These series of guest posts are written by the teams attending the Tetuan Valley Startup School 2010 Fall edition. This post is from the KPad team, formed by Damasia Maneiro and German Viscuso.
I was always fascinated by the fact that, when starting a new business, you don’t necessarily have to compete in an existing market and play by the established rules. If your idea is crazy & novel enough (and here I mean crazy in a positive way) you might find yourself swimming in the calm waters of a competition-less ocean.
Later I found “the” book about this concept called “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant” by W. Chan Kim and Renée Mauborgne and immediately liked it.
In it the key question is: Why compete head-to-head with other suppliers for a shrinking set of known customers in an existing industry? (what they called a “red ocean” where competition is fierce and often leading to bloody battles for market share). What about creating a new industry, a “blue ocean”? Can we do that?
This parallelism of red and blue oceans describes the market universe and is a pretty effective and graphic way to think about markets and industries.
Red Oceans are all the industries in existence today (i.e. the known market space). Here industry boundaries are defined and accepted and the competitive rules of the game are known. Companies try to beat their rivals to grab more market share of product or service demand. As the market space gets crowded chances of profits and growth diminish. Products become commodities or niche and fierce competition turns the ocean bloody (hence a “red” ocean).
Blue oceans, instead, refer to all the industries not in existence today (i.e. the unknown market space, with no competition, unexplored). In blue oceans demand is created rather than taken from competitors. There is a huge opportunity for growth that is both profitable and quick. Competition is irrelevant because the rules of the game are different, waiting to be set.
Traditional competition-based strategies (red ocean strategies) are necessary but not sufficient to sustain high performance. Companies need to go beyond competing, leveraging new profit and growth opportunities to create “blue oceans”.
The main concept in Blue Ocean Strategy is “Value Innovation“. A blue ocean is created when a company is innovative enough to create value simultaneously for both the buyer and the company. The innovation (either product, service or delivery) must create value for the market while simultaneously reducing or eliminating features or services that are less valued by the market. The key activity is finding value that crosses conventional market segmentation and offering both value and lower cost.
If you want to know more please go grab the book (it’s worth it). In it also a set of key analytical tools and frameworks is described (such as the strategy canvas, the four actions framework and the eliminate-reduce-raise-create grid). And you’ll get a good explanation of the four principles of blue ocean strategy formulation: how to create uncontested market space by reconstructing market boundaries, focusing on the big picture, reaching beyond existing demand and getting the strategic sequence right.
Remember extra demand is out there, largely untapped. And if you create innovative value you can unlock this new demand!
(We hope we can do just a little bit of this with Kpad =)
