Small businesses face unique challenges when it comes to finding new growth in a highly competitive marketplace. First off, they have a smaller brand footprint or incumbent customer base than their larger competitors. And second, they typically possess much less capital on hand with which to invest competitively in new growth. As a result, cash-rich competitors can potentially overwhelm even the most dynamic and aggressive smaller players in a given market segment.
That’s why it’s essential for smaller companies to examine new ideas and options for how they can grow. One of these options is to apply the concepts of Blue Ocean Strategy and create a new market position that is in uncontested waters. It’s significant to consider that while Blue Ocean Strategy is often associated with corporate America, the reality is that it’s a model ideally suited to small, agile, creatively minded companies.
Blue Ocean Strategy is a market entry and business strategy theory first espoused by W. Chan Kim and Renée Mauborgne, two professors at the world-renowned INSEAD Business School in France. Originally presented in a series of Harvard Business Review articles and later detailed in a series of best-selling business books, Blue Ocean Strategy posits that a company can create truly uncontested space for itself in the marketplace by taking the counterintuitive approach of seeking to reconstruct market boundaries by focusing on developing new market spaces rather than competing over existing in-market customers.
To translate these concepts into concrete understanding, we can look at the following four well-established Blue Ocean Strategy examples:
Southwest Airlines – This company, first founded in Texas in 1973, sought not to compete for existing air travelers against other airlines such as its (then) much larger competitor, American. Rather, Southwest sought to provide highly efficient travel between cities that travelers often chose to drive between. By pioneering low-fare service and a rapid turnaround model, Southwest was able to bring new travelers into the airline industry — something later coined the “Southwest Effect”. Southwest did this by stripping out all of the nonessential elements of air travel (such as business lounges and first-class seating), adding in new higher-value but more efficient benefits (i.e. instead of sitting in a plush business lounge waiting two hours for your flight, how about just showing up at the airport and taking the plane right away?), and doing so at a lower cost to the end user.
It’s hard to imagine but prior to Hampton Inn, there was essentially no such thing as “limited-service” lodging. In a previous era, one could either choose to stay at a full-service business hotel such as a Hilton or Marriott, or opt for a no-service motel such as a Holiday Inn or Howard Johnson’s Motor Inn. Hampton Inn was created in 1984 to do for the regional traveler on the ground what Southwest did for the regional traveler in the air: create a more efficient, higher quality and lower cost experience. This was achieved by offering hotel rooms comparable in quality to those of marquee hotel brands, but wrapping it in a facility with a much smaller staff, no on-site restaurant, more self-serve capabilities and a ‘leaner’ overall experience. As a result, regional business travelers who might otherwise opt to drive home late at night could now consider overnight lodging that married their expectations for quality with their budgets.
The world-class global leader in furniture and home decor began as a small rural furniture shop with a simple premise: Find every possible way to reduce cost and increase quality so that middle-class Swedes could furnish their homes in high style but at an affordable cost. The solution? Hire premier designers but task them with considering cost during the design process, and incorporating lean manufacturing methods. Then, deliver the products flat-packed to save on shipping costs and ask customers to self-select the products, then take them home and assemble them on their own. The result? Millions of people around the world now furnish their lives in IKEA products.
Cirque du Soleil
Now that the century-long tradition of Ringling Brothers & Barnum Bailey is finally at a sad but seemingly inevitable end, it’s hard to imagine that Cirque du Soleil started as a radical and unproven concept. The idea: Find a way to marry the best of the circus experience with high art and more intricate storylines, all while removing the parts of the circus experience that are costly or controversial (such as animals) and which detract from the customer experience (such as vendors selling trinkets in the aisles). Then, focus on attracting an audience that normally would completely avoid the circus (businesses and those seeking executive entertainment) and see what happens.
So, today these are all huge companies with well-established business models: what can we learn from them when it comes to small businesses? First off, each of these started as a truly small business, in some cases beginning life as a literal mom-and-pop operation. And second, they all sought — and succeeded – in doing the seemingly impossible: Giving customers more for less, and attracting new customers into an already saturated or established market.
And that’s the heart of Blue Ocean Strategy, summarized as follows:
1. How can we reach beyond existing demand and supply and attract net-new customers to our market space?
2. What do we need to reduce or eliminate that we have thought of historically as “must-have” but which should now be set aside? (Think of first class seats on an airplane, the full-service restaurant at a hotel, products that are delivered fully assembled for home furnishings, or animals and child-friendly three-ring pageantry for the circus).
3. What do we need to raise/expand or otherwise create to add new value that is not part of the current market experience? Southwest focused on offering the “ten minute turn” — an unprecedented speed to and from the gate, allowing business travelers to just ‘show up’ and hop on a plane in minutes. IKEA delivered far higher design standards and a uniquely amenitized shopping experience; Cirque du Soleil added in ballet, acrobatics and detailed theatrical storylines.
The result of these elements can, in many cases, deliver your small business into new market opportunities that your competitors simply can’t envision, or are unable to deliver because their cost structures and operating assumptions are built against it. Kim and Mauborgne refer to this as Value Innovation.
So, let’s suppose you want to get started on the application of Blue Ocean Strategy for your business. How can you begin?
First, buy the books and get to know the model in depth. The two core books on the model — Blue Ocean Strategy and Blue Ocean Shift – are thorough and in-depth but easily readable and filled with in-depth examples.
Second, hold an internal exercise for your core team that focuses on the fundamentals of Blue Ocean Strategy and allows you to start becoming comfortable thinking strategically about your business and marketplace in the Blue Ocean framework. And third, consider hiring a Blue Ocean Strategy consultant or facilitator who can help guide your company and leadership team toward effective ideas that can drive you toward new value innovation opportunities.
Whereas traditional innovation strategy tends to focus on technology or new developments alone, Blue Ocean Strategy helps focus innovation on the most valuable competitive advantage a small business can find: value to the customer. As you think about the future of your small business, consider how Blue Ocean Strategy could serve as a key component in helping shape your competitive advantages for the future.