Finding your Blue Ocean

One of the hardest problems starting a micro-ISV is defining your product, and one of the best ways to frame this question comes from a very unlikely source: the Harvard Business School press.

MBA stuff is usually about as useful to developers and feathers on a fish; MBA’s tend to be the people who wander from corporate cubicle to meeting, muttering in incomprehensible management-talk. Yet, here’s a book by two highly prominent MBA academicians that nails how micro-ISVs can find the right application or web service to create.

Now Chan Kim and Bruce Henderson didn’t set out in Blue Ocean Strategy to find out how startups can define what they are starting up – they wanted to find the key secret sauce of why when big businesses start new businesses some take off, most putter along a few crash and burn spectacularly. But hey, I’ll take it.

Here’s what they found after studying 108 businesses that launched. 86 companies that went for incremental extensions of their business pulled down 62% of the revenue (good), but only 39% of the total profit (not so good). But the other 22 companies? They went and did something different. And while they only raked in 38% of the total revenues, they went to the bank with a whopping 61% of the total profit.

How did they 22 companies do it? They went for the Blue Ocean, and so should you.

Finding your Blue Ocean

Kim and Henderson see the business world as divided between red and blue oceans. The red oceans are traditional markets doing tradition things, getting hammered on price, fighting for tiny slivers of the market. Think Pepsi and Coca-Cola, think Quicken and Money, think Infragistictics and ComponentArt.

"In red oceans, industry boundaries are defined and accepted, and the competitive rules of the gaem are know. Here, companies try to outperform rivals to grab a greater share of existing demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody."

"Blue oceans, in contrast, are defined by untapped market space, demand creation and the opportunity for highly profitable growth… In blue oceans, competition is irrelevant because the rules of the game are waiting to be set."

So how do you, as a micro-ISV businessperson and developer, find your blue ocean?

Look in new industries not old. In the last ten years or so, there’s been a huge jump in new kinds of businesses. In fact, there’s so many new businesses that the beancounters economists have junked the old Standard Industrial Classification (SIC) system created at the height of the Industrial Economy for twice as big North America Industry Classification Standard system (NAICS).

Look at how people live now, not then. Our brave new world of the net, techno-gadgetry and 600 favors of media is spawning a whole new set of problems. Science fiction writers used to be the only ones who had to deal with all this, and they still do a great job of it, but we are getting to live it and it hurts! Where there’s pain, there’s opportunity: CRM apps designed for use in online virtual worlds, social bookmarking meta tools, finance/investment apps for permanent unmarried couples (PUCs), scheduling/resource management sites for pre-teenagers are a few examples that come to mind.

Solve old problems, but with new technology. In case you’ve been living in a cave coding C+ or VB on tablets, there’s a continuing avalanche going on of new programming languages (like Ruby on Rails), hardware (3rd generation tablet PC’s, Intel-based Macs, smartphones), operating systems (Windows Vista), social interaction (the whole Web 2.0) thing and specific coding techniques (Ajax/Atlas) rumbling down the mountain.

Now odds are since you’re a developer you live and breathe as much of this stuff as you can. But have you been thinking about how to apply this new stuff to old problems? There are a bazillion vertical market apps out there for everyone from zoos to auditorium managers. 90 % of these apps are so bad, so antiquated, so limited, they bring tears to the eyes of any self-respecting developer, but they still keep chugging along, inadequate as they are, because there’s nothing better. Go find a vertical market you’re interested in and disrupt it by building a modern app that is ten times better.

The points above tie back to the foundation of finding/creating a Blue Ocean: Value Innovation. Kim and Henderson introduce Value Innovation:

"We call it value innovation because instead of focusing on beating the competition, you focus on making the competition irrelevant by creating a leap in value for buyers and your company, thereby opening up a new and uncontested market space."

Now most of Blue Ocean Strategy is geared to how to whack your dinosaur corporation in the head enough so it will get up and lumber towards the blue ocean instead of the tar pits. It is, after all, a business school book. But that doesn’t mean the tiny creatures running around the legs of the great beasts can’t learn a few very valuable things from it too. You can find the key first chapter online at the Harvard Business Online site.