Tuesday, October 23, 2012

Key Value Drivers - Finding Your Blue Ocean

Having a competitive advantage or industry niche is a key value driver for many businesses.  A potential purchaser will be very interested in a business that has a unique and meaningful product/service offering or one that has reduced or eliminated competition in the marketplace.

This value driver reminds me of a book entitled "Blue Ocean Strategy", by W. Chan Kim and Renee Mauborgne, in which red oceans represent all the industries in existence today (the known market space) and blue oceans denote all the industries not in existence today (the unknown market space).
"In red oceans, companies try to outperform their rivals to grab a greater share of existing demand.  As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities, and cutthroat competition turns the red ocean bloody."
"Blue oceans, in contrast are defined by untapped market space, demand creation, and the opportunity for highly profitable growth.  In blue oceans, competition is irrelevant because the rules of the game are waiting to be set."
I would recommend this book to any business owner looking to enhance the value of his/her business.  According to Kim and Mauborgne, "the only way to beat the competition is to stop trying to beat the competition."

This is a paradigm shift for many business owners.  In Blue Ocean Strategy, specific industry examples (e.g. automobile, computer, entertainment, cosmetics, etc.) are used to illustrate how to formulate and execute a blue ocean strategy – how to find that untapped market where there is no competition.

Finding a blue ocean will drive significant value for a business.  Having a unique and meaningful product/service offering increases value for two reasons:

  1. Increases a company’s cash flows (e.g. through premium pricing, increased sales volumes or decreased costs such as marketing expenses); and
  3. Decreases a company’s risk profile (e.g. through securing customer relationships, developing a brand or having no direct competition).
This strategy has been effectively implemented by many companies operating in saturated, mature or declining industries to reinvent themselves and create significant value.  Many examples are discussed in Blue Ocean Strategy including, but not limited to, Cirque du Soleil, Honda, IBM, Apple, Swatch, Body Shop, Home Depot and AMC.

A blue ocean strategy is a dynamic process.  Once a new market becomes known, imitators will appear on the horizon looking to turn the blue ocean red.  There are, however, advantages to being the one to create a blue ocean, including certain barriers to imitation.  These barriers, which can include patents or legal permits, are discussed in Blue Ocean Strategy.

Finding a blue ocean is one of many drivers of value for a business.  Visit us online to learn more about our value enhancement process and how we can help you increase the value of your business:

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