Adjacency Matrix: How to expand after PMF

🌈 Abstract

The article discusses how companies can expand their business after achieving product-market fit (PMF). It covers the key considerations and a framework called the "Adjacency Matrix" to evaluate different expansion ideas.

🙋 Q&A

[01] Expansion after PMF

1. What are the key considerations for expanding a business after achieving product-market fit?

• The article outlines three key considerations for expanding a business after PMF:
  • Bottlenecked growth: If existing marketing and sales channels are at their limit, expanding to new channels, geographies, or market segments can accelerate growth.
  • Target market saturation: If you've already captured a significant portion (e.g. 5%) of your ideal customer profile, expanding to similar but different segments can be a good strategy.
  • Diversification: Adding new marketing channels, target markets, geographies, or pricing options can make the business more robust to market disruptions.
• The article also notes that having sufficient capital to invest in expansion is important, as expansions are both costly and risky.

2. What is the key idea behind the "Adjacency" framework?

• The "adjacency" framework suggests that when expanding, you should focus on ideas that are "close by" or adjacent to your current business, rather than going too far afield.
• The goal is to leverage your existing assets and strengths, while not taking on too much risk by venturing into completely new territory.

3. How does the "Adjacency Matrix" help evaluate expansion ideas?

• The Adjacency Matrix evaluates how much each functional area of the business (e.g. marketing, sales, service, product, engineering, business model) would need to change to support a new expansion idea.
• The changes are categorized as "Trivial", "Adjustment", or "Overhaul", which helps assess the level of risk and investment required.
• Ideas that require "Overhaul" changes in multiple functional areas are likely too risky and non-adjacent to pursue, unless the potential upside is extremely large.

[02] Selecting the Best Expansion Idea

1. What approach does the article recommend for selecting the best expansion idea?

• The article recommends solving first for maximal impact, and only secondarily for cost. It advises against solely relying on a value-divided-by-cost analysis.
• Instead, it suggests using a framework like "Binstack" to identify the highest value ideas, and then considering cost and risk to break ties.

2. How can the Adjacency Matrix be used to communicate the expansion decision?

• The Adjacency Matrix can help form a clear narrative to communicate the decision to the entire company.
• It can explain why a particular expansion idea was chosen, highlighting the areas where it is trivial or requires only an adjustment, versus the areas that require a more complex "overhaul".
• This helps justify the decision and get buy-in from the organization.