Finding Room Where You Don't Compete: Blue Ocean Strategy for Small Businesses

One way to avoid a price war

Blue ocean strategy means leaving crowded markets (the "red ocean") and creating space where competition does not yet exist. W. Chan Kim and Renée Mauborgne set it out in their 2005 book Blue Ocean Strategy.

The part that matters for a small business is simple: do not fight larger firms on the factors the whole industry competes on. Price, number of features, and speed of response are hard to win when your resources are limited. The starting point is to question the factors themselves.

Put yourself and your rivals on a strategy canvas

The authors' main tool is the strategy canvas. Along the horizontal axis you list what companies in the industry compete on, such as price, range, delivery time, and support. The vertical axis shows how much each firm offers, and you draw one line per firm. If the lines all look alike, the industry is competing on the same factors.

You can build one for a solo business. For local photography, the factors might be fee, number of photos, delivery speed, and costume rental. Rate yourself and three to five competitors as low, medium, or high on each. Their websites and price lists are enough to show how much the lines overlap.

Four actions to rearrange the factors

If the lines overlap, consider reshaping them. The authors suggest four questions:

1. Which factors that the industry takes for granted could be eliminated?
2. Which could be reduced well below the industry standard?
3. Which could be raised well above it?
4. What could be created that the industry has never offered?

For small businesses, eliminating and reducing often work best. You might drop in-person meetings, work online only, and pass the savings on in your fee. Or you might raise follow-up support after delivery to build an ongoing relationship. Changing the shape of the line makes your offer a different kind of offer.

Reading the examples, and the caveats

The authors point to Cirque du Soleil, among others. In their account, it removed costly features of traditional circuses, such as animal acts and star performers, and added theatrical production.

Critics note a weakness. The cases were assembled after the fact, so the framework has not been shown to predict success when applied beforehand. Whether a new space has real demand is something you only learn by trying.

An empty space can also mean there are few buyers. The absence of competition is not the same as the presence of customers. For a small business, the practical approach is to test with a few people before betting heavily.

Check whether your line has a different shape

After answering the four questions, redraw your line and put it beside your rivals'. If the overlap is still large, the rearrangement was not enough. If your line is extremely low on every factor, you may have cut something customers need.

Look for two things. First, do you have one or two factors where you are clearly strong? Second, do customers see those factors as a reason to buy? You cannot judge the second yourself, so ask potential customers.

Where big players find it hard to enter

Small businesses avoid competition most easily in areas that are too small or too labor-intensive for large firms: work that needs individual handling, work tied to one locality, or small jobs that need specialized knowledge.

Some of these areas have no rivals because there is no demand. Check for inquiries and for searches on similar problems before you commit.

The order for testing

Do not turn a new combination into a product right away. Test it first as a short description. Show potential customers a note that says, "We skip A and put more into B," and ask whether they would buy. If the response is weak at the writing stage, you can fix it before building anything.

What to do next

1. Choose three to five competitors and list five to eight factors they emphasize, using their sites and price lists.
2. Rate yourself and each rival as low, medium, or high on each factor, and draw one chart.
3. Write one idea for each of the four actions: eliminate, reduce, raise, create.
4. Pick one idea and describe it to three to five potential customers. Ask whether it would give them a reason to buy.
5. If the response is weak, move on to another idea.

If you change pricing or contract terms, check with a qualified accountant or attorney.