Speaker 1: Hey, it's Rick Kettner here, and in this video, we're gonna be taking a look at Blue Ocean Strategy by W. Chan Kim and Renee Mabourne. This book is all about how to beat the competition by making them irrelevant. It's about creating uncontested market space and breaking free of traditional business competition where you're in head-to-head competition and instead looking to actually separate yourself from rivals so that you can create this uncontested market space and you can hopefully become more profitable in the process. If there's another business or marketing book out there that you think I should cover in the future here on the channel, let me know in the comment section down below. And of course, if you're interested in learning even more about how to build and grow your business, I recommend that you subscribe to the channel here on YouTube and that you turn on notifications so that you don't miss out on future videos. But let's get into it. I wanna cover three of my favorite insights from the book to give you a sense of whether or not this is the right book for you and to give you a little bit of a taste for how this book can actually help you if you decide to end up reading it. But obviously I can't cover absolutely everything that the book covers in this short video format, but hopefully this will give you a sense of whether or not the book is for you. Insight number one is to escape the bloody red ocean of competition. So one of the central themes in the book is the idea that most established industries where there are multiple competitive players fighting against each other, they're in the bloody red ocean of competition. They're fighting over the same customers generally with the same basic strategy and the same basic products. Some might be slightly better in certain ways, but effectively they're chasing the same customers with what is effectively the same basic product when it really comes down to it. And common strategies in this kind of scenario are to outpace the competition, capture existing demand, segment customers by their preferences, and either offer additional value or look for ways to reduce cost. That's the typical game plan when you find yourself in a bloody red ocean of competition. Blue ocean strategy on the other hand is all about finding uncontested market space. It's about separating yourself from the competition, which is interesting because I think as entrepreneurs and just as human beings, we naturally have an inclination towards competition and trying to have like having a rivalry and trying to beat the competition, wanting to outpace them, wanting to have some way to compare ourselves with others and look for that opportunity to edge them out or beat them. And for many entrepreneurs, for many business people, this is a very comfortable approach to business. The problem is of course that competition generally eats away at profits, it can stifle growth, and it doesn't necessarily create new, interesting and innovative value for customers. So with blue ocean strategy, you're looking to do things like create and capture new demand, break the value cost trade off, and we'll talk more about that in a second, and redefine market boundaries to create a leap in value for buyers. So one of the core principles in the book is something they call value innovation. And the idea here is you wanna break that trade off where typically businesses that are competing against each other are trying to either add value or they're looking to reduce cost. Value innovation is pursuing both of those things at the same time. So you're looking for ways to add value and simultaneously reduce cost to make a leap in value for buyers. Now, one common misconception about this phrase, value innovation, is that it's all about technology innovation and that you need to turn to technology to make this happen. And really the emphasis here is on value. It's innovating within the realm of value, hence adding more value while reducing cost. Now, technology is a very common way to achieve this because whenever there's a paradigm shift in technology, it makes it easier to increase value while reducing cost, but you don't necessarily have to pursue technology to make this happen. Let me give you a quick example that does actually involve technology from my own career as an entrepreneur. I co-founded a business called Drumeo, now known as Drumeo, 15 years ago. It was called Railroad Media. We didn't actually have like a drum related name, but what we were setting out to do was reinvent drum education. And at the time, most people when it came to learning an instrument took private weekly lessons one-on-one with an instructor. And that would cost you anywhere from 80 to $120 a month. You'd meet once a week from anywhere from half an hour to an hour. And it was a very rigid format because if the day after you took a lesson, you either mastered what you had learned or you ran into some serious problems. You had to wait a whole week before you could sit back down with your instructor, get answers to your question or your questions, or new material if you needed new material, and then you could head off in new direction. And of course, a week also gives you plenty of opportunity to form bad habits or make all kinds of mistakes. But this was the way that music education was always done. So we set out to follow a model that is now extremely popular. We were far from the first ones to ever do this, but it's a very popular model today. And we set out to create online video lessons to teach people how to play the drums. And eventually we went into other instruments as well, but the format here was step-by-step video lessons, slow motion video, multi-angle video, detailed thorough lessons that students could view on demand whenever they wanted. They could view them from the comfort of their home, on their laptop, or eventually their tablets when tablet computers became a thing. And this was a very convenient and effective way for them to learn at their own pace from the comfort of home. And where private one-on-one teaching was, like I mentioned, $80 to $120 a month, these online lessons were an ongoing $30 a month subscription for unlimited access to all the lessons. And again, very popular format today, but at the time it was a relatively new thing. Not a lot of people were pursuing this kind of idea, but this is an example of value innovation. We were delivering significantly more value while simultaneously reducing cost. And one thing to keep in mind here is the goal isn't to create a one-to-one replacement. There are still people to this day that will prefer one-on-one instruction. And honestly, for kids, for younger students, I think it's a much better format because kids may not have the self-motivation. They may need that guidance and mentorship that really only a private instructor can provide at this point in time. And maybe you can do Skype lessons or something like that too, but this one-on-one format is still a better solution for some situations, but for the overwhelming majority of people, for most customers out there, the idea of paying less