Blue Ocean Strategy Archives

Strategy and the Exploration for the Non-Customers

I met with one of my clients and friends, Armen Alajian, co-owner of Artobrick. Now Armen runs this business with his brother, Vod with the respect and tradition of a family business that has been passed down to younger generations.

However, one of the things that makes me proud to have them as a client is their aggressiveness to continue to test new ground. The latest is the “Ceramic Paintings” shown on this page. They brought an artist into their game to paint original artistic works on ceramics that can cover any size of walls and floors. Basically, Artobrick has merged the art world and the ceramics world. But what they don’t realize is they have increased their market space to the “unexplored” non-customers. This is a concept discussed in the Blue Ocean Strategy by Kim and Mauborgne.

Kim and Mauborgne lay out three tiers:

1st tier, “Soon-to-be” non-customers who are on the edge of your market waiting to to jump ship;

2nd tier, “Refusing” non-customers who consciously choose against your market;

3rd tier, “Unexplored” non-customers who are in markets distant from yours.

I would argue that these tiles will attract a 3rd tier customer who loves art. These customers may not consider installing bricks, but may consider installing a Jackson Pollack-type tile just for the artistic addition to their home or business. This attraction gives Artobrick a distinct advantage over other tile/brick manufacturers who cannot compete in this market space because they don’t have the strategy to see buyer needs.

The initial step for this to venture to be successful is for Artobrick to distinguish a buyer utility. Some companies do surveys or venture into a new concept slowly gauging buyer and market response. I don’t know if the brothers took this step, but assuming they did, the next step is to make a price easily accessible to buyers. Third, at this price point, can they make money? And lastly, what other hurdles can restrict the market roll out.

According to the Blue Ocean authors, if Armen and Vod get past these steps, then they can have a viable Blue Ocean idea where competition becomes irrelevant. All small and medium-sized businesses should take this approach in their businesses by thinking about the non-customer.

Strategic Planning Opportunities and Resurgence of US Manufacturing through 3-D Printing

My wife is a Sociology Professor at University of California, Irvine specializing in labor unions. One of her books, Talking Union discussed the struggle between labor and management at the Ford River Rouge plant. Back at that plant in early to mid 20th century, Henry Ford implemented a strategy to control the supply chain, not just to build cars, but to control the manufacturing of raw materials like steel, glass, and rubber. Those days disappeared for a variety reasons, one being that US workers demand a descent wage and working condition as opposed to many of their contemporary global counterparts who didn’t have either.

But a US manufacturing boom may be on the horizon, and opportunities for businesses of all sizes should be included in their ten or twenty year horizons. I came across an article on Motley Fool by Steve Heller who pushed investing in 3-D printer manufacturers. The trend will be no more waiting, ordering, inventory management when many parts can be made on demand. These parts can be custom clothes to body parts to airplane engine parts. The article stated that the only limitation was the imagination of the end user.

Another article, The 4 Technology Trends That Could Bring Back US Manufacturing by Jessica Leber echoed the message but from a US manufacturing point of view. She includes 3-D Printing as one of these trends writing, “It used to be that a company would have to invest hundreds of thousands of dollars in building a production line before making one single cheap widget. Now, with additive manufacturing (a term which includes 3-D printing technologies), companies can start to design distributed manufacturing operations that ‘scale with the market they serve,’ says Schmidt. Making things ‘at the point of use or point of need’ will help small companies that make products in the U.S. stay competitive.”

When you develop and implement a strategic plan, I always say to keep one eye on the path in front of you, and one eye on the horizon. Too many of our small business clients ignore the second part and only ask, “What are my sales today, and do I have enough cash to make payroll on Friday?” They completely lack vision because they do not design a strategic plan, and worse off if they do, they don’t steadily implement it.

Almost every business that is supplying some product to their customer, should include these manufacturing technologies in their strategic plan. Sure, it may not materialize for five years in their industry, but to position your company to be ready will label you as an industry leader, not follower. Even now, your strategic plan can include tactics for you to purchase a small 3-D printer for smaller parts that are in high demand.

