Chris KobyleckiBetween 2000 and 2020, 52% of America's Fortune 500 companies disappeared from the list.
They had resources. They had market dominance. They had strategic plans.
What they lacked was the courage to make explicit strategic choices.
This isn't ancient history. It's the pattern I see repeated across organizations today. Leadership teams confuse strategic planning documents with actual strategy. They map all possible growth options without choosing which path they'll actually run.
The Ansoff Matrix, introduced by Igor Ansoff in 1957, remains one of the most powerful frameworks for strategic choice. Not because it's complex, but because it forces the one thing most leaders avoid: saying no.
Strategy Is Choice, Not Optionality
Most CEOs approach the Ansoff Matrix like a menu. "We'll do market penetration AND develop new products AND expand to new markets." All at once.
This isn't strategy. It's wishful thinking wrapped in planning language.
The companies that survived and thrived over the past century, GE and DuPont among them, became "hardly recognizable as the same companies they were" because they made explicit choices about direction. They picked one primary path and one supporting direction. Everything else became an explicit "no."
The Four Directions for Growth
The Ansoff Matrix presents four fundamental growth strategies. In reality you can only run fast in one!
Market Penetration → Selling existing products to existing markets
- Lowest risk, highest familiarity
- Increases share, intensifies distribution, improves execution
- Uses current capabilities and resources
Market Development → Taking existing products to new markets
- Moderate risk
- New customer segments, new geographies, new applications
- Requires adaptation but not transformation
Product Development → Creating new products for existing customers
- Moderate risk
- Innovation within known market dynamics
- Leverages customer relationships and market knowledge
Diversification → New products for new markets
- Highest risk, requires breaking with the past
- Demands new skills, techniques, facilities
- "Almost invariably leads to physical and organizational changes that represent a distinct break with past business experience"
The Critical Distinction: Product Features vs. Diversification
Adding chat to your project management tool = feature expansion (NOT diversification)
Building a separate communications platform = horizontal diversification
Real diversification means: Different customer buying decision, different competitive set, different organizational capabilities required.
The framework itself is simple. The discipline it demands is not.
Three Types of Diversification (Each Demands Different Capabilities)
If you choose diversification as your primary direction, you face another critical choice about how to diversify:
- Vertical Diversification → Building Your Own Infrastructure
- Horizontal Diversification → Expanding Within Your Domain
- Lateral Diversification → Completely New Territory
When Amazon built AWS, they moved vertically into their own supply chain. Instead of renting infrastructure, they built their own cloud platform.
Other examples: Stripe building payment infrastructure, Shopify creating fulfillment networks.
The logic: Strengthens control, reduces dependency, reduce costs(longterm)
The risk: Requires completely different capabilities. Cloud infrastructure demands hardware expertise and data center operations—far removed from building SaaS applications.
Atlassian's journey from Jira to Confluence to Trello. Same customers, same collaboration expertise, different specific needs.
Other examples: HubSpot expanding from marketing to sales to service. Adobe from Creative Cloud to Experience Cloud. Zoom adding Phone, Rooms, and Events.
The logic: Leverage customer relationships, expand wallet share, create platform lock-in.
The risk: The temptation to become a "platform for everything" and lose differentiation.
Amazon going from e-commerce to AWS. Different customers (developers vs. consumers), different products, different business model.
Other examples: Google moving to autonomous vehicles (Waymo), Microsoft to Xbox, Meta to VR hardware.
The logic: Maximum flexibility against market disruption, hedge against core business decline.
The risk: Highest of all. Most lateral diversifications fail because companies underestimate the organizational transformation required
Why This Matters in software?
Software companies face unique pressures:
- Platform pressure → Investors push horizontal diversification before companies master their core
- Infrastructure costs → Rising AWS/Azure/GCP dependency tempts vertical moves
- Market saturation → Mature categories push lateral diversification
The pattern I see:
- Young SaaS companies (Series A-B) fragment focus with premature diversification
- Mid-stage companies (Series C-D) mistake features for diversification
- Mature companies diversify without organizational transformation
The discipline: If you're sub 25M Revenue/pre-Series C → focus on market penetration or development. If you're mature and diversifying, choose deliberately: vertical for dependency issues, horizontal for customer expansion, lateral for market disruption threats.
Most critically: commit to the organizational development that real diversification demands.
Most organizations default to horizontal diversification because it feels safest. But if your diversification objective is stability against industry downturns, horizontal moves won't save you. You need lateral diversification.
The strategic choice: match your direction to your actual objectives, not your comfort level.
Growth, Stability, and Flexibility: The Three Objective Types
Ansoff identified three categories of objectives that should drive your strategic direction:
Growth Objectives → Designed for favorable conditions
- When trend forecasts show opportunity
- When your market is expanding
- When competitive position is strong
Stability Objectives → Protection against foreseeable contingencies
- Economic recession
- Regulatory changes
- Predictable industry cycles
Flexibility Objectives → Strength against unforeseeable events
- Technological breakthroughs you can't predict
- Market disruptions outside current horizon
- The "unknown unknowns"
Here's where most strategic planning breaks down: leadership teams evaluate directions based only on growth objectives. They ask "which path generates most revenue?" instead of "which path gives us the balance of growth, stability, and flexibility we need?"
