“Blue oceans are right next to you in every industry.”
-Renée Mauborgne
You buy a widget for $7.00 and sell for $15.00. People buy them, and the money rolls in. That’s how business is supposed to work, right? A competitor with more buying power moves in and starts selling the widget for $10.00. Your inventory (which is excessive because you got excited about all the money you were making) sits on the shelf.
What do you do? One school of thought says that you put your price down to $10 or $11, grind the supplier, tighten perks for staff, and get down in the weeds. It gets vicious just to scrap out that extra 5%. But there’s another school of thought, and in an age of disruption it’s catching on fast. It’s to make the competitor irrelevant.
Red or Blue Oceans:
In 2005, W. Chan Kim and Renee Mauborgne published “Blue Ocean Strategy,” a book on marketing theory that advises businesses to stop fighting tooth-and-nail in the “red ocean” of thinning margins where you’re always watching your competitor over your shoulder.
Their advice: stop worrying, stop fighting, and put your energy in opening new markets. It’s for the competition to become irrelevant, because what they’re offering can’t compete with your new approach. It’s both simple and fiendishly difficult. You need to pull yourself out of the horse race with your competitors for a 30,000 foot view of what semi-autonomous revenue streams you can tap into.
What is a New Market?:
One of the most paralyzing myths of business is that all the new ideas have been taken, and we’re just fighting over the details. New ideas are everywhere, with every disruptive shift opening more of them. We just need to know where to look. Instead of fighting for a razor thin margin on that widget, how about launching a workshop about how to use it and sell them that way? Or accept it as a low margin commodity item and be the first to open up a new market, with a new widget.
Lean is about developing the instinct to identify a process that’s bugging you and improve it. Spotting new opportunities for revenue streams is similar; it’s about being aware of the trajectory of what’s happening around, whether that’s worsening waste or evolving opportunity.
How to get There:
The best thing about a new market is that it’s usually uncontested. You’ll be the first one there, and you’ll be up and running before while your competition is still losing sleep over margins. On the flip side, the fact that it’s new means there will be few best practices to fall back on. Make sure you keep your eyes wide open and don’t invest too heavily.
Here are a few rules of thumb for your new market:
- It needs to be in your industry; stick with what you know. The new market should be semi-autonomous at most.
- Reverse your perspective. Go to the core of your industry, down past products and to the basic motivations of your customers. Then think from there to your products/ services and how else it could look like.
- Take time for strategy. If you go into a new market blind, you won’t have anticipated all unknown variables and you won’t get the most out of it.
