The 2004 book Blue Ocean Strategy described a paradigm of the business world: there are blue oceans and red oceans.
Red oceans are red because they are competitive and bloody. Think of any crowded industry: life insurance, cars, cell phones, healthcare, restaurants, etc.
Blue oceans are blue because they lack competition. It’s a wide-open space to create your own vertical.
From the book’s website:
A blue ocean is an analogy to describe the wider, deeper potential to be found in unexplored market space. A blue ocean is vast, deep, and powerful in terms of profitable growth.
Here’s the thing: it’s not real.
You Are Always in Competition
This is a cold truth that the more liberally-minded of us want to believe. The myth of Silicon Valley is that you can dream up an excellent idea and execute it with skill, the market will reward you fabulously.
(Myth doesn’t mean it’s not true, but rather it’s a foundational belief.)
Let’s pick out an alleged blue ocean: AirBnB.
Nobody was renting out spaces in their homes to strangers before this. Maybe an old-world innkeeper in the mountains of Romaania, but that’s it.
VRBO is on the scene now, but before that, AirBnB was the first to move on this market on a large scale (beyond just Craiglist postings, which is how they got started).
Maybe they found a blue ocean. Except the hospitality industry is literally one of the oldest in history. They created a new way to execute on the industry, sure, but they didn’t create a new category as much as they introduced a huge supply into an old market.
That was their innovation.
They didn’t find a new industry. The money was already there. It just got diverted from hotels to homeowners.
Capital Allocation is Competitive
They were in intense competition, just with a very different set of tools. You can argue there are some AirBnB locations out of the reach of hotels, so they didn’t actually compete with hotels there (e.g. in a remote mountainous village somewhere, in places where hotels are all booked up).
Okay. You’re missing the larger point. The money had to come from somewhere. Either it was going to hotels, or to other entertainment, or in savings. For it to get spent on this brand-new thing, it had to be reallocated.
The process of reallocating is itself competition.
Even in a brand new field, you are competing with capital’s current allocations.
To win this competition, you have to be an order of magnitude more attractive than its current allocation.
Attention is Competitive
Like capital, attention is limited.
Unlike capital, you can’t multiply attention.
Attention is zero-sum.
It is not capitalistic.
No matter how good your product, you will compete on some level for attention and distribution.
You could literally just be giving away money and you have to compete for attention. Seriously.
I promise you if you walk up to 10 people on the street and offered to give them $1 each, at least one person would say no.
Please, prove me wrong.
Attention is limited, and you have to compete to get noticed.
Venture Capital Investment is Competitive
This is the worst of both worlds: you’re fighting for the attention of an extremely limited cohort of people, and they are trying to explicitly allocate a limited budget.
(Limited that is, unless you’re Masayoshi Son.)
Choosing companies to invest in is absolutely zero-sum.
The only time it’s not zero-sum is over years when one of the companies gives a meaningful return.
“Storytelling” isn’t just a useful business skill—it is vitally necessary if you’re going to enter a field as competitive as a startup needing venture capital funding.
The Huge Exception to “No Blue Oceans”
There is only one category of product that is a true blue ocean (and every one will rush to use it once they know about it):
A product or service that pays for itself.
If I spend $1 to get $2, I will buy that service infinitely. These business are always winners (assuming they are run sustainably).
Here are some examples:
- Bill-paying software alerting you to unused subscriptions, only charging you if it saves you money
- Software that automates your time (assuming your time is billable hours)
- “Cold water” laundry detergent: it pays for itself because heating up water costs a lot
- Turning waste from your manufacturing process into another commodity or product (gasoline was a useless byproduct of kerosine for years until the automobile was invented)
- A wealth manager who will earn better returns than you and pays for themselves
Again, if I spend $1 to get $2, I will buy it every time. The only thing that would get me to stop is if something else gave me a better return (or the same return but faster, or the same return with less risk, etc.)
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Money-saving businesses aren’t sexy, but they are clear winners. If your business has a clear money-saving function, you will have a world of difference finding customers, investors, and partners.
Competition isn’t bad, and you don’t need to fear it. But with one exception, do not kid yourself thinking you can find a business without competition.