and getting significantly more value is a very attractive opportunity. And so that's the kind of thing you wanna look for. It's not a one-to-one replacement. It's finding a whole new approach to create more value for less. Let's move on to insight number two, reconstruct buyer value with the strategy canvas. Now, there are a lot of really powerful frameworks and tools in this book for how to create this blue ocean strategy, but one of my favorites, and arguably, in my opinion, the most important one in the book is the strategy canvas. And this is a simple visual framework that you can use to not only study the competition, but to also craft a strategy for separating yourself from the competition and pursuing a unique and differentiated strategy that separates you from what they're doing. So the idea here, very, very simple, visual, like a line chart, basically. You've got a vertical axis, you've got a horizontal axis. Across the horizontal axis, you want to list out all the major factors that create value for customers in your given industry. So for example, let's take the movie theater industry. Across the horizontal axis, you would simply list out different features that could create value for customers. Maybe location is a key factor in terms of where somebody might go to watch a movie. So you got location, audio and video quality, movie selection, comfortable seating, atmosphere, let's say food and snacks, cleanliness. All these kinds of factors are things that theaters might use to differentiate themselves. Maybe you'd be in a better location, better movie selection, that sort of thing. Then on the vertical axis, you want to rate how any one player in the industry is scored for each of these different metrics. So for example, one particular theater might be a 10 of 10 when it comes to location, but because their location is expensive real estate, they might have fewer cinemas, so thus less movie selection. And you would go down each of these factors and chart out a score for that particular theater. And you might connect the scores with a line to create a value curve, a line graph that shows the value curve of that particular business. And you would do the same for other rivals in the industry. And this lets you very simply visualize how all of your competition is pursuing the creation of value within your marketplace, what they're doing to try to create value for customers. And the goal here, the next kind of use of the strategy canvas is to find a unique focused and divergent strategy that separates you from what the competition is doing. So if they're all heavily investing in movie selection, picture quality, and that sort of thing, you want to look for a different strategy, some way to separate yourself out so that you're not pursuing the exact same things that they're pursuing. And there are four different ways that you can do this. Number one, you can look for costs to completely eliminate, areas or factors that you think are no longer relevant to customers, or at least no longer providing the value that they once did. And this is often a result of businesses being so hyper-competitive with each other that they might simply add and reinvest in certain features just to outdo each other, right? They might say, okay, we have 16 cinemas, we have 24 cinemas, and they're just adding more and more for the sole purpose of being the bigger show in town, so to speak. You want to look for these opportunities where rivalries are what have caused companies to over-invest in certain factors, where it's not necessarily creating true value for the end customer. And you want to look for these, and you can eliminate them, or you can reduce them. Those are two changes that you can obviously make. And then the goal there is to reduce costs so you can invest in the next two factors, which are to either raise value in other areas that you think are actually undervalued currently, in terms of the way that businesses are pursuing value creation for customers, or you can create entirely new value. So I'll give you a quick example of this. In my local area, we have something called a VIP theater. You probably have something very similar in your area, perhaps by a different name. But the idea here is they've created an adult-only movie experience. And so if we were to look at the strategy canvas, they've invested similarly in location, similarly in picture and audio quality, but they've made this an adult-only experience, so the atmosphere is very different. You're sitting in much more comfortable, larger seats, bigger recliners, you've got a pull-out tray, they serve you real restaurant-quality food that you can order just before the movie starts. As I mentioned, it's adult-only experience, you can actually order wine and things like that. So it's much more of like a date night experience for adults as opposed to, I think the way that a lot of people see movie theaters is it's kind of a date night experience for anywhere from 14 to 25-year-olds. And so it's much more geared towards adults. So you could go down the strategy canvas and see how, okay, we're gonna keep location high, we're gonna keep movie quality high, we're gonna lower selection because we're not gonna necessarily have as many of these cinemas in the overall theater complex. But, so fewer movies, but we're gonna create a much richer date night experience by having more comfortable seating, restaurant-quality food, no kids, much more relaxed atmosphere, and cater to a different audience. And the idea here is when you look at the strategy canvas and you look at the value curves of the various players, you want your strategy to be very divergent and very clearly focused on meeting a need that the other players in the industry are not necessarily meeting. So that's a quick example how you can not only visualize all your rivals, but how you can look for ways to actually separate yourself from them. Let's move on to insight number three, attract non-customers to expand your blue ocean. As I mentioned earlier, businesses, especially in red oceans, tend to compete with each other in very similar ways. Same basic product, same basic strategy, and often they're chasing the same pool of customers. So it's kind of a pie that everybody's trying to eat from at the same time. It's a fixed number of customers and everybody's trying to get the biggest possible piece. Well, with blue ocean strategy, instead of fighting over existing customers, you want to look for ways to create and capture entirely new demand. You want to look to non-customers of the marketplace and figure out how you can actually attract them to your business. So in the book, they cover three different kinds of non-customers. First tier, second tier, and third tier non-customers. So first tier are what they call soon to be non-customers. These are people that may still buy from the market as a whole, but they really would prefer not to. They just haven't found a better option. So they're really only coming to the market because they haven't found a better option, but otherwise they're gone. They'd rather not be customers in the market. They're just