Growth strategy for startups: Mastering Ansoff's matrix
A deep-dive into Ansoff's four growth strategies including how to execute them, key considerations & risk factors, keys for success, and global and Africa-specific case studies
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The previous article ‘How (African) startups should think about growth' introduced Ansoff's matrix, and this post explores it more deeply.
Ansoff's matrix is a powerful but underutilized growth strategy tool for startups. Once they’ve established a beachhead — serving a core market with a core product — Ansoff’s matrix provides a great framework to evaluate various alternatives for growth in a structured manner. According to Ansoff, there are just four growth strategies available to a company:
Sell more of existing products to existing markets/customers (Market penetration)
Sell new products to existing markets/customers (Product development)
Sell existing products to new markets/customers (Market development)
Sell new products to new markets/customers (Diversification)
Whereas the previous article, ‘How (African) startups should think about growth', introduced Ansoff’s matrix and its applicability to startups, this article explores in greater depth Ansoff’s four growth strategies. Topics covered include common ways of executing the strategies, key considerations & risk factors involved in a given strategy, keys for success, and global and Africa-specific case studies.
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Market Penetration Strategy
Overview
The goal of a market penetration strategy is to increase a company’s market share. It consists of selling more of existing products to existing customers and/or finding & converting new customers within the company’s existing target market. This strategy is said to offer the lowest risk as it introduces few new variables; the company sells already existing core products & services via established channels to customers and markets it’s familiar with.
Executing the strategy
Executing a market penetration strategy involves strengthening relationships with existing customers and developing relationships with new, but similar, customers. This generally involves:
Selling more to existing customers
optimizing sales & distribution teams and channels
instituting customer relationship management & loyalty programs
increasing brand awareness and mindshare
developing a strong internal upselling capability
creating ‘magic moments’ for customers & minimizing churn
Finding new customers within the original target market:
increasing advertising spend
offering promotions & special offers or otherwise reducing prices
experimenting with new acquisition strategies and channels
operating the customer service function as a customer acquisition channel
acquiring a rival in the same market
Key Considerations
Industry growth and structure are among the key considerations in pursuing a market penetration strategy. It’s best suited for a) fast-growing markets with b) weaker or disorganized competition and c) underserved customers. It’s also a good fit for companies that are bootstrapped or otherwise unwilling to invest significantly in riskier growth strategies.
If a market is in decline, it may be more sensible to focus on adjacent opportunities rather than dominating a dying market. Similarly, if there are strong competitors in the market, it may be prudent to tread carefully rather than risking a price war or otherwise poking the bear. And finally, if customers in the market are generally satisfied, new entrants may find it challenging to win them over.
Keys to success
Focus, product/service quality, and a deep understanding of customer needs and market positioning are the keys to success with this strategy.
Examples
Global: While today Google is known for a variety of offerings from the Android OS to the Google Chrome web browser to Gmail and more, the company was much more focused at launch. After its 1998 founding, the company’s singular focus was on its search engine in a market where customers were generally underserved. Moreover, its competition was largely weak and fragmented.
"In late 1995 I started collecting the links on the web … No one was really looking at the links on the web—which pages link to which pages ... I started off by reversing the links …and we ended up with this way of ranking links … and then we were like ‘wow, this is really good, it ranks thinks in the order you'd expect to see them’ ... We thought ‘this is really interesting, this thing really works, we should use it for search’ and so I started building a search engine and Sergey also came on very early ... and basically we thought we should be able to make a better search engine this way because search engines didn't really understand the notion of which pages were more important.”
— Larry Page (interview on starting Google, 2000)
Thanks to an initial focus on its search engine product and on growth via market penetration, Google quickly rose to enjoy over 50% search engine market share just five years after launch. While the company has since turned to product development, market development, and diversification strategies, its relentless focus on penetrating the search engine market provided it with a solid base; this has since compounded and today Google accounts for over 90% of the search engine market.
Africa: Another company that deployed a market penetration strategy in its early days is Paystack. Paystack, the Nigerian company referred to by Techcrunch as the ‘Stripe of Africa,’ was founded in 2015 and helps businesses in Africa get paid. At the end of 2016, the company had acquired 1400 merchants, and by the end of 2017, this number had grown to 7,700 merchants. By 2018, the company had acquired 17,000 merchants and accounted for 15 percent of all online payments in Nigeria. And today, while the company has begun to explore other strategies for growth, it currently has over 60,000 merchants and processes over 50% of online payments in Nigeria.
Product Development Strategy
Overview
In pursuing a product development strategy, a company leverages its pre-existing relationships to offer current customers additional products and services. This is riskier than a market penetration strategy as it involves the creation & uptake of unproven products/services.
Executing the strategy
Executing a product development strategy involves extensive research and development to identify unmet customer needs. It also necessitates adequate innovation and new product development capabilities to bring solutions that meet those needs to market.
This typically involves:
close interactions with current customers
listening intently to customer complaints to identify hidden insights & opportunities for new products/services
‘getting outside the building’ to observe and interact with customers
prioritizing customer feedback and early market testing during the product development process
adding new features to an existing product
developing new products that are related to the core product
adding a service element to existing products
productizing parts of an existing service
creating strategic partnerships or joint ventures where complementary assets are pooled to create new products/services
acquiring a company with a complementary product line