Using Blue Ocean Strategy to Increase Margin

Welcome to Episode 6 of Grow For It!  This is a podcast for small business owners, operators and professionals.  I’m Jim, and my goal is to work in the space between your ears – you know, on your mindset – to help you stay focused on those activities that’ll help you to move closer to realizing your Vision.

Today’s episode is about formulating a BLUE OCEAN STRATEGY – A way to escape hyper-competitive environments and pursue those with higher margin opportunities and less competition.

But first, let’s review where we’ve been so far.  In Episode 5, we discussed how listening to your heart can help you to overcome FEAR.  This is an important step as you set out to define and implement a Blue Ocean Strategy.

Prior to that episode, we discussed how setting the RIGHT GOALS can enable you to get closer to your Vision. 

Assuming business growth is part of your vision, let’s engage in an interesting concept to bring clarity to that challenge.

To really get the most out of the next few minutes, it would be helpful if you’ve already listened to Episode 3 dealing with SWOT Analysis and Episode 4 where we discussed financial metrics and client segmentation.  They’re not prerequisites, but they could add some insight into today’s discussion.

So, if you’re ready, LET’S GROW FOR IT!

To frame this discussion, let me give you a little context.  Blue Ocean Strategy was something we covered as part of my MBA program in 2007 and 2008.  It’s a topic I’ve written about and spoken about ever since.

We used a book my W. Chan Kim and Renée Mauborgne.  It was published by Harvard Business School Publishing.  You can find it on Amazon for about $20.  It’s only about an inch thick.  I’d encourage you to pick up a copy.  It’ll be worth your time.

Here’s the premise:

Each day we wake up and go to battle in the marketplace.  As we look for trends, opportunities and new business, we undoubtedly run into other competitors.  We’re all looking for that next whale of a client.  You might be that predator shark sensing blood in the water.

Once we find a viable target, even a niche, it won’t stay that way for long.  If you’ve ever watched SHARK WEEK on TV, you already know what’s about to happen.  Other sharks will soon begin competing for your opportunity.  

As the feast ensues, blood fills the water and you quickly find yourself in a “RED OCEAN” environment.  Margins will quickly begin to decline.  Sub-optimal alternatives will confuse and entice loyal clients to leave.  Unscrupulous competitors will undercut you until you begin to wonder how you’re going to be able to hold on to what market share you still have left.

Sure, price may not be everything, but once your product becomes a commodity, price might be the ONLY thing!

The fortunate news for many of us is that we still have an option.  The counter-strategy is to seek out a BLUE OCEAN by identifying a new niche, exploring a new market or even finding an alternate way to position the features and benefits of your existing products and services to a new customer set. 

In doing so, you may be able to reap the benefits of being the only shark in the area, at least for a while.

Again, let me encourage you to review Episode 3, which focuses on SWOT Analysis.  If you’ve completed the exercise, you may have already identified ways to leverage internal strengths to exploit external opportunities.

After all, at one time no one could imagine a phone without a cord.  Apple was a fruit, not an $8 billion company.  And Viagra was just a cardio-vascular drug.

Let’s consider what Steve Jobs did with Apple and the iPhone.  I think it’s the safest of the examples I just mentioned. 

Steve took a common device and made it into something indispensable.  After all, there are 2 things most of us never leave the home without:  Our Keys and Our Phone.

By envisioning a brand new way to appeal to our need to interact with our device, Apple was able to carve out an incredibly profitable segment of the market place.  They found a way to enter a BLUE OCEAN.  For a time, they left the competition behind. 

As Samsung and others finally began catching up, other brands began to find their own Blue Oceans.  Siri is giving way to Alexa – albeit in a different application.  But how many of us remember the first time they heard someone say, “Hey Siri!”?

What we’re about to see happen in voice recognition technology is going to be nothing short of amazing.  Unless you’re the guy selling the little plastic tip we see on the ends of shoelaces, there’s probably a Blue Ocean out there waiting for you.

By the way, that plastic tip is called an “Aglet.”  Siri looked it up for me on my iPhone.

