Blue Ocean Strategy For Startups, Finding Uncontested Market Space and Making Your Competition Irrelevant

Blue Ocean Strategy allows innovative startups to identify uncontested market spaces and render their competition irrelevant.

The principle behind Blue Ocean Strategy is that all markets can be divided into red oceans and blue oceans.

Red oceans are characterized by consensus - a consensus as to who the customer is, who the vendors are, and what the product being sold is.

Consequently, in such a market, selling to the same customers, buying from the same suppliers, making the same thing, there is intense competition and thinner and thinner profit margins.

Seek Uncontested Market Space

Blue Ocean Strategy seeks to escape that. Blue Ocean Strategy seeks to direct ventures towards uncontested market space. Market niches where ventures are positioned so uniquely that competition is rendered irrelevant.

But how? How are these market niches to be recognized?

Value Innovation

To do that requires "Value Innovation." Value innovation is recognizing the values and desires behind the spending choices people make, and then restructuring enterprise resources to provide a superior alternative that is still consistent
with those values.

For example, when the theatrical circus, Cirque Du Soleil, began the circus industry was moribund. Rather than just putting together another circus, the founders of Cirque
Du Soleil tried to understand the overall value system of people who go out for the evening.

Why do they choose the theater or the movies, as opposed to the circus?

The founders of Cirque Du Soleil found that people viewed the circus as low-brow, juvenile, even crude. The traditional three rings of the circus were a distraction,even annoying.

Also, they were increasingly uncomfortable with the use of animals - more sensitive to the possible abuse behind the entertainment.

Eliminate Elements Which People Do Not Value

So in putting together Cirque Du Soleil, the founders eliminated the three rings, presented the entertainment within a more sophisticated theatrical narrative, and got rid of the animals.

By combining the most valued elements of the theater and the circus, and eliminating the negatives of both, the founders of Cirque Du Soleil were able to create a superioralternative. An alternative which neither circus nor theater can directly contend with.

Identify Untapped Demand

Understanding noncustomers and underutilized customers often releases untapped demand. Often, obstacles to purchase can be easily removed.

In Asia, shopping malls and large department stores have recognized that although woman constitute an enormous revenue source, there is still enormous unused demand.

Women spend a certain portion of their time with men. And men hate to shop.

To address this, many establishments have built “husband rooms” – rooms with video games, TV, and alcohol, where women can drop off their husbands and boyfriends while they shop.

Position Yourself Along the Emotional-Commodity Axis

So given the necessity of identifying uncontested market
spaces - where competitors are rendered irrelevant - we see
that we must pursue value innovation - recognizing the value system behinds people's market choices and structuring enterprise resources into a superior, innovative alternative.

But how? What metric do we use to build these superior, innovations?

Blue Ocean Strategy gives us this metric.

This metric lets us recognize how other enterprises are positioned, and to identify overlooked niches.

For example, products are generally seen as either having an emotional appeal or of being merely commodities. By shifting a product's position along this emotional-commodity metric, we often find the uncontested market space we're looking for.

As an example, investment advise has traditionally had a heavy emotional element, heavily based on a personal relationship and trust between the client and the broker. However, enterprises like Charles Schwab and Vanguard Mutual funds, by shifting their offerings more towards the commodity end - offering low-cost, no-frills service - have acquired a huge customer base, people uninterested in the traditional niceties of investment management companies.

Focus on Buyers, Users, or Influencers

Another metric is customer type. Customers can be divided into buyers, users, and influencers. By switching focus from one customer type to another, competitors can often be completely outflanked.

When the financial information vendor, Bloomberg, started, most financial information systems providers focused on buyers. These buyers - purchasing agents in IT departments - tended to value low price and standardized easily maintained machines.

Bloomberg, however, recognized that the users - the traders - were people with high disposable income but little time.

He added features to allow them to do online shopping during downtime on the trading floor. He also added features for easy financial calculations - features most IT purchasing agents were oblivious to.

Think in Terms of Product Line Rather Than Product.

A corollary of Blue Ocean Strategy is to improve marketing efficiency and drastically reduce cost structure by thinking in terms of product line rather than product.

Doing so, marketing efforts are not wasted because of the failure of a particular offering.

For example, when Fred Weiss started his web site AllMath.com, a site devoted to math puzzles and exorcises, he met with limited success. He went on to start AllWords.com, which also had limited success. However, he struck it big when he started AllLottery.com, a provider of nationwide lottery data, partially due to the branding of the word "All."

Another example is Black and Decker, the power tool company. Faced with increasing competition and unable to anticipate whether the market would demand electric drills or electric hammers etc. from year to year, they instead built a "meta" tool. A power tool platform which could easily be extended as an electric hammer or electric drill or any one of their tool line.

This meta-product approach, with its standardized parts and flexibility, gave Black and Decker a cost structure far superior to their competitors.