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Blue Ocean Strategy + Lean Startup = Blue Ocean Startup
STRATEGY FAST TRACK:MAKING THE COMPETITION IRRELEVANT
Blue Ocean Strategy + Lean Startup = Blue Ocean Startup
Gil Rachlinwww.linkedin.com/in/[email protected]
• Introductions• Basic Definitions• Blue Ocean Strategy Basics – Value Innovation• Finding Blue Ocean Strategy• Strategic Pricing• Execution• When to Innovate Again
Table of Contents
• Introductions• Basic Definitions• Blue Ocean Strategy Basics – Value Innovation• Finding Blue Ocean Strategy• Strategic Pricing• Execution• When to Innovate Again
2- Blue Ocean Startup-
Innovation + Execution = Success
Introductions: Name What you do? What would you like to achieve from the class?
Who am I?
3
www.linkedin.com/in/gilrachlin@gilrachlin
Basics Definitions:INNOVATION and STRATEGY
4
Some Definitions: INNOVATION
Innovation is the creation of better ormore effective Products, Processes,Services, Technologies, or Ideas that areaccepted by Markets, Government, andSociety. Innovation
From Wikipedia, the free encyclopedia
5
Innovation is the creation of better ormore effective Products, Processes,Services, Technologies, or Ideas that areaccepted by Markets, Government, andSociety. Innovation
From Wikipedia, the free encyclopedia
- Blue Ocean Startup-
Innovation used in Product, Business Model,Disruptive Innovation, Sustaining Innovation, Open Innovation,Innovation Management
How Do Most Companies Promote Innovation
Vertical Innovation Approach• Random connections• Different skill sets• Provide best chance for new andinnovative advancements (pixar)
Common Innovation Approach• Use separate and divided internal / Externalgroups• Skills hand offs towards innovation development.• Typically:
- Lengthy timelines- Diluted ideas and- Responsibility drops.
6- Blue Ocean Startup-
Common Innovation Approach• Use separate and divided internal / Externalgroups• Skills hand offs towards innovation development.• Typically:
- Lengthy timelines- Diluted ideas and- Responsibility drops.
Open Innovation Approach• External / Internal ideas• External / Internal paths to market
Some Definitions: STRATEGY
STRATEGY is a plan of action designedto achieve a vision…gaining (or beingprepared to gain) a position ofadvantage over adversaries or bestexploiting emerging possibilities.
7
STRATEGY is a plan of action designedto achieve a vision…gaining (or beingprepared to gain) a position ofadvantage over adversaries or bestexploiting emerging possibilities.
StrategyFrom Wikipedia, the free encyclopedia
Generally, strategic planning deals with at least one of three key questions:"What do we do?""For whom do we do it?""How do we excel?"
Strategic PlanningFrom Wikipedia, the free encyclopedia
- Blue Ocean Startup-
Examples of InnovativeCompanies with GoodStrategy?
8
Innovative and strategic Companies
Entertainment
Publishing
9- Blue Ocean Startup-
What made them Different from other players?
Transportation
Information
Publishing
Government
Evaluating a GoodCompany Strategy
10
• friendly service, Speed and frequency• “Speed of a plane at the price of a car anytime
you need it”
• The digital entertainment center of your world• "Welcome to the digital music revolution." (2004)
• Monthly subscription, No late fee, no due dates• “Save gas and time. Let Netflix deliver your movies
again”
Three Characteristics of a good strategy
Focus SplitClear differentiation
from existing trend
CatchySlogan
• friendly service, Speed and frequency• “Speed of a plane at the price of a car anytime
you need it”
• The digital entertainment center of your world• "Welcome to the digital music revolution." (2004)
• Monthly subscription, No late fee, no due dates• “Save gas and time. Let Netflix deliver your movies
again”
11- Blue Ocean Startup-
How to create innovation?
Blue Ocean Startup?
12
Blue Ocean Startup
Lean Startup•RiesEric
Blue Ocean Strategy•MauborgneRenée/W. Chan Kim
Blue Ocean Startup?