3-D printing is just one of many technologies that can assist small and medium-sized businesses in their strategy. You can wait in the car as the technology train passes by, or you can wait at the train depot and jump on. You just have to look down the tracks and position yourself.

The Vertical Integration Strategy of a Christian Publishing Company is No Fantasy

A business acquaintance, Steve, recently purchased a small Christian publishing company from Jeff, another business acquaintance. Now both of these individual are pillars in the Christian “speculative” publishing world: Steve, a top agent in fiction, and Jeff, a man of many talents both inside and outside publishing companies. “Speculative fiction” includes such genres as fantasy, science fiction, etc. as opposed to general fiction written by likes of Hemingway. (Christian “speculative fiction” is a very small part of the publishing market with very loyal followers. Some of the novels have found their way into the entertainment industry like the Lord of the Rings.)

I have not spoken to Steve about his business strategy for purchasing this company, but this development can be a good example of how vertical integration works. Again, since I have not spoken to him, this article will be pure fiction as to strategic motivations.

Vertical integration is a style of growth executed by moving up or down the “supply chain” within a particular industry. A good example in the big corporate world is Apple’s iPhone. Originally, Apple created computers. These computers, among other things, could play music… other distributors’ music. The portable CD craze was winding down (and always breaking), and Napster just got crushed in July ’01 for its platform of providing free (illegal) music downloads onto computers.

When the Ipod was unveiled in October 2001-2003, vertical integration played an important role. Not only did Apple provide the device to play music, they moved up the chain to distribute the music that played on it through the ITunes store. Thus, eliminating any inter-company, inter-industry issues. They had achieved vertical integration. Today, almost every musician, small or large (including myself), distributes their music on iTunes. The iPhone was just an expansion into a complementary industry.

In regards to Christian publishing, the question is, how will Steve use this vertical integration to gather market share? Though, we can only speculate, I would start with a strategy session of consumer needs. The speculative Christian genre can be an advantage because large publishers may not want to divest resources from their money-makers (non-fiction books). A method that Steve could utilize is the Blue Ocean Strategy. This particular strategy focuses on creating a relatively non-competitive environment by challenging consumer demand assumptions. Is the speculative fiction publishers providing attributes that consumers do not want, and are there some attributes that the speculative fiction publishers ignoring?

Business Ethics Start at Home, But Strategic Planning is a Music Industry Necessity

About ten years ago I went into my fifteen year old’s room and laid on the bed to talk to him while he was online. He told me was he had learned of this “new” music service where you can acquire music for free. It was called Grokster. After watching him for a few minutes I concluded that this was wrong behavior. I explained to him that this activity bothered me for two reasons: 1) It was stealing. He was not purchasing but “acquiring” music for free. and 2) I had music clients who made their living from selling the music they wrote and performed. I told him that he had to cancel his account and not use it. In its place, I made him and his following brothers and sister a deal. If they promised not to download free tunes, I would pay for all of their music purchased through a service. Fortunately, they did not go hog-wild and buy thousands of songs. Instead, they usually purchased the latest acts, classic rock , and jazz. Since I shared the music account with them, I was able to learn a lot about the latest acts and play jazz. The practice still lives today with child (daughter) number four, but I really don’t care to listen to Justin Bieber. Still, honesty prevailed and they learned that conventional wisdom is not always wisdom at all.

However, according to Paul Resnikoff’s article, Technology didn’t kill the Music Industry. The fans did… , we were in the minority. Mr. Resnikoff’s article focused on educating the public as to the value of music and the unethical and illegal practice of stealing it.

Though I don’t disagree with Mr. Resnikoff about educating the public, I believe it is the wrong strategy to help the musician. People will always rationalize the theft of music, unless they get caught and pay penalties. That is an enforcement issue that is outside the scope of this article.

Instead of bailing water out a sinking boat with a tea spoon, the budding musician should learn how to strategically plan their career. The new musician cannot make music the old tried and true ways. Those days are over.

For example: Cirque du Solei changed the circus industry. Their strategy resembled the Blue Ocean Strategy. They focused on what attributes their circus customers wanted, (e.g., clowns, acrobats, and music) and discarded attributes that customers did not want (e.g., animals, big name lion tamers, and 3-rings). The result: a new type of entertainment that stole market share from plays, sporting events, and amusement parks.

