Splitting Your Next Move Into Four: The Ansoff Matrix
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There are four directions for growth
The Ansoff Matrix sorts ways to grow a business into four, depending on whether the market (who you sell to) and the product (what you sell) are existing or new. The management scholar Igor Ansoff presented it in a 1957 article.
When you are unsure what to do next, a pile of ideas mixes things of different kinds and makes comparison hard. Sorting them into four shows how hard and how risky each one is.
The four directions
- Market penetration: sell more of your existing product to your existing market
- Market development: sell your existing product to a new market
- Product development: sell a new product to your existing market
- Diversification: sell a new product to a new market
Ansoff described diversification as the most uncertain and risky, because you have no experience with either the market or the product.
An example at small scale
Take a freelancer who builds websites for small companies.
- Market penetration: win more referrals and inquiries from the same trade in the same area, and revisit pricing and how you pitch
- Market development: sell the same service to a different area or trade, such as taking a template built for restaurants to hair salons
- Product development: add maintenance, photography, or copywriting for current clients
- Diversification: offer a different service to an entirely different kind of customer
In most cases, market penetration and product development for existing clients are the easiest to consider first, since you know those customers best.
How to choose
Two questions help.
The first is whether your current business still has room to grow. If sales to the same customers have not flattened, penetration costs less effort and money.
The second is what new knowledge or resources each option needs. Market development requires understanding a new group's language and problems. Product development requires time and skill to build something new. Diversification requires both.
Whichever you choose, run a small test before committing fully. Talk to three people in a new segment, or let one customer try a new product.
Limits
The matrix organizes directions. It does not tell you which one pays. Market size, competitors, and your own strengths need separate checks.
The four boundaries are also blurry. Whether a small change makes a product new depends on how customers see it. Treat the matrix as a rough guide for comparing nearby options, not as a rigid classification.
Do not run all four at once
A small business should focus on one direction at a time. Pursuing market development and product development together spreads your time and attention, and makes it hard to read either result.
After picking a direction, decide in advance what would make you continue and what would make you stop. For example, stop if three months bring no inquiries from the new group.
Why start with existing customers
In Ansoff's framing, directions that involve existing customers carry less risk. Customers who already trust you tend to listen to a new proposal.
A useful question for current customers is, "What else is causing you trouble right now?" Seeds of new products are often in those answers.
Keep a record of the decision
Write down briefly which direction you chose and why. When you look at the result a few months later, you can separate whether the judgment was wrong or the assumptions were. If it did not work, the record helps you choose the next idea.
Reviewing the one-page list of four directions at the start of the year or each season also reduces moving on impulse.
A rule of thumb when you cannot decide
When no option stands out, choose the one you can test most cheaply: low cost, a result within one or two months, and little effect on the rest of the business if it fails. For a small business, getting an answer quickly and moving on often counts for more than picking the right option in advance.
What to do next
- Write one line each for your current customers and your current product.
- Write one idea for each of the four directions.
- For each idea, note the new knowledge, resources, and time it would take.
- Pick the idea that takes the least effort to test.
- Test it with three customer conversations or one small prototype.
For registrations and taxes involved in starting something new, consult a professional.