Innovate ExecuteLean Startup
•RiesEric
Blue Ocean Strategy•MauborgneRenée/W. Chan Kim
13- Blue Ocean Startup-
Allocate resources asefficiently as possible:
• Develop MVP• Validated Learning• Build Measure Learn
Make the competition irrelevantDIFFERENTIATION and LOW COST =Value innovation
Red Ocean vs. Blue Ocean
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Focusing on Blue Ocean Strategy…..
Red Ocean vs Blue Ocean Strategy
BLUE OCEAN STRATEGYRED OCEAN STRATEGY
Create uncontested market spaceCompete in existing market space
Make the competition irrelevantBeat the competition
Create and capture new demandExploit existing demand
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Break the value-cost trade-offMake the value-cost trade-off
Align the whole system of a firm’sactivities in pursuit of differentiationand low cost
Align the whole system of a firm’sactivities with its strategic choice ofdifferentiation or low cost
- Blue Ocean Startup-
Blue Ocean Strategy BasicsValue Innovation
16
Value Innovation
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Overall strategy of all company activities to bring valueto themselves and to customers
- Blue Ocean Startup-
Customers1) Who are our clients?2) Main usage of offering?
Industry1) What is our industry? Players?2) Industry elements? Characteristics?
NewValueCurve
Reduce
CreateEliminate
Creating Value Innovation (ERRC)
4) Create –factors that industry
never offered
2) Reduce –below industry
standardsDrop Cost
NewValueCurve
Create
Raise
Eliminate
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4) Create –factors that industry
never offered
1) Eliminate –elements takenfor granted bythe industry 3) Raise –
above industrystandards
- Blue Ocean Startup-
AddCustomerValue
Visualizing Value Innovation:Value Curve
19
• Visual Representation of thedifferentiation and added value
Value Curve – The Core of BOS
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WHY VISUAL:•Effective Wisdom Collection Strategy Formulation•Effective execution through communication Strategy Execution
- Blue Ocean Startup-
Value Curve EvaluationExample: SouthWest Airlines
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Eliminate: Raise:
Southwest Airlines – 4 Elements Table (ERRC)
NewValueCurve
List possible competitive elements !!!
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Reduce: Create:
NewValueCurve
- Blue Ocean Startup-
Eliminate:• Class Choice• Central Airport
Raise:• Friendly Service• Speed
Southwest Airlines – 4 Elements Table (ERRC)
NewValueCurve
List and place the competitive elements !!!
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Reduce:• Price• Lounges• Meals
Create:• Frequency
NewValueCurve
- Blue Ocean Startup-
Value Curve – Southwest Airlines
24
Eliminate Reduce Raise Create
- Blue Ocean Startup-
• Focus Clear and focused strategic profile– Southwest: friendly service, Speed and
frequency• Split Clear differentiation from existing
trend– Value curve always stands on its own
• Catchy Slogan Clear and convincingSouthwest: “Speed of a plane at the price of a
car anytime you need it”
Back to Curve Evaluation –Three Characteristics of a good strategy
• Focus Clear and focused strategic profile– Southwest: friendly service, Speed and
frequency• Split Clear differentiation from existing
trend– Value curve always stands on its own
• Catchy Slogan Clear and convincingSouthwest: “Speed of a plane at the price of a
car anytime you need it”
25- Blue Ocean Startup-
26
Frameworks and Tools ToFinding Blue Ocean Strategy
• Six Paths from Red to Blue• Buyer Experience Cycle• Barriers to copying BOS
Frameworks and Tools Include
• Six Paths from Red to Blue• Buyer Experience Cycle• Barriers to copying BOS
27- Blue Ocean Startup-
Finding a way across oceans
28- Blue Ocean Startup-
Best in SameIndustry
Sector Definition Alternative
Same competinggroup
(e.g. luxury cars, economiccars, and family cars)
Strategic GroupsDifferentiation Different
Improve service toSame customer
(buyer, user or influencer)Buyer groups Redefine customers
Redefining Market Borders :The six conventional boundaries of competition
Improve service toSame customer
(buyer, user or influencer)Buyer groups Redefine customers
Maximize Existing valueIn range similar to their
sector.
