This month, we read Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne in the Indie Business Book Club. While the book is aimed primarily at large, traditional businesses, our book club members managed to scale some of the advice to fit our needs.
Before I get to the review, let me just encourage you not to automatically dismiss business and personal development books that are not written specifically for you as a very small business owner. Those types of books will challenge you to think differently. Challenge yourself to read above what you think your level is. Books like that will sharpen your entrepreneurial acumen and increase your capacity to think deeply about foundational business principles that apply to all ventures, regardless of size.
What is a Blue Ocean?
A blue ocean is an entrepreneurial ecosystem that is intentionally forged to create uncontested market space in which your brand can thrive and grow. A blue ocean is contrasted with a red ocean where all market participants are doing the same thing and fighting for the same customers.
In a blue ocean, you are the only provider of consequence. You are uncontested because you have created a product or service that is exclusive and unchallenged.
In a red ocean, you offer the same types of products with the same types of benefits that everyone else offers, so you fight and scratch for the same pieces of meat that everyone else is competing for.
This book shares principles that help you lead your business toward the blue ocean and away from the red one. This post covers three of them that are especially relevant for small business owners.
Don't Compete: Create
This is a central theme in this book. Consider Cirque du Soleil. Is it a theater production or a circus? It's simultaneously both and neither, hence the blue ocean it created for itself. It's not competing with the circus. It's not competing with the theater. It's in a class by itself.
This is the very definition of a blue ocean. It's one where you create so you don't have to compete.
Be in a Class By Yourself
We saw this before, when we read The 22 Immutable Laws of Branding. Law No. 8 is The Law of the Category: don't be a part of the market. Be the market.
Donna Maria, Indie Business Network
Juniper Ridge, a company that makes natural fragrance products out of aromatics it distills on site from plants and trees found in forests, mountains, and coastlines, is a great example of this. They hike the nation's forests, fields, and mountainsides searching for aromatic plant material which they harvest and distill right there in the woods. They use the aromatic extracts to create fragrances that are in a class by themselves.
They are a fragrance company, yet they don't compete with Calvin Klein and Coco Chanel, nor do they compete with any of the Indie perfume companies we know and love. Those companies are irrelevant, because Juniper Ridge has created a whole new category.
And as a result, they can set the market price of their own desire. Case in point: a single ounce of Mojave Backpacker Cologne retails for $60.
And speaking of pricing, the authors of Blue Ocean Strategy suggest pursuing a type of pricing strategy that is different from what we are used to.
Traditional pricing strategies begin with assessing the cost to produce a specific product, and then marking it up from there to set the price and make a profit on the sale of each unit.
The authors here put forward a different approach, which I found fascinating.
They suggest setting the desired price first, and then deducting the desired profit margin to come up with the cost that needs to be met in order to make that profit margin. After that, do what is needed to make the product at that cost so you can achieve the desired profit margin by selling the product at the desired price.
The example they gave of this in the book is the Swatch watch company. Rather than creating a watch and then using the cost of making the watch to figure out what they needed to charge to recoup their costs and make a profit, they started with the price they wanted to charge for a watch. After they knew that number, they sourced materials and labor that would get them to a cost with enough room in it to achieve the desired profit margin.
It reduced costs by using plastic instead of metal, for example, and reducing the parts in each watch from 150 to 50. In this way, it swam into a blue ocean, offering a plastic watch at a price that allowed people to purchase two or three watches at one time.
Buy Blue Ocean Strategy
Of course, you can also purchase the book at your favorite local book store.
If you do, let me know what you think in the comments below!
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