The musician must reinvent the appetite for music. For example, who would have guessed 40 years ago that The WHO and other bands would sync license their music for substantial money on television shows and commercials? I don’t recall many doing that in the 1960s.

To be a “successful” artist or business person in capitalism, strategic planning must be done on both an individual level and industry level. Right now there is no strategy in the music industry to save the musician, and likewise, there are hardly no strategies on the individual level to save the music industry. Both are needed and must be interrelated.

Be an “Opportunist” and Put the “O” Back in SWOT

Did you ever catch a baseball at a professional baseball game. I had attended Dodger games since I was a kid, and never even got close. The odds of catching a ball changed depending on where you sat. However, no matter how great the odds were, I would bring my ball glove. Nothing came close, except when I became a father.

Then one day, I was walking down the steps behind home plate with a Carnation frozen shake (my favorite Dodger concession) in each hand. Before reaching my family, I heard the crowd cheer above me when a foul ball hit the upper level. The fans failed to catch it letting it escaped down to my level about twenty steps above me. As I turned, I watched a baseball bounce down the steps toward me. To heck with the malts, I dropped them splattering on the ground and fell to one knee to field the grounder like I was taught in Little League. My opportunity had come and I was ready.

Most small and medium-sized businesses probably don’t prepare a strategic plan. If you did, you would probably include a common tool: SWOT. The SWOT tool looks at your company’s “Strengths, Weaknesses, Opportunities, and Threats. Many companies usually list the SW, and T. But opportunities? That can be tough. The probably with this is that companies only look to their existing markets, and not leverage their product or expertise in other markets.

Take music for example: Songwriters and producers are banging their heads on the wall trying to get a share of a shrinking market. Yet, they don’t realize that they may have the tools to use music in a different way. Take Song Pong, for example. Song Pong is a music based social media game allowing users to communicate through music. The players can pose a challenge, share favorite songs, or deliver dedications. Song Pong utilizes personal music libraries and the 26 million song in the iTune store.

Now, I am not saying that you should not pursue your passion, but sometimes your passion can be an opportunity that you have not discovered. Michael Gorton, owner of the Song Pong app focused on the connectivity of music instead of producing its content.

So, how do you start? You start by looking at the needs of the public. Start with what you are producing and what is needed. Discard with is not needed and us the tools of what is left to inquire into several new markets.

Is Classical Music a Victim of a Red Ocean Strategy?

I like classical music, even some operas. I cried when I saw Paul Potts sing Nessum Dorma. That is why I was saddened when I read Why Classical Music is Imperiled–Sort of by Chris Farrell. Mr. Farrell cites several examples of operas, orchestras, and philharmonics who are either struggling or have failed financially. He claims:

“Classical music shares a problem afflicting all entertainment these days: fierce competition for eyes, seats, and dollars. The video-game industry has evolved in recent decades into a multibillion dollar industry far removed from its early Pac-Man days. On Sunday, Americans could choose to spend their evening at a concert, a book reading, a lecture, or watching the much-anticipated final episode of Breaking Bad (let alone Sunday Night Football.) By this light, the take-away is how healthy an historic art form is in the 21st century.”

Chris argues that classical music isn’t a dying industry, but caught up in the digital age where so many entertainment options are at our fingertips. He mentions a number of classical musicians who have ventured outside the genre.

To look at external factors for a business failure is not the cause of the failure itself. The failure is the lack of a strategic plan. Strategic plans are created with a vision that encompasses outside factors, like the changing digital industry. Instead, what business do in these situations is just change the inflight movie in a plane that is running out of gas. Sure, when businesses fail to strategize they create some “feel good” plan within their current strategy which ultimately postpones the inevitable.

The Blue Ocean Strategy by Kim and Mauborgne discuss a similar industry, the circus. The compare Cirque du Soleil and Ringling Brothers. Ringling Brothers took the traditional strategy, which was the traditional circus. Cirque, on the other hand, measured the value that they offered the public and eliminated some, while enhancing others. In creating their new strategy, and new show, Cirque emerged in an uncontested blue ocean, and left Ringing Brothers in a red ocean full of competing sharks who offered the same antiquated value to the customer. These sharks competed on price and values that the customer didn’t see relevant, like big names, animals, and three rings.