Scope of product orservice offering
Complementingproducts and
services
Accept ExistingImprove pricing inside
industry
Functional-emotionalorientation of industry Redefine
Present Time line Define trends overtime
29- Blue Ocean Startup-
Eliminate:• Buy Whole CD for one song
Raise:• Best Sound Quality• Control on Usage and
Usage learning• Availability for users (one
place to find all)• UI, Browse, Search
Apple iTunes (ERRC) Path from Red to Blue
NewValueCurve
30
Raise:• Best Sound Quality• Control on Usage and
Usage learning• Availability for users (one
place to find all)• UI, Browse, Search
Reduce:• Price per song (+Try Before
you buy)
Create:• Complement with iPod/
Mac• Liberal Licensing to
download digital content
NewValueCurve
- Blue Ocean Startup-
What did Apple iTunes Realize?
31
Eliminate Reduce Raise Create
- Blue Ocean Startup-
32
Beyond Existing Demand
Going beyond existing demand – Non Customers
Third Layer(NeverUsed)
SecondLayer
(Refuse toUse)Why refuse?
Static ads on busstops of benches
Find user resemblance(teeth whitening)
33
Your Market
First Layer(minimal use
ready tojump ship)
Go for the largest potential market- Blue Ocean Startup-
Give value on usage(Prêt a Manger)
Why refuse?Static ads on bus
stops of benches
Eliminate:• Fees (Late, Shipping,
Handling)• Due Dates
Raise:• Search Capability• Partnerships, Affiliates
Netflix (ERRC) goes beyond existing demand
NewValueCurve
34
Reduce:• Num office/store Locations
Create:• flat-fee unlimited rentals.• Mail Service• Online Streaming
NewValueCurve
- Blue Ocean Startup-
Value curve of the Netflix
35
Eliminate Reduce Raise Create
- Blue Ocean Startup-
Competitive Barriers
36
• Non conventional Logic• Clash with Other Companies’ Brand• Natural Monopoly• Legal Barriers (e.g. Patents)• Sales Volume• External Factors not supporting
competition• Extraordinary changes requirements• Consumer loyalty to Innovative
companies.
Barriers to Copying BOS
• Non conventional Logic• Clash with Other Companies’ Brand• Natural Monopoly• Legal Barriers (e.g. Patents)• Sales Volume• External Factors not supporting
competition• Extraordinary changes requirements• Consumer loyalty to Innovative
companies.
37- Blue Ocean Startup-
Strategic Pricing
38
Strategic Pricing Flow
Strategic Pricing
Target Profit
Define PricingCorridor
ExtraordinaryBenefit
From Benefit,Price, and Costto Adaptation
39
Target Cost
Efficient andInnovative PricingPartnerships
Pricing Innovation
- Blue Ocean Startup-
From Benefit,Price, and Costto Adaptation
Pricing Corridor of the Masses
Large Barrier of EntryHard to Copy
SameShape
Diff ShapeSame function
Diff shapeand functionSamepurpose
40
Pricing Corridorof the masses
Some Barrier of Entry
Low Barrier of EntryEasy to mimic
Med Price
(*) Shape size is proportionate to number of buyers that product attracts
- Blue Ocean Startup-
BOS Validation Cycle
41
Consumer BenefitIs there an extraordinary value to the consumer
(Purchase, Delivery, Usage, Add-ons, Maintenance, Removal)
PriceIs your price accessible to mass consumers
yesNo – rethink
yesNo – rethink
Validate the Buyer Experience Cycle
42
CostCan you reach target cost for revenue at strategic price
AdaptationWhat are the barriers in implementing your strategy? Are you
dealing with them?
BOS is Valid
yes
yes
No – rethink
No – rethink
- Blue Ocean Startup-
Executing Innovation
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Solving Organizational Barriers
44
CognitiveChallenging
Existing StatusQuo
FinancialLimited
Resources
PoliticalResistance frompowerful parties
Solve the 4 Barriers to Strategy Implementation
•Seeing means believing•Meet unsatisfied customers
•Maximize budget value•Focus on clear, mainchannels(most influentialpeople in org).
