Chan Kim, Chair Professor of INSEAD Business School delivered an energetic and humorous speech at the Global Entrepreneurship Summit in Kuala Lumpur, after Malaysia PM Najib Razak and US Secretary of State John Kerry had opened it (see wrap up of the keynote). This professor is known for a strategy called “Blue ocean”. Blue, because he envisions a business strategy that gets rid of competitors to focus on niche markets and customer experience. Ocean, “because it’s not a blue pond, you need to think big of course!”
Malaysian Innovation Ecosystem: Stats on startups and SMEs
The startup failure rate in the OECD is 48% on average, versus 60% in Malaysia. Improving that by just a bit will generate millions for Malaysia. Malaysian SMEs could also do better. They occupy 56.4% of the workforce (77% in OECD countries), but account for only 32.7% of GDP (54% in OECD countries). Productivity must be raised, and innovation is a key driver. But what kind of innovation?
Blue Ocean Innovation: The Winning Formula
Chan Kim tells us about the two types of innovation
- Schumpeterian innovation. This is where the boss has animal instincts. He learns from trial and error, and fights against an ever-standing and renewing competition. Napster or Segway are prime examples: strong innovation, huge buzz, even a huge user base/funding, but eventual failure.
- Blue ocean innovation. Entrepreneurs can be educated, and provided they have the right methodologies and tools, they can minimize failure. Innovation is driven by the consumer and the demand, rather than supply-side.
A good example of Blue ocean in practice is the Dollar Shave Club. Traditionally, the shavers market is a red ocean, tainted by the blood of ferocious competition. What’s more, the consumer is screwed: he either pays a lot for a highly qualitative shaver, or he pays almost nothing but gets cuts, bumps and wounds every time he shaves.
Dollar Shave Club applied the 3-tier non-customer analysis to get out of the red ocean and to think out of the box: “what do customers want to buy”. They focused on:
- soon-to-be non-customers (dissatisfied razors users)
- refusing customers (dry shave users)
- unexplored non-customers (occasional shavers, barber shop goers)
With zero marketing, a viral video and a community with access to social media, a new pricing plan of $1/month and punctual home delivery, Dollar Shave Club answered many unaddressed needs of the shavers. ROI of Dollar Shave Club: 10M video views, $1.1 million monthly sales, 62% gross profit margin, and even 10.9M Silicon Valley funding !
In Malaysia, the Blue ocean strategy has also had success, with AirAsia being a great example. The newly opened “5 star quality, 1 star price” hotel chain, Tune hotel, offers a one night stay for RM 9.99 (about $2). It consists of a clean room, security and nothing else. Epal sewing school, a social venture from Malaysia, also used the same strategy to answer womens’ needs to master sewing. They now have 18 stores in Malaysia, 2 in Jakarta, and 27 000 women members earning up to RM 200/machine in sales commission.
This same blue ocean strategy was used by Obama, who addressed citizens not voting, by addressing their needs and getting in touch with them in a personal way (e-mail marketing based on data and social media).
For national policies, it’s the same, says Chan Kim: the big regions of the world have key cultural traits that a government agency can leverage to find its own Blue ocean strategy:
- Silicon Valley is private sector driven
- Nordic countries in Europe are community and cooperatives driven
- Asian societies are government and clan driven
Blue Ocean Strategy applied to promoting Entrepreneurship
To differentiate, a state can focus on struggling entrepreneurs, failed entrepreneurs, and those who would never have considered becoming entrepreneurs (women, poor, elderly)
In a nutshell, Chan Kim offers an interesting point of view to break our intuition, think out of the field we think we should be, and find our own blue ocean, where competition is less intense, and the value more obvious.