Ansoff Matrix & Growth Options
Today, I want to talk about one of the most common matrices in the business environment: the Ansoff Matrix. Igor Ansoff is a Russian-American mathematician known as one of the fathers of strategic management. In his article “Strategies for Diversification” published in 1957, he developed a product-market strategy composed of market penetration, market development, product development, and diversification strategies.
So, what are they?:
Market Penetration: strategy targeting market share increase with existing products in the current market. There are two main ways to this strategy: the company needs to increase its number of customers or increase the number of products sold per customer.
Market Development: strategy targeting expansion through entering new markets. Again, there are two main ways to this strategy: the company needs to have a new customer segment or enter new geographies with its existing product portfolio.
Product Development: strategy targeting the same customer base through new products, and companies apply this strategy commonly for meeting different needs of current customers and increasing customer satisfaction and sales per customer with new features and new value propositions.
Diversification: the riskiest growth option strategy since it has a huge potential to create focus loss while serving new products into new markets. Especially when it is used for spreading risk and responding to market decline, diversification may be a value-destroying activity that is why according to the related paper, organizational performance in related diversification is highly better than unrelated diversification.
All these 4 actions are designed for mature corporations but they are valid and applicable growth strategies for ventures. There is one significant point for startups in their growth process. They have a limited audience due to focusing on a specific problem and eventually, ventures alter their products, services, or the way tell their stories by expanding the scope of the solution. However, the main difference comes into the picture here: Limited Resources and Single Shot Bullet. Most commonly after the investment rounds, startups make movements to trigger their growth but the focus-scalability tradeoff is the key determiner of whether the business survives or collapses. As in all areas of life and nature, we can observe that balance is critical at this point. What entrepreneurs need to do is avoiding from distracting the focus while maintaining the required growth rate like a circle expanding, keeping the center point fixed. Action to achieve this is keeping the growth steps well-thought-of, realistic, gradual, planned with several scenarios, and dynamic by constantly updating.
In short, Igor Ansoff has created a matrix that covers even today’s growth strategies and conveyed the most general classification to us as a guide. In order to maintain the rapid growth needed to reach scaling, startups also implement these 4 main actions continuously and often need to use several of them at the same time.