•Enlist Angels, Silence Devilsand….•Use Secret Advisor to seniormanagement. Financial
LimitedResources
MotivationalLack of withemployees
PoliticalResistance frompowerful parties
45- Blue Ocean Startup-
•Aquarium Effect (viewed by all)•Achievable fractions (start with MVP)
Fair Process:Engagement!Explanation!!Expectation (Clarify)!!!
Value curve of the NYPD with Bill Burton (1994)
46
Eliminate Reduce Raise Create
- Blue Ocean Startup-
Implementing InnovationLean Startup Style
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Innovate - Build – Measure – Learn
Ideas/BOS
Innovation
Build /Resources
Learn /Insights
Two Hypothesis:• Value Creation
Hypothesis - BOS• Growth Engine
Hypothesis / Drivers(Growth Engine: Viral,Sticky, Paid)
48- Blue Ocean Startup-
Product /MVP
Base Line
Measure /Metrics
Data /Reports
From Lean Startup Loop
Two Hypothesis:• Value Creation
Hypothesis - BOS• Growth Engine
Hypothesis / Drivers(Growth Engine: Viral,Sticky, Paid)
• Product Analytics:• Customer Analytics• Marketing Analytics
What is Measured?
• Product Analytics:– Insights to usage patterns, bug paths etc.– Improve product roadmap, customer service
etc.• Customer Analytics
– Customer behavior to optimize services forcustomers and dealers.
• Marketing Analytics– Keyword bidding to improve performance and
reduce costs– Weblog data to offer additional services etc.
KPI – Key Performance Indicators
49- Blue Ocean Startup-
• Product Analytics:– Insights to usage patterns, bug paths etc.– Improve product roadmap, customer service
etc.• Customer Analytics
– Customer behavior to optimize services forcustomers and dealers.
• Marketing Analytics– Keyword bidding to improve performance and
reduce costs– Weblog data to offer additional services etc.
Measurement Types / Innovation Accounting:
• Vanity Metrics– e.g. PageViews, Unique Visitors,1 Million Messages per day,
funding– Interesting blog entry: http://blog.kissmetrics.com/throw-
away-vanity-metrics/• Actionable Metrics - Cause and Effect (vs. Vanity)
– Help make decisions: a/b testing, pricing, cost per acquisition.– E.g. when we shipped feature X, did it affect customer
behavior?• Cohort Analysis
– Go to the lowest level of analysis on groups of users withsomething in common.
50- Blue Ocean Startup-
• Vanity Metrics– e.g. PageViews, Unique Visitors,1 Million Messages per day,
funding– Interesting blog entry: http://blog.kissmetrics.com/throw-
away-vanity-metrics/• Actionable Metrics - Cause and Effect (vs. Vanity)
– Help make decisions: a/b testing, pricing, cost per acquisition.– E.g. when we shipped feature X, did it affect customer
behavior?• Cohort Analysis
– Go to the lowest level of analysis on groups of users withsomething in common.
Cohort Analysis:
Core engagement metric:Time on SiteCohort retention
51- Blue Ocean Startup-
Courtesy of: http://jonathonbalogh.com/2012/03/24/introduction-to-cohort-analysis-for-startups/
• Did you make product alteration that only Week 3 cohort is exposed to?• Did you change your advertising that week?• Does Week 3 correspond with any major holidays or events?
Engine of Growth Funnel Metrics: AARRR
AfterOptimization
Initial MVP
PaidViralEngine of Growth
1 7%5%Acquisition: Visit Site /Registration Rate
90%17%Activation: Sign Up 90%17%Activation: Sign Up
5%Too LowRetention: Come Back
4%Too LowReferral: Invite Friends
11%1%Revenue: Buys Product
$1 per backupMinimalLifetime Value
Sample Success Metrics 1• Growth Driver: Recurring subscribers.
