How to Master the Ansoff Matrix
The price of doing a great job carving out a unique niche is that the specialty that made you successful can start to hold you back.
If you make the world’s greatest $5,000 wine fridge, you may have a nice, fat-margin business until you run out of people willing to spend $5,000 to keep their wine cool.
To brainstorm how to grow beyond the niche that got you started, consider the Ansoff Matrix. It was first published in the Harvard Business Review in 1957 but remains a helpful framework for business owners today.
Sometimes called the Product/Market Expansion Grid, the Ansoff Matrix shows four ways that businesses can grow, and it can help you think through the risks associated with each option.
Imagine a square divided into four quadrants representing your four growth choices, which include selling…
1. Existing products to existing customers
2. New products to existing customers
3. Existing products to new markets
4. New products to new markets
The choices above are presented from least to most risky. In a smaller business, with few dollars to gamble, focusing your attention on the first two options will give you the lowest risk options for growth.
It’s natural to feel like you’re being greedy when you go back to the same customers for more of their dollars, but the opposite can often be true. Your best customers are usually the ones who know and like you the most and are often pleased to find out that you—someone they trust—are offering something they need.
When I was sixteen, I worked in a hardware store. My boss, Greg, was an enterprising entrepreneur who understood Ansoff’s Matrix (although he certainly didn’t call it that). We cut keys for people in the store and made more than 150 percent mark up on each one. The problem was, our key cutter was hidden in a corner and nobody knew it was there. As a result, we didn’t cut many keys. One day, Greg decided to move the key cutter and position it directly behind the cash register so everyone paying for their hardware could see the machine. Customers started seeing the cutter and realized—often to their pleasant surprise—that we cut keys. Not surprisingly, we started selling a lot more keys to our loyal customers.
If you want to sell more of your existing products to your existing customers, draw up a simple chart of your products and services. Don’t be afraid to dust off those old products that you haven’t paid much attention to lately. List your best customers’ names down one side of the paper and your products across the top. Then cross-reference your customer list with your product list to identify opportunities to sell your best customers more of your existing products.
A friend of mine owns a BMW dealership. His typical customer is a family patriarch in his forties. When my friend felt like he had saturated the market for well-heeled forty-something men in his trading area, he thought about what other products he could sell his existing customers. But instead of defining his customer as the forty-something man, he decided to think of his customer as the financially successful family and his market as their driveway.
Instead of trying to sell more BMWs into a market of diminishing returns, he bought a Chrysler dealership so that he could sell minivans to the wives of his BMW buyers. He then realized a lot of his customers had kids in their teens so he bought a Kia dealership to sell the family a third, inexpensive car.
When your growth slows, it can be tempting to diversify out of your core. But the least risky growth strategy will be to figure out what else you could sell to your existing customers.
JOHN WARRILLOW | Columnist | Sellability
John Warrillow’s new book, The Automatic Customer: Creating a Subscription Business In Any Industry will be released on February 5, 2015. John is also the author of Built to Sell: Creating a Business That Can Thrive Without You and the founder of The Sellability Score, a company dedicated to helping business owners improve the value of their company.