Using the Ansoff’s Matrix to Evaluate Risk

There is always risk no matter what you do in life, whether that’s walking to the shops, or deciding to start your own business. The only difference between the two is that money is involved in one of them.

To me websites have never been that much of a risk to set up, as after the initial fee of getting a host, you only have to pay for domain names and these are relatively cheap. But this is where I am wrong; websites are risky because they involve decisions and money, both factors which cause humans to make mistakes.

The Ansoff’s Matrix

The Ansoff’s Matrix was created by Igor Ansoff and he first published it in the Harvard Business Review in 1957, in an article called ‘Strategies for diversification.

You’re probably already thinking why am I using the Ansoff’s matrix for a website? Well, it’s a decision making tool, and because of that we have something which can help us decide which direction we are going in with our websites. It’s not something which will magically make risk disappear, but it outlines why risk is there and how we can use it to identify the risk in making the website we want.
There are four parts to the Ansoff’s Matrix, which you can see below on the diagram I have produced:

The Four Sections, Which to Choose?

We will now look at each of the four sections and discuss what they mean and how they can be used. Each section has a certain amount of risk and reward with it, which creates a tough decision if you aren’t too sure which one you want to start your website up in.

Existing Products/Services and Existing Markets

This is a low risk strategy because there is already a lot of knowledge in the area which you can work with. This is the section which most blogs can say there in now. For example, Profit Duck, although this is a new website, it is in a large market as I am covering ‘Making Money Online’, and you could say that I am in an existing product/service, because I am providing personal opinion on ‘Making Money Online’.

Although I mentioned above that this is a low risk strategy, because you are going into something where there is a lot of knowledge, this can also mean that it is very risky, because there will be a lot of competition on the area, meaning you have to get a better image than them. This could take longer, but in the long-term lead to a greater reward.

Succeeding In This Section

If you find that you are already in this section, then to succeed you will have to make yourself better than your competitors. One way of doing this is Market Penetration. This is to promote growth in your market with your product/service. Many tactics can be employed, including increasing your brand loyalty. So in terms of blogs, getting your readership levels stable and giving them more, so that they then tell their friends and you can gain traffic from word of mouth. Encouraging people to use your website more often, which could mean posting more articles a day so they read your website twice a day, instead of once. This could lead to you increasing the amount of money you make from each person. Alternatively, you could try and get your visitors to stay on the website longer, so instead of them just reading the latest article, you get them to read some old articles too. This could be done by adding links into the body of your articles, or by adding a relevant articles section at the bottom.

Existing Products/Services and New Markets

This involves using your existing product/service and extending it into new areas. For a website this could include trying to reach out to a new audience, but by still providing the same thing. This is much more risky than Market Penetration because you won’t be as familiar with the market.

This type of strategy could be used if you have hit a road block in building your websites traffic. You could have everyone from your market following your blog or website, meaning there is not room for more expansion, leading you to think of new markets you could try and aim your services at. For example, when Amazon started out they just sold books but over the years they have branched out into new markets so that they can continue growing there business.

New Products/Services and Existing Markets

This is an essential strategy in competitive markets, as it always means you to stay on top of the market by introducing new products or services. This is the section I like to feel this website is in, as I’m in an existing market ‘Making Money Online’, but I’m trying to offer something new, by looking at the business side of making money and also helping people learn from my own experiences.

This is a risky strategy because it involves spending a lot of time on research and time on developing your brand. This is mainly due to the fact that because it is a new product or service, you don’t know if people want it, meaning time spent on research will reduce the risk of failing, but it also could increase the risk of failing because you’re spending time which could be used in growing your website.

New Products/Services and New Markets

This is known as diversification and is very risky due to the fact that you are going into completely unknown territories. However, it may be the right choice if the risk matches the return. An example of this is when social networking websites started like MySpace and Twitter, offering something completely new, and in MySpace’s case in a new market. This was very risky, but the reward gained from it has been astronomical.

In my opinion, it isn’t likely that you can offer a new product or service in a new market through blogging, or making a ‘normal’ website, because that market is already out there. If you want to diversify, then you need a very good idea which you’re willing to take the risk on. It is what every entrepreneur wants, an idea which will just work.

Making a Final Judgement

If you are just starting out in making a website or blog, then you will probably be looking at this article and trying to decide which section applies to you, or which section you would like to apply to you. In this day and age, I personally think that New Products/Services and Existing Markets is one of the best ways to go, because you are in a market which you can rely on, but you are offering something new. Yes, its one of the riskiest strategies, but if it works, you will be rewarded. On the other hand, if you are confident that you can take on the big boys and go for Existing Products/Services and Existing Markets, then please do. In the end it is your decision.

Image: m_bartosch / FreeDigitalPhotos.net