On the other hand, Cirque, designed a new show based on values that the audience appreciated, e.g., a new type of venue, themes, and music.

The ironic part is that Cirque not only took a major market share from the traditional circus, but absorb market share from other industries like; movies, plays, and yes classical live music performances. In other words, the pain that the operas and philharmonics are feeling is due in part to innovative companies like Cirque who have been successful crossed markets by realizing what the audience really wants. That is something that the classical industry must do if it is to survive.

The Strategy of the “Argo” Writer and Why You Should Take Notice

Do you use “vertical” logic to solve a problem? This classic method for problem solving works out a solutions using a step-by-step method until a person arrives at a conclusion. Engineers I’ve known, have used this approach.

Or do you address problems “horizontally”? That is, having a thousand ideas but being unconcerned with how to implement the strategy of arriving at your destination.

Many will look at these two approaches and say the first is more left brain, the second more right brain. However, the better approach is to use both sides of your brain and think more entrepreneurial.

This appears to be the thinking of Joshuah Bearman, the “Argo” writer according to a Los Angeles Times article. According to the article, “Argo” prompted Bearman, …to think about storytelling in a different way–and to go entrepreneurial with his latest project, a tale of San Diego drug smuggler called ‘Coronado High’.” According to the article, Bearman negotiated a trifecta revenue package with publishing with GQ magazine( print), Atavist (a digital e-book publisher), and Sony Pictures (movie). These avenues displayed different “colors” of the project serving different audiences.

This strategy pushes Bearman into his own “Blue Ocean” by distinguishing his project from other journalists, novelists, and screenwriters. Though these multiple platforms operate separately, they will complement each other making this project greater than the sum of its parts. Why? Because one person hearing the audio version may want to see the movie, for example.

Some say that other writers will not be able to duplicate Bearman’s strategy because of his “Argo” clout, but I disagree. In business, there is always an industry leader that tests the water. If Bearman is successful, these(and other) publishers will be looking for other authors to replicate the success.

Multimedia is hear to stay, but the industry leader will be the person who can change with it. Multimedia platforms are not stagnant and demand a dynamic entrepreneur to change with them.

Never a Better Time to Be Strategic, Even if You are Not a Strategist

Is this the dawning of the age of the strategist? Maybe we have a new song, here. Where is the 5th Dimension when you need them?

Actually, it is according to an article in the
McKinsey Quarterly by Birshan and Kar. Becoming more strategic: Three tips for any executive. But the authors are not necessarily discussing the traditional strategist. Instead they are writing about strategic thinking by corporate executives.

The article points out that “…more senior leaders in strategic dialogue makes it easier to stay ahead of emerging opportunities, respond quickly to unexpected threats, and make timely decisions.” Also, their study confirms what I have been writing about for two years, i.e., that business leaders are in their positions due to their functional skills, not their strategic skills.

One of the theories that I use in introducing clients to strategic planning, is the Blue Ocean Strategy. Most business people seem to understand the concept of re-inventing their industry. The type of clients I love to introduce this to are the artists because I use drawings which seem to trigger their right brain processes.

In regards to small business owners, I always use the same line to express their “functional” as opposed to “strategic” thinking. I tell them that small business owners want the answers to two questions: What are my sales? And, do I have enough cash to make payroll? This may sound funny, but stop an think of the way you think of your business.

If you are a musician, you may ask: What are my record sales? And, when are my next royalty checks due?

If you are to be an industry leader, you must get out of this mindset. You cannot lead thinking historically. You must think prospectively, and strategically.

The previously mentioned article offers three points to help you think strategically:

1. Understand what strategy really means in your industry

2. Become expert at identifying potential disruptors

3. Develop communications that can break through

These cryptic suggestions can help, but the most important suggestion is that you must clear the minds of you and your company. You can’t think strategically if you are struggling to put out fires. This only results with functional thinking.

