“If I had asked people what they wanted, they would have said faster horses.” —Henry Ford, founder, Ford Motor Company.
There are two kinds of entrepreneurs: those who create markets and those who do not. On the one hand, the entrepreneur who creates markets is considered a revolutionary while the entrepreneur who competes in well-established markets is considered ordinary. Both approaches can lead to success in business, but research indicates that the creative entrepreneur has a better strategic position.
Blue Ocean Strategy, a best-selling business book, makes the cogent argument that creating new markets known as “blue oceans” is better than competing in overcrowded industries known as “red oceans.” The authors, W. Chan Kim and Renée Mauborgne, studied 150 strategic moves for their book, spanning more than 100 years and 30 industries. They also looked at 108 companies that launched new businesses to quantify the impact on revenue growth and profits of creating blue oceans. Kim and Mauborgne’s findings are remarkable:
We found that 86 percent of the launches were line extensions, that is, incremental improvements within the red ocean of existing market space. Yet they accounted for only 62 percent of total revenues and a mere 39 percent of total profits. The remaining 14 percent of the launches were aimed at creating blue oceans. They generated 38 percent of total revenues and 61 percent of total profits.
According to these data, it does pay to create blue oceans. The book gives solid examples of successful companies that created new markets, including Yellow Tail, Cirque du Soleil, Ralph Lauren and Lexus. It also provides a step-by-step process for executing blue ocean strategy. I highly recommend that you buy a copy of the book.
As a mentor to young entrepreneurs, I encourage my mentees to seek new markets rather than go into well-established ones. My first startup was a blue ocean, or more accurately a blue pond considering the size of my market. In my microcosm of a college campus, I created a web portal that enabled students to interact in ways like never before. As a result, advertisers flocked to take advantage of my platform. Moreover, I encourage my mentees to study some of our greatest and wealthiest entrepreneurs to learn how they were able to identify and dominate new markets.
Going down the list of Forbes magazine’s wealthiest 400 Americans, you read the names of many entrepreneurs who have created and led in markets that before their ingenuity, were nonexistent. Michael Bloomberg, for example, started his company after being fired from an investment bank in 1981 and was a pioneer in providing high-quality financial data to Wall Street banks and traders. Before Bloomberg L.P., no company provided this valuable data quickly and in several different formats. Likewise, Jeff Bezos’ Amazon.com revolutionized the way consumers buy books and other products. The list continues with names like Michael Dell, Phil Knight (co-founder of Nike), George Lucas and more.
Which kind of entrepreneur are you? If you have a blue ocean, you are on your way to tremendous success. However, if you are competing in a red ocean, it’s time to adopt strategies to spawn innovation, leading your company to significant profits and a sustainable competitive advantage.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.