Product Usage after releasing a new recurring revenue feature
Important tips:
• Marketing Goal- Not reduced cost acquire customers and maximize your
profits
• Metrics depend on Industry / business type- Focus on Customer Value- Focus on Conversions, sales and profits- Set your Base Line and Time Frame
• Examples:- Profitability of Each Customer (Life Time Customer Value)- Cost of Acquiring New Customers- Repeat Purchase Rate of Existing Customers- At least 1000 orders/impressions/clicks for 3% margin of error
54- Blue Ocean Startup-
• Marketing Goal- Not reduced cost acquire customers and maximize your
profits
• Metrics depend on Industry / business type- Focus on Customer Value- Focus on Conversions, sales and profits- Set your Base Line and Time Frame
• Examples:- Profitability of Each Customer (Life Time Customer Value)- Cost of Acquiring New Customers- Repeat Purchase Rate of Existing Customers- At least 1000 orders/impressions/clicks for 3% margin of error
Some Known Tools to use:
• www.Google.com/Analytics (goal seeking)• www.KissMetrics.com (customer focus)• www.Mixpanel.com (events based)• www.Appfigures.com (mobile apps)• www.Piwik.org (open source web analytics)• www.birst.com (BI focus for sales)
55- Blue Ocean Startup-
• www.Google.com/Analytics (goal seeking)• www.KissMetrics.com (customer focus)• www.Mixpanel.com (events based)• www.Appfigures.com (mobile apps)• www.Piwik.org (open source web analytics)• www.birst.com (BI focus for sales)
When to Innovate Again
56
Ongoing Process to develop Blue Ocean next to Red Oceans.
Innovate when the barriers go down!
When to Innovate again?
Or else….?!Borders and Barnes &Nobles:Blue Ocean – In Store ServiceNook – Too late?
Amazon –Repeated Blue Ocean:- Online book store to- Online market place to- Mobile book to- Online cloud
57
Borders and Barnes &Nobles:Blue Ocean – In Store ServiceNook – Too late?
Amazon –Repeated Blue Ocean:- Online book store to- Online market place to- Mobile book to- Online cloud
Blockbuster:Blue Ocean – Rental of movies forfew dollars Instead of high cost ofmovies.Subscription / Streaming – Too late?
Netflix–Repeated Blue Ocean:- Subscription (no late fees)- Online Streaming
- Blue Ocean Startup-
Highlights• Value Innovation
• ERRC (Eliminate, Reduce, Raise, Create)• Value Curve• Evaluate (Focus, Split, Catchy Slogan)• 6 Paths (Industry, Strategic Group, Buyer Group, Scope of
product/service offering, Functional-Emotional orientation,Time)
• Beyond Existing Demand• Competitive Barriers of Entry• Strategic Pricing
• Execute• Tipping Point Leadership and Fair Process• MVP• Validated Learning (Build Measure Learn)
• Repeat
• Value Innovation• ERRC (Eliminate, Reduce, Raise, Create)• Value Curve• Evaluate (Focus, Split, Catchy Slogan)• 6 Paths (Industry, Strategic Group, Buyer Group, Scope of
product/service offering, Functional-Emotional orientation,Time)
• Beyond Existing Demand• Competitive Barriers of Entry• Strategic Pricing
• Execute• Tipping Point Leadership and Fair Process• MVP• Validated Learning (Build Measure Learn)
• Repeat58- Blue Ocean Startup-
Question????
Remember:If you get over the hill, you’ll begin to pick up speed!!!
59- Blue Ocean Startup-
Remember:If you get over the hill, you’ll begin to pick up speed!!!
Stay Hungry, Stay Foolish!Steve Jobs.
Thank you!!!!Gil Rachlin.
Slides: slidesha.re/STQzMg
Class Feedback:http://generalassemb.ly/education/class-feedback/
Contact Info: [email protected]/in/gilrachlin@gilrachlin
Site: www.blueoceanstartup.com
Free Gift: www.scanbizcards.com/promo/gil
October 31st: Hands on Workshops (15% off – 15OFF):http://www.skillshare.com/profile/Gil-Rachlin/5240900
60- Blue Ocean Startup-
Thank you!!!!Gil Rachlin.
