The Blue Ocean Delusion
When looking for the benefits of creating a new market niche, it is important not to fall into the mundane trap.
The emergence of a new market niche called the blue ocean, is the dream of many entrepreneurs and managers. The concept, presented by W. Chan Kim and Renée Mauborgne in their book The Blue Ocean Strategy, is based on creating undeveloped markets where competition is minimal and the growth potential is theoretically enormous. However, like any other strategy, this one also has its pitfalls, which must be properly assessed and considered in plans.
In my opinion, one of the biggest risks is misunderstanding the market or overestimating its potential. Many companies fall into the trap of thinking that they have created a unique offering that will allow them to grow rapidly and ensure financial success, when in fact it often turns out that the demand for new products or services is much lower than expected, which can lead to disappointment and poor business decisions.
This process of "overestimating potential" is relatively common in organisations and, in my opinion, stems from the psychological, groupthink that "the grass is greener on the other side of the fence", i.e. where we are not yet. If "enthusiasm" is not properly analysed and verified at this stage, it creates a real business risk, as developing a new niche from scratch almost always involves significant financial costs to build the necessary internal infrastructure for new processes, including the costs of promoting a new product or service. Incorrect initial assumptions about the relationship between realising the potential of a new market in the allotted time and the costs planned for this project can lead to large financial losses. In my experience, most of the costs of creating a new market niche are grossly underestimated, while the projected speed to success and profit margins are usually overestimated.
Added to this is the element of overestimating the uniqueness of one's offering. In the blue ocean, creating value that is not offered by others is key. Companies that fail to differentiate themselves sufficiently from their competitors can quickly lose their advantage when other players notice and copy their ideas because the blue ocean does not mean no competition forever. Innovative ideas quickly attract the attention of other companies that also want to take advantage of the new niche. Companies that are not prepared for the rapid entry of competitors can be caught off guard and lose their business momentum in a short time. Markets, especially nowadays, are very dynamic, and this, in turn, requires companies to be flexible and able to quickly adapt to changing conditions. A company that invests too much in a single strategy or technology may face difficulties in the event of unexpected changes in the market. Lack of flexibility and adaptability can lead to stagnation and loss of competitive advantage.
There is another particular phenomenon that I have observed that I call the "black hole" in the blue ocean, and it usually occurs when a predecessor, wanting to maximise its profits and limit competition in a new market, invests a lot of capital and allocates significant resources to an organisation, but after a while, it turns out that these resources are still not enough to succeed. Then the company must either add new resources, which it does not always have, or abandon the project and admit defeat. The company that fell into the "black hole" was the one that invested, but not enough to exploit the potential of the new niche. However, their efforts were not in vain. For others. Following in its footsteps, other companies that also noticed the niche, but were not the first or did not have enough resources to compete at the time, already realising their mistakes and, on the other hand, using the foundations laid to build a new market, are achieving real success. Of course, no one plans to fall into a "black hole" by choice or to create a new market to compete in with their resources, but this phenomenon occurs, mainly for the reasons mentioned above, i.e. initial overestimation of the potential of the "blue ocean" and the time to achieve success, as well as significant underestimation of costs.
In summary, the Blue Ocean strategy offers great opportunities but also presents numerous challenges. Being aware of the pitfalls and manoeuvring properly over time is crucial to achieving long-term success in a new market.
Sylwia Krasoń-Kopaniarz, Head of International Operations at Impel Group, CEO of Impel Ukraine, for Liga.net