Whether you are an artist, or a business person, you must think of your industry as ever-changing and full of opportunities waiting to be discovered. The place to start is with your target customer. What is the industry delivering to them that is useless? You’d be surprised in the superfluous services and products delivered to target customers because the industry players believe that is what the customer wants. When you find these attributes, it will free up resources to offer clients what they really need but not delivered.

After taking this first step, you can creatively redesign your industry one step at a time.

Cyclical Fashions and the Strategy of Business: Don’t Keep Playing the Same Old Tune

My piano tuner told me he has a leads on two great pianos for sale. One was a Yamaha S series, the other a Steinway O Series. He has tuned them both for years, so he knows of their condition. I was tempted since I have a ten year old Young Chang, but it works and looks great.

Have accoustic pianos lost their “luster?” They have according to William Loeffler’s article, Pianos aren’t a center of attention anymore. The article suggests that this just may be a misleading trend. In other words, the abandonment of pianos is overstated, or just a trend.

The same trends happen in business. When a manufacturer creates a new trend, how long does it take for industry followers to copy it? In today’s technology, faster than ever. Are you one of those businesses that just look to copy the next trend, or are you a trend setter?

So how does a business become a leader, and not a follower? According to Kim and Mauborgne’s Blue Ocean Strategy, “Instead of concentrating on customers, they need to look to noncustomers. And instead of focusing on customer differences, they need to build on powerful commonalities in what buyers value. That allows companies to reach beyond existing demand to unlock a new mass of customers that did not exist before.” An example used in the book was “Big Bertha” a metal driver with a large head. This club made it easier for “noncustomers” or non-golfers to hit the golf ball. In other words, Callaway converted non-golfers to golfers and expanded not only its market share, but the entire market population.

If you continue to play the same tune, you will eventually sound like a broken record. Businesses must evolve. The minute you feel like “you’ve made it,” is the minute your competitors will start gaining ground.

The term buyers value, is ignored by businesses that follow trends. It is common for entire industries to supply services or products to a target market that does not want them. In other words, companies should focus on what businesses need and cut the chaff of what they don’t need.

CPA Advice on How to Grow a Business of Any Kind

I grew up in a family of entrepreneurs. Most of my uncles were some form of contractor: General, electrical, and plumbing. Prior to becoming a CPA, I learned a little about these trades from them which helped me when I built my own house. They were (and are) masters at their trades and deserve the greatest of respect.

Yet, as a CPA, I have learned that a great tradesman does not necessarily translate into a successful entrepreneur. In fact, they can be completely opposite. A tradesman may focus on detail and create a great product, where an entrepreneur would focus on the vision and produce products to fulfill it. I always joke that a small business person usually wants to know two things: 1) What are my sales? and 2) Do I have enough cash to make payroll?

CPAs run into this issue, too. Many of us tend to focus on the minutia of getting a job done and not on the big picture of running the business towards its long-term vision.

If this sounds familiar to you, here are some pointers and sources:

Be a hedgehog. The hedgehog is not as cunning as the fox, but does something that makes it the world’s best defender against the fox. It rolls up into a little ball and sticks out its spikes. According to Jim Collins in Good to Great, you can be a hedgehog if you do three things: 1) Be deeply passionate about what you are doing, 2) Do something that makes money, and 3) Be the world’s best at what you do. The intersection of these three requirements will brand you into a specialized business in which others will struggle to compete.
Focus on your customer needs, not the industry. The Blue Ocean Strategy by Kim and Maugorgne shows you how to extrapolate unnecessary services that the industry provides, but the customer doesn’t need. The strategy book also describes companies that have transformed their businesses to a level to make competition irrelevant.
Manage the business, don’t let the business manage you. Michael Gerber’s E Myth describes entrepreneurs that let their businesses run them into the ground, and destroy their quality of life. This is the most common problem with trades people.
Know where in the cycle your business is at all times.Les McKeown’s Predictable Success discusses the cycles as: Early struggle, fun, whitewater, predictable success(balance), treadmill, the big rut, and death rattle. Predictable success stage has the right amount of systems and processes to tame a company.

Though we are CPAs, we look at out client’s businesses through the lenses of strategy and planning. Small business entrepreneurs must be measuring their businesses in light of their visions and short-term objectives in order to accomplish their goals and desires.