that they're also developing in the studios.
That cross promotion could be one important synergy as to why
Disney World is actually owned by the Disney Company.
Now, take in contrast a different activity that Disney could be doing.
They could be also operating as a fast food operator.
Because after all, fast food meals could come with some Disney characters and
that could leverage their brands and core assets being the different characters.
But here, Disney actually thought about this particular activity and decided that
they're better off licensing their characters to a third party.
McDonald's or some other third party fast food provider because
why does Disney have to be in the business of selling french fries and
hamburgers when an outside entity can do that just was well.
And it's very clear the damage from licensing the characters in a happy
meals or [INAUDIBLE] being represented in the fast food chain, the threat there is
not very real in terms of Of degrading the core assets, so long as
they can really specify in the contracts how those characters are represented.
And so, maybe that logic through this best alternative test,
leads to different outcomes as we thought about the Disney World expansion decisions
versus the possible expansion decision backward into the fast food business.
So, to summarize the discussion about the expansion path.
You have two options, vertical expansion, that is remaining in the same industry and
going backwards or forwards or into a different geography.
There's also the horizontal expansion decision that is getting into a different
industry vertical.
Each of these types of expansion decisions comes with a shared platform
of consideration, but also a distinct set of considerations as well.
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