Vertical integration gets framed as an operational choice: bring manufacturing, or raw material sourcing, or distribution in-house to gain control and margin. It's really a capital allocation decision, and I've seen founders make it emotionally, chasing control, without running the actual return comparison against every other use of that same capital.
The Margin Gain Has to Beat the Opportunity Cost
Bringing a supplier relationship in-house captures the margin that supplier was earning, but it also requires capital investment, new operational expertise the business may not have, and management attention that gets pulled away from the core business. I model vertical integration decisions against the return I'd get deploying the same capital into marketing, new product development, or geographic expansion, because the margin capture from vertical integration only makes sense if it beats those alternatives, not just if it beats zero.
The businesses I've seen regret vertical integration moves are usually the ones that integrated a function requiring specialized expertise they didn't have, treating the acquisition or build-out as a one-time capital project rather than an ongoing operational commitment that needs its own management discipline.
Integrate Where You Have Genuine Control Advantage
The vertical integration moves that have worked well for me are the ones where owning the function gave genuine strategic control over something that mattered: proprietary process knowledge I didn't want a third-party manufacturer to have visibility into, or a supply chain bottleneck where a single external vendor had disproportionate leverage over my production schedule.
Vertical integration for margin alone is usually a mediocre capital allocation decision. Vertical integration for strategic control over a genuine chokepoint in your business is often a very good one. Know which one you're actually making before you commit the capital.