The BCG Matrix, developed by the Boston Consulting Group, is a tool used to evaluate the strategic position of a business’s portfolio of products or services. It helps companies allocate resources effectively by categorizing products into four quadrants based on their market growth and market share. Here’s how you can apply the BCG Matrix to your startup:
What is the BCG matrix?
The BCG Matrix divides a company’s products into four categories:
- Stars: High market share and high market growth. These are leaders in a fast-growing market.
- Question marks: Low market share but high market growth. These products have potential but require significant investment to grow.
- Cash cows: High market share but low market growth. These products generate more cash than they consume.
- Dogs: Low market share and low market growth. These products are often candidates for divestiture.
How to apply the BCG matrix to your startup
- Identify your products or services: List all your products or services. For a digital product startup, this could include various software solutions or features.
- Analyze market share and growth:
- Market share: Evaluate each product’s share compared to competitors. For digital products, this could be measured by user adoption rates or revenue compared to competitors.
- Market growth: Assess the growth rate of the market your products are in. For example, the growth rate of the market for AI-powered tools.
3. Plot your products on the matrix:
- Stars: If one of your digital tools is rapidly gaining market share and the market is growing, it would be a Star.
- Question marks: New features or products with potential but currently low market share would be Question Marks.
- Cash cows: Established products with strong market share but in a stable or slow-growing market are Cash Cows.
- Dogs: Products that aren’t performing well and are in a declining market.
4. Develop strategies based on the matrix:
- Stars: Invest in Stars to maintain or grow market leadership. For example, continue developing new features for a popular AI tool.
- Question marks: Decide whether to invest heavily to turn them into Stars or phase them out. This might involve more marketing or enhancing features.
- Cash cows: Optimize and manage Cash Cows to maximize profits while investing minimally. Maintain the product’s quality and keep customer satisfaction high.
- Dogs: Consider discontinuing or pivoting Dogs. For example, if a tool isn’t gaining traction, reassess its value or phase it out.
Real-world examples
- Apple: In Apple’s portfolio, the iPhone can be considered a Star due to its high market share and high growth in the smartphone market. The iPad, which has a strong market share but operates in a mature market, might be categorized as a Cash Cow.
- Amazon: Amazon Web Services (AWS) is a Star with high market share and high growth in cloud computing. Some of Amazon’s other products, like the Fire Phone, might be seen as Question Marks or even Dogs due to their limited success.
How to use this for your startup
- Regular evaluation: Regularly reassess your product portfolio using the BCG Matrix to ensure you’re making data-driven decisions about resource allocation.
- Focus on growth areas: Invest in products that show potential and are positioned in growing markets.
- Optimize profitability: Manage your successful products to continue generating revenue efficiently.
- Be willing to pivot: Don’t be afraid to phase out underperforming products or pivot your strategy based on the matrix’s insights.
Using the BCG Matrix helps you understand which products in your startup have the most potential and where to focus your resources for maximum growth and profitability.