The problem with scale

When business owners start out, they invest in solutions and services and products that can meet their needs at the time. Of course they have dreams for running a big organization but until they get there, they only need to solve the problems of a small organization.

For that reason, business owners invest in horizontal solutions – from accounting services to payroll services to delivery services, and so on. The business owner just buys solutions that they think will do the job. However, as the company grows, their real needs become more apparent. Industry specific requirements arise and a more targeted (or “vertical”) solution becomes necessary. Those businesses then tend to shed their horizontal solution for a vertical solution at some point along their growth trajectory.

Years ago, that transition from horizontal solution to vertical solution happened as businesses got into the millions of dollars of revenue. But, thanks to a variety of consumer trends and technologies, vertical solutions are moving down the price ladder and becoming more and more available to smaller businesses, too.

Take us, for example. We don’t try to be all things to all businesses. We’re a great solution for small businesses and especially for freelancers, entrepreneurs, and coaches. Or consider a solution like Freshbooks, which offers really easy and useful invoicing for a similar market. A giant bricks-and-mortar company with zero online presence but thousands of employees and millions in revenue might not find us or Freshbooks very valuable. We’re both vertical solutions for a specific market at a fairly small-business level.

And we’re not alone. Many other vertical solutions – from accounting solutions to payroll to delivery and fulfillment solutions are moving down the price ladder to become accessible to smaller and smaller companies.

So what does that mean for the horizontal solutions market? It’s shrinking. There are still plenty of providers in that market but they are starting to realize that vertical solutions are the answer to keeping business owners who started with them (but have grown to the point where a horizontal solution is no longer meeting their needs). Take a company like SAP which has traditionally provided vertical solutions to REALLY big companies. They’ve introduced services for small businesses, too, leveraging their vertical solutions into mid-markets.

There are a few reasons for this shift and if you want to read more information about horizontal accounting and what the trends are, check out this article from Accounting Software Advice blogger Austin Merritt: “Is Horizontal Accounting Software Dead?”

Jessica Routier, IAC-EZ