sticking around because they don't have a better option. That's first tier. Second tier are what's called refusing non-customers. They either can't afford the products in the market or they choose to not participate and to not buy the products in the market. Third tier non-customers are completely unexplored. These are customers who either the businesses haven't thought of as being prospects worth targeting or where the customers have never even considered themselves potential customers of that market. So just a complete separation between the businesses offering products and the customers even making a connection there, whether or not they wanna buy. So what you wanna do is you wanna study these groups. You wanna identify first, second, and third tier non-customers of whatever it is that you offer. You wanna meet with these customers, these potential customers, and you wanna get a sense for why they are not customers of the market. Because one of the key ideas from the book that I loved a lot here is you can learn so much more from non-customers than you can by going to relatively satisfied customers, people that are already happy with the offer in the marketplace. And so you can see how this approach here ties into what we talked about in the last insight. If you're looking to non-customers of the movie theater market, typically it's gonna be people that maybe no longer consider themselves in that younger scene of 14 to let's say 25 in terms of the younger date night demographic. Maybe for them, they see dating as something that's more going to a fine restaurant or that sort of thing. And so the idea of going to a theater packed with kids isn't particularly romantic, interesting, or really the kind of thing that they wanna do for their date night with a spouse. And one interesting idea from the book just before I get back to that idea is whenever you're looking for ways to differentiate yourself from the competition, you wanna think of products, services, and experiences that customers use either before, during, or after they purchase or interact with whatever it is that you sell. You wanna look for other things, other market solutions that are often used in combination with whatever it is that you sell. So in the case of theaters, a very common thing is that people go out for a dinner date and then they go to a theater. These things are very often paired together. And so VIP theater approach is to say, okay, there are people that wanna have a date night. They're adults, they wanna have a date night. Typically, they're going to restaurants and they might be soon to be non-customers of the movie theater industry in that maybe they catch the one big blockbuster movie of the year, but largely they don't consider themselves theater goers because they just see that scene as being for date night of a younger demographic. And so this VIP approach kind of says, okay, how can we attract first, second and third tier non-customers? People that are soon to be gone, they only watch that one movie a year, people that don't really consider going to movie a date experience at all for their age or their demographic or people that have never considered going to a theater because they just do not consider it their scene at all. Well, if you can find a way to find commonalities between these three groups of non-customers and ways that you could potentially attract them into the fold, in this case, with a theater example, you might end up with something like a VIP theater where it's an adult only experience. It's catering to an audience that was traditionally a non-customer or soon to be non-customer of the industry. You're finding ways to bring them into the fold in a way that your rivals with their strategy, looking back at the strategy canvas again, are not necessarily creating any appeal there. You're creating a true date night experience, a modern date night experience that includes quality food, restaurant quality food and a movie all in one experience. So this is a really powerful concept, because again, when you go to existing customers of the industry, rarely are they gonna have really helpful feedback for how you can create a divergent strategy. You wanna talk to non-customers, soon to be non-customers, refusing non-customers and completely unexplored non-customers. And that can really give you some key insights. And again, what you're looking for here is what they all have in common. You're not trying to find ways to just serve one, two or three. You're looking for ways to tie all these people together and to attract people that may already frequent theaters on their own. And you're trying to create a new solution that brings all of these people together and creates a new blue ocean strategy of uncontested market. So those are three of my favorite insights from the book. This is far, far from exhaustive in terms of all the different tools and frameworks that I cover in this book for different ways to create this kind of separation and differentiation in your marketplace. A few examples of this, we didn't talk at all about the six paths for redefining market boundaries, which is a really powerful concept in the book. The four steps in the strategic sequence, another really important idea. And then possibly the most important when it comes to actually executing the strategy, especially if you're in a medium to large business where there are politics, co-founders, other people involved in decision-making, they talk about how to overcome organizational hurdles. Because again, as I mentioned at the very beginning of this video, for some people, the idea of competition is what's exciting about business. They like the idea of trying to beat rivals, not necessarily by making them irrelevant, which is the strategy here, but by actually getting in head-to-head competition and trying to out-compete them. So in some cases, especially if you've got other co-founders or other leading voices at the business, you're gonna need to be effective at overcoming organizational hurdles and bringing everybody into the fold and making sure that this strategy is something that everybody is on board with. So that's it for this video. If you enjoyed this video, if you got any value out of it, number one, I recommend that you pick up a copy of the book because like I mentioned, there is so much more to this book than just what we've covered here. And number two, please click the like button here on YouTube to let me know that you enjoyed the content. It lets me know what kind of content I should create in the future, and it helps YouTube promote this video out to more people here on the platform, which helps grow our audience. Now, if you wanna learn even more about how to build and grow your business, I recommend that you subscribe to the channel here on YouTube and that you turn on notifications. That way you won't miss out on future videos. And of course, if you have any questions about this video, this book, or if you'd like to recommend another book that I cover in the future, let me know down in the comment section below. Thank you for watching, and I'll see you in the next video.