Let’s be honest here.  For most of us, inventing an entirely new communication platform might not be realistic.  However, there’s a significant chance that we actually could identify a Blue Ocean opportunity. 

If you’ve listened to a few of my podcast episodes, here’s what you knew was coming next:  I want you to take out a sheet of paper.

If you’ve ever been the supplier to a large company or a prestigious client, it’s easy to find yourself being whipped around by that customer.  The common statement may be something along the lines of “Well, if you can’t cut your price, there are several guys in the lobby right now who would be interested.” 

It’s always a question of leverage.  Years ago, I managed a branch of a distributor that was a tier 1 vendor to Chrysler.  When the auto industry took a dive, we were reminded of which of us truly had the leverage. 

One way to begin identifying potential Blue Ocean opportunities is to look geographically.  If you’re working with a large client, there may be sub-suppliers positioned around that plant or facility.  Sub-suppliers may have similar needs, but typically don’t wield the leverage of the big dog. These companies may be prime opportunities for you to service at higher margins.  

On your paper, list out the primary, geographic locations of your largest clients.  Often, the sub-suppliers are clustered in and around the larger plants.  You might begin by looking regionally, but then focus on specific counties, cities and even zip codes.  You’ll be amazed at the information you can find online.  Government and/or industry groups may have already collected specific data.  Oftentimes, if you know where to look, it’s free.

You might also search for counties which have shown a growth trend over the previous several years.  There might be a cluster of business opportunities commonly overlooked by the sharks who are only targeting the whales. 

Here are a couple other options:

If you’ve been around for a while, your marketing and sales teams have likely tried various approaches to increase revenue.  One change you might consider is to develop local roundtables with client groups.  Or, at a minimum, set meetings with client-decision makers to identify products/services they would be willing to move your way, if you offered additional capabilities. 

These types of discussions can be productive if they involve an executive-level representative along with your local reps.  Consider including someone from your product-development area, as well.  You want your management to hear it first-hand, so they can assist in authorizing and exploring the opportunities.

If you’re a small business, you might include a strategic vendor in those discussions.

Would it make sense to expand your offering?  Could that new product, service or capability be used to expand into other market segments?  It never hurts to ask.

Write down the names of clients who might be willing to participate.  If you’re bringing a vendor, consider having several of them.  Which specific vendors are trustworthy enough to include in these roundtables?  Approach the opportunity as a team.  You can position yourself as the client’s advocate by facilitating a discussion focused on a higher-level, consultative approach.

You and your company have specific expertise.  Can you identify other industries or client segments that could benefit from that expertise?  This is where my Episode 5 on overcoming fear can help.  Just because you’ve never tried that before, doesn’t mean you shouldn’t. Blue Oceans tend to be deep and wide.  You’ll never know until you get in the water.

A result of those local roundtables might possibly be that you learn the “real” reason your customers are doing business with you.  It might not be your price at all.  It could be your inventory, your ordering system, or simply your delivery.  These are reasons you could amplify as you explore new oceans.  This insight might even change your approach. 

Blue Ocean Strategies are steps you can take to expand your markets and increase margins.  Obviously, it doesn’t happen overnight. 

What I’d like to challenge you with is to begin looking differently at your market.  It’s easy to lock onto a comfort zone, that status quo, the perceived limitations of boundaries and borders. 

Those are choices, rarely realities.  If the pond is getting crowded, go find an ocean.  There’s still plenty of opportunity ahead.  Just ask Siri!

Well, that wraps up today’s episode.  I hope you’ll pick up the book Blue Ocean Strategy.  It’s full of insights I’ve implemented in my own business.  I want to thank you, as always, for taking a few minutes to listen to this podcast. 

If I could ask a favor, would you consider going to iTunes and giving this podcast a 5-star rating and a quick review?  Your feedback will help others to find it.  I really appreciate your help.

Until next time, begin focusing on identifying your next Blue Ocean.  When you see it, jump in.  The water’s fine.  Remember, it’s time to Grow For It!