Tesla Merges with Energy Company and Gets In On This Upcoming Retail Trend
Elon Musk’s two companies – car manufacturer Tesla, and SolarCity, his energy firm – are joining forces. Concern over the motivation behind the merger (potentially to bail out SolarCity after a rough quarter) has been voiced by Wall Street and financial media outlets nationwide. But regardless of the mixed reviews, it’s likely to happen.
Vertical integration is when your business coordinates more than one stage of an industry chain. Still confusing, I know. Here it is in its simplest form: A big burger company also makes antacids. They cover the initial product, and the result of it.
It also works in the opposite direction. That is, making a product and manufacturing the components you need to build it. Did you know that Google owns Motorola Mobility? They make the app/operating system, and then acquired the product that it runs on.
Richard Branson is another example of a vertical integration success story. “As a lone record store, Virgin barely kept Branson afloat. Once Branson expanded into talent management and record production, however, the product that once cost the record store money became a profit center.”
Historically, vertical integration has the power to make or break a company. But if you do it right, it can allow your company to prosper in ways you didn’t originally see.
Here are some ideas to chew on if you’re thinking of controlling another part of your manufacturing process, or producing another complimentary product to your already existing lines.
Industry experts fear that Musk’s move is jumping the gun; that it’s not the right time for the merge to happen within the market. Here are some reasons to consider making the move:
- The current manufacturer is risky or unreliable.
- The market you’re in is unexplored and you need to develop other areas yourself (or if you aren’t satisfied with manufacturing standards in your field)
- Businesses that cover other areas of your market have more profit than yours
A business idea in any form is a solution to a problem. If started a sandwich company, it’s likely because you couldn’t find an existing sandwich to your standards. Problem… solution. #HubbaBrand Tidy Books’ founder Geraldine Grandidier puts it succinctly, “I’m not interested in designing something just for the sake of it, or because it’s trendy, or to make a different version of something that already exists.”
By expanding your business to cover another step in your product’s chain, you still need to define the problem you’re solving not just for yourself, but for your industry. Why will people care? Maybe your company only makes sandwiches with organic vegetables. What problem are you solving by growing your own rather than sourcing them externally? One potential answer of many, is trustworthiness. Another is reliability.
Good news! This is a lot easier for a small business than the big guys. Google can’t return Motorola like a shirt at a store. You, however, can. At a relatively low cost, you can stop growing your own sandwich-lettuce and find some elsewhere. The risk is low. But the reward could be really high! If your lettuce-growing operation goes well, you can start selling it to other sandwich shops in your town and open up a new income avenue that still benefits the rest of your business.
Is your company is ready for a next step? This may be an opportunity to expand your venture without creating something completely new! It’s like mining opportunity from your current situation.
Tell us your experience with vertical integration in the comments for a chance to be featured in an upcoming article!