Blue ocean strategy: compete where nobody else is

Picture two seas. One is red, stained with the blood of everyone fighting over the same fish: they slash prices, copy the guy next door and trim their margins until nobody wins. The other is blue, calm, full of fish nobody is catching yet. The question that reshaped countless businesses is simple: which of the two are you swimming in?

The red ocean drains everyone

Most businesses live in the red ocean without realizing it. It's that market where the rules are already written, customers already know what to expect, and the only way to win seems to be doing exactly what your neighbor does, just a little cheaper. The trouble is that when price is your only argument, there will always be someone willing to charge less than you.

Researchers W. Chan Kim and Renée Mauborgne, from INSEAD, put a name to all this in their book Blue Ocean Strategy, published in the mid-2000s. Their core idea is that the most successful companies don't win by competing better, but by ceasing to compete at all. Instead of fighting over a slice of the existing market, they create new space where, for a good while, they have no rivals.

Cirque du Soleil: neither circus nor theater

The most quoted example is Cirque du Soleil. When it was born, in the 1980s, the circus business was in full decline: shrinking audiences, the high cost of keeping animals, and fierce competition to sign the best clowns and star acts. Stepping into that ring to fight would have been commercial suicide.

So they didn't fight. They stripped out what made the traditional circus expensive and controversial (the animals, the costly star performers, the three simultaneous rings) and added something the circus never had: a story, original music, artistic costumes and the sophistication of theater. The result was neither circus nor theater. It was a brand-new category, one that could charge premium prices and attract an adult crowd that would never have set foot in an ordinary circus.

Nintendo Wii: play without being a gamer

In 2006, Sony and Microsoft were fighting over the same customer: the young gamer chasing the most powerful graphics and the most realistic games. It was an expensive hardware race that Nintendo was losing. Instead of building a more powerful console, Nintendo launched the Wii: humbler graphics, but a controller that read the movement of your body.

Suddenly, playing video games stopped being something for teenagers locked in their rooms. Grandmothers bowling, whole families moving around the living room, people who had never held a controller. Nintendo didn't beat Sony at its own game; it changed the game. The Wii is estimated to have sold more than 100 million units, drawing in millions of people who didn't even think of themselves as gamers.

How to find your own blue

You don't need to be a multinational to think this way. The underlying question is: what does my entire sector take for granted that I could change? Kim and Mauborgne's method boils down to four moves you can apply to your own business:

• Eliminate: which factors that your industry takes for granted could you remove entirely?
• Reduce: what do you offer well above what's needed, just because everyone else does?
• Raise: what could you push far above the industry standard?
• Create: what could you offer that nobody in your market offers yet?

A taco shop that opens only at night for people who get off work late. A dentist who welcomes kids into an office that looks like a playroom. A barbershop that doesn't sell cheap cuts but a thirty-minute experience with a drink included. None of them invented something impossible; they all stopped competing on price and started competing on being different.

The only way to beat the competition is to stop trying to beat the competition.

The practical lesson

A blue ocean isn't magic or luck: it's looking at your market and asking yourself what you're doing simply because everyone does it. Almost always there's a group of customers no one serves well, or a way of serving that no one has tried. That's your calm water.

And one important detail: no blue ocean stays blue forever. Sooner or later the imitators arrive and the water turns red again. That's why real strategy isn't finding new space once, but getting used to looking for it. While your competition spends its energy fighting over the same old customer, you can spend yours taking better care of the one who already trusted you.