How to be Successful in the “Suicide Cell”

Most product managers at expansion stage software companies are aware of the Ansoff Matrix (also known as the Product-Market Growth Matrix).

Developed by Igor Ansoff, the matrix identifies corporate growth strategies and assesses the risk of market opportunities based on whether a company plans to market new or existing products in new or existing markets.

If you haven’t heard of the Ansoff Matrix, James Manktelow, founder and CEO of management and leadership training resource Mind Tools, does a great job breaking it down and explaining its four categories: Market Development (existing product in new market), Market Penetration (existing product in existing market), Product Development (new product in existing market), and Diversification (new product in new market).

The “suicide cell” in the matrix is Diversification. It’s the most risky quadrant, where the chance of success can be as low as 5 percent. Not surprisingly, most existing businesses try to stay out of that area. However, in some instances, established companies will take a run at the suicide cell, lured by the potential reward of creating a new product and becoming a dominant player in the market.

Startups, on the other hand, are often found in this space. Those kinds of companies, after all, tend to introduce new products in a new market that they’re just entering. It’s not often a recipe for success, but the businesses that survive often end up doing very well.

Mike Kapp at ProductStrategy.net provides a few ways for players in the high risk quadrant to improve their chances of being successful. Here are his tips, along with some of my own thoughts on how they relate to expansion stage companies attempting to introduce a new software product into a new market:

Commit to staying in business for the long term

It’s very important to have realistic expectations of the time and resources that your product will need in order to gain market share and, ultimately, be successful in the long term. It’s also crucial to realize that you will be bombarded with a large pool of unknowns and presented with numerous things that fall outside of your plan.

In the suicide cell, it’s common for software businesses to underestimate risk, the competitive landscape, the investment needed, the time required to achieve profitability, and much more. But whatever hurdles you face (planned or unplanned), your company’s management team needs to remain committed and seek access to funding that aligns with its long term plan.

Quickly grasp market requirements

Being a newbie in the market, you need to quickly acclimate to the needs of new customers, identify the competitors in the market, and speak the industry’s language. One of the quickest ways to do that is by hiring employees who already have experience in that target market.

In addition, Kapp suggests that companies should perform targeted market research, attend trade shows, join industry associations, and partner with other companies in the industry. Each of those actions will get you up to speed and through the initial learning phase quickly.

Offer a whole product solution

In a new market, it’s not enough to simply create the product. It’s essential to offer supporting integration services, application software, and other valuable resources that will help your customers feel like they’re getting the expected return on their investment.

The article on ProductStrategy’s site highlights Apple’s iTunes Store as a perfect example. That service was one of the prime reasons that the company’s iPod was such a huge success. Another approach is to enlist the help of the companies you partner with to provide the various elements in the whole product creation.

Get your consumers to trust your product

Consumers tend to be more trusting of established players in the market, which is why, despite having a great product, startup and expansion stage companies might struggle to gain traction in a new market.

Outside of a targeted market strategy and email blasts, there are two other ways of establishing credibility: first, by establishing and publicizing success with important reference accounts, and second, by partnering with other companies that have already earned credibility in the market. Cris Cameron at ReadWriteWeb spoke to both of those points in an article last March, arguing that credibility can be a startup’s best friend.

If you’re the founder or CEO of a startup or expansion stage business that’s operating in the suicide cell, I think those tactics can be extremely beneficial. It’s not the easiest or safest space, but it can pay big dividends if you survive and become the predominant player in the market.

To read more about some companies that have survived the diversification quadrant, check out Jessica Livingston’s book Founders at Work. In it, Livingston interviews the founders of companies like PayPal, Research in Motion, Craigslist, and Flickr.

Those companies are evidence that succeeding in the suicide cell is possible. But to join the ranks of those businesses, you need to enter it with realistic expectations and execute a plan to avoid (and survive) its many perils.