Slides: slidesha.re/STQzMg
Class Feedback:http://generalassemb.ly/education/class-feedback/
Contact Info: [email protected]/in/gilrachlin@gilrachlin
Site: www.blueoceanstartup.com
Free Gift: www.scanbizcards.com/promo/gil
October 31st: Hands on Workshops (15% off – 15OFF):http://www.skillshare.com/profile/Gil-Rachlin/5240900
Additional Info:
61
– New-business strategy which directs startup companies to:Allocate resources as efficiently as possible.
– Origins from the Lean Manufacturing theories.
• Develop an MVP (Minimum Viable Product)• Validated Learning• Build Measure Learn
Lean Startup
– New-business strategy which directs startup companies to:Allocate resources as efficiently as possible.
– Origins from the Lean Manufacturing theories.
• Develop an MVP (Minimum Viable Product)• Validated Learning• Build Measure Learn
62
Developed by:Eric Ries-Silicon Valley entrepreneur and author.- Recognized for pioneering the Lean Startup movement
- Blue Ocean Startup-
• Simultaneous pursuit of
• Methodically innovate without competition(make the competition irrelevant)
Blue Ocean Strategy
DIFFERENTIATION and LOW COST = Value innovation
63
Based on150 strategic moves over a 100 years (1880-2000)Developed by:
W. Chan Kim- Co-Director of the INSEAD Blue Ocean Strategy Institute.-The Boston Consulting Group Bruce D. Henderson Chair.- Professor of Strategy and International Management at INSEAD, France.Renée Mauborgne-The INSEAD Distinguished Fellow and a professor of strategy at INSEAD.-Co-Director of the INSEAD Blue Ocean Strategy Institute.
- Blue Ocean Startup-
Cirque Du Soleil Case Study
64
Eliminate:• Stars Shows• Animal Shows• Seat based pricing• Parallel stage shows
Raise:• Uniqueness
Cirque Du Soleil – 4 Elements Table (ERRC)
NewValueCurve
65
Reduce:• Humor Entertainment• Thrill and Danger
Create:• Subject Theme• Comfortable Viewing
environment• Different Shows• Music and Dance
Choreographies
NewValueCurve
- Blue Ocean Startup-
Value curve Sample - Cirque du Soleil
66- Blue Ocean Startup-
ERRC in Value curve - Cirque du Soleil
67
Eliminate Reduce Raise Create
- Blue Ocean Startup-
Value Curve Evaluation
68
• Focus Clear and focused strategic profile– Cirque Du Soleil: Themed entertaining shows with acrobatics mixed
with music, dance and, of course, the effects of light andscenery.
– The acts of Nouvelle Expérience blend theatre, music, circusarts and dance
• Split Clear differentiation from existing trend– Value curve always stands on its own
• Catchy Slogan Clear and convincing– Cirque Du Soleil: “dramatic mix of circus arts and street
entertainment….. “– Cirque Du Soleil: “A world of fantasy… find a story of fantasy and
dream, where all your wishes come true– Cirque Du Soleil: “…thousands of artists gather with a single purpose:
to prove that magic exists.”
Curve Evaluation –Three Characteristics of a good strategy
• Focus Clear and focused strategic profile– Cirque Du Soleil: Themed entertaining shows with acrobatics mixed
with music, dance and, of course, the effects of light andscenery.
– The acts of Nouvelle Expérience blend theatre, music, circusarts and dance
• Split Clear differentiation from existing trend– Value curve always stands on its own
• Catchy Slogan Clear and convincing– Cirque Du Soleil: “dramatic mix of circus arts and street
entertainment….. “– Cirque Du Soleil: “A world of fantasy… find a story of fantasy and
dream, where all your wishes come true– Cirque Du Soleil: “…thousands of artists gather with a single purpose:
to prove that magic exists.”
69- Blue Ocean Startup-