Foundations First: Prerequisites to Strategic Choice
Before you can use the Ansoff Matrix effectively, you need clear boundaries. This is the work most leadership teams skip, which is why their "strategic planning" produces documents instead of decisions.
Step 1: Define Current vs. New
What counts as your "current market" vs. "new market"? Be specific.
What counts as your "current product" vs. "new product"? If everything is "kind of new," nothing is strategic.
Without these boundaries, your leadership team will argue indefinitely about which quadrant any opportunity belongs in.
Step 2: Establish Your Long-Range Product-Market Policy
What unifying characteristics will you preserve as you grow? Three common approaches:
- Technological coherence: DuPont's "better things for better living through chemistry"
- Mission focus: "All forms of transportation" vs. just air transportation
- Financial portfolio: Holding company model with minimal operational constraints
This policy isn't about limiting ambition. It's about creating coherence so your organization doesn't become a conglomeration of incompatible businesses.
Step 3: Name Your Diversification Objectives
Why are you considering diversification? Be explicit:
- To compensate for technological obsolescence in current products?
- To distribute risk across uncorrelated markets?
- To stabilize cyclical revenue patterns?
- To broaden technological base against unforeseeable contingencies?
Different objectives point to different directions. Vertical diversification won't solve industry cyclicality. Horizontal moves won't protect against technological obsolescence.
The Process: How to Actually Choose
Here's the discipline that transforms the Ansoff Matrix from analysis to decision:
1. Divide Your Leadership Team Into Working Groups
Assign each group one direction from the matrix. Their job: build the case FOR that direction.
2. Each Group Presents Three Things
- How would this direction work in practice?
- What are the benefits?
- What are the risks, costs, and weaknesses?
3. Evaluate Against Your Objectives
Does this direction deliver on growth objectives? Stability objectives? Flexibility objectives?
Which combination of primary + supporting direction gives you the best balance?
4. Make the Trade-Offs Explicit
Document what you WILL pursue (one primary, one supporting).
More importantly, document what you will NOT pursue.
5. Connect to Execution Discipline
Your strategic direction should flow directly into OKRs. If you choose product development as your primary direction, your objectives should reflect that choice. If your OKRs are scattered across all four quadrants, you haven't actually made a strategic choice.
The Organizational Reality: Diversification Isn't Just About Products
Here's what Ansoff understood that most modern strategists ignore: "Diversification almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience."
Real diversification demands:
- New decision rights and authority structures
- Different resource allocation mechanisms
- Transformed operating models
- New capabilities and skills
- Breaking with past patterns and traditions
Simply put your diversification demands your Organization to Strategically Develop.
This is why middle manager bear the brunt of poorly executed diversification. Leadership announces "strategic diversification" but doesn't restructure decision-making, doesn't reallocate resources differently, doesn't change authority boundaries.
The result: more work, more cross-functional conflict, more fighting for resources. Not because of poor execution at the middle, but because of incomplete strategy at the top.
When NOT to Diversify
Young organizations should avoid diversification entirely. Stay focused on 2 directions maximum, and those should be market penetration, market development, or product development.
Diversification is for:
- Mature organizations facing industry decline
- Companies in cyclical industries seeking stability
- Businesses needing broader technological base
- Organizations where core market shows unfavorable long-term trends
If your trend forecasts show healthy growth in your current market, the right move might be deeper penetration or product development, not diversification.
The Historical Evidence: Why This Matters
Ansoff's research on the top 100 corporations revealed a stark pattern:
Only 36 companies from the 1909 list remained in 1948. About half of new entries in 1919 survived to 1948. Less than half of 1929 entries made it.
If you take a look at the last quarter of the century, a similar pattern emerges. Between 2000 and 2020, 52% of America's Fortune 500 companies disappeared from the list.
The companies that survived? They made strategic choices. They broke with their past. They didn't just plan—they decided.
Three Questions for Your Leadership Team
- Have we defined clear boundaries between "current" and "new" for both markets and products? If not, your strategic discussions will be endless and unproductive.
- Have we chosen one primary direction and one supporting direction? If you're "pursuing all four quadrants," you haven't made a strategic choice.
- If we chose diversification, have we committed to the organizational transformation it requires? If you're expecting new revenue without new structures, you're setting up your organization for failure.
Strategy vs. Strategic Planning
The Ansoff Matrix works when you use it for strategic choice. It fails when you use it for strategic planning.
Strategic planning produces documents. Strategic choice produces decisions about where to play and where NOT to play.
The companies that fell off the fortune 500 list had plans. What they lacked was the courage to choose.
Where have you actually chosen to compete? Or are you still planning to plan?
About Leave a Mark
We help leadership teams make actual strategic choices. From those choices we help you to make plans and execute on them. Our approach addresses both the rational frameworks (like mentioned Ansoff's Matrix) and the underlying group dynamics that prevent from making explicit trade-offs.
Related Resources:
- Ansoff, H.I. (1957). "Strategies for Diversification." Harvard Business Review.
- How to Use the Ansoff Matrix (Step-by-step guide)
Ready to ?
Chris Kobylecki
Cofounder of Leave a Mark
Chris builds magical experiences that help people to excel.
He focuses on strategy and team development. Applying his decade long experience of Venture Capital & Private Equity Firms