Less competition, more creation with Renée Mauborgne

0:00Wondery Plus subscribers can listen to How I Built This Early Early and Ad Free right now. Join Wondery Plus in the Wondery app or on Apple Podcasts. Now a quick break switching topics to one of our favorite sponsors, Vital Proteins. Vital Proteins is the number one brand of collagen peptides in the U.S. By taking collagen peptides every day, you can help support your hair, skin, nail, bone, and joint health. And now you can try Vital Protein's new collagen and protein shake. It has all the benefits of collagen in a ready-to-drink chocolate protein shake. With 30 grams of protein, it's great for healthy hair, skin, nails, and joints.

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3:03Yes, on the show. And when you come on, you won't just be joining me, but you'll be speaking with some of our favorite former guests who also happen to be some of the greatest entrepreneurs on earth. And together, we'll answer your most pressing questions about launching and growing your business. Imagine getting real-time branding advice from Sunbum's Tom Rinks or marketing tips from Fawn Weaver of Uncle Nearest Whiskey. If you'd like to be considered, send us a one-minute message that tells us about your business and the issues or questions that you'd like help with. And make sure to tell us how to reach you.

3:41Each week, we'll pick a few callers to join us on this show. You can send us a voice memo at hibt at id.wondery.com or you can call 1-800-433-1298 and leave a message there. That's 1-800-433-1298. And that's it. Hope to hear from you soon and we are so excited to have you come on the show. And now, on to the show.

4:15Hello, and welcome to How I Built This Lab. I'm Guy Raz. So as you know, we've heard from lots of entrepreneurs on the show who've created incredibly successful brands. And in a way, we like to think of our show as sort of like a masterclass in business from hundreds of founders. And every once in a while, we bring someone on who actually teaches masterclasses, someone with a 35 ,000-foot view on creating a business, who studied why some businesses succeed and others fail. Today, we're going to meet Renee Mobhorn, an economics professor at the business school INSEAD and co-author of bestsellers like Blue Ocean Strategy, Blue Ocean Shift, and most recently, Beyond Disruption.

4:57Renee and her co-author, Chan Kim, have spent decades looking into how companies can find huge opportunities, sometimes hiding in plain sight. And as they describe it, if you can find the blue ocean, an untapped market, then your company will leap in value and unlock new demand. Renee was an undergraduate studying economics at the University of Michigan in the 1980s when she became fascinated by how businesses survive. And she saw firsthand what was going on in nearby Detroit at the time as the bottom started to fall out of the auto industry. Detroit had become a ghost town. Yeah. It was completely emptied out.

5:38The Rust Belt of America was being formed at that moment. And all the articles in the press talked about that the best days of America were behind it. And, you know, whether it was earth moving equipment or automotives or textiles, consumer electronics, all of them were in decline. Yeah. And we asked ourselves, you know, is competing necessarily the best path? So the articles all focused on at the time, how do you survive in this intense competition? And our interest was not how to survive, but how to thrive. And who are the companies that are thriving in spite of this? What are they doing differently, if anything at all?

6:19And can we map out an understanding of what is allowing them to break out of this intense competition? And that resulted in our first article, Value Innovation. And that eventually led to this grand theory, which, again, is one of the most influential business theories the past 50 years called Blue Ocean Strategy, which essentially – and I'm going to paraphrase it, but you'll do a better job at giving a better explanation – is that there are essentially two oceans in business. I say red ocean, which is where everybody is, and it's red because they're constantly trying to undermine each other and they're competing for market share.

7:01And so it's a bloody ocean. And there's a blue ocean where there essentially is no competition. Nobody's even thinking of that kind of industry or those opportunities. Correct. So, you know, and the red ocean is really existing industries. If you look at what strategy historically has always been, it's been about how do you compete? How do you analyze an existing industry, benchmark the competition within it, and position yourself in that industry in order to succeed? So that was the one half, and we call that market competing strategy. And because that existing industry was so intense with so many margin pressures, we started to call that the red ocean of bloody competition.

7:39And in contrast, we saw some companies, they weren't competing in those red oceans. They were creating their own markets. They were breaking and redefining the boundaries. And in those industries, there was no competition. It was wide, open, and untainted. And that became what we call the Blue Ocean Strategy. So we saw there was those two universes. But most companies' effort and energy was all in the competing. And we asked the question, why? Why should strategy only be competing when the other half of strategy is also about creating? So you started to look at some examples of this. And one of them is – it seems counterintuitive, but it's a great example because it fits right into it, is Cirque du Soleil.

8:19And by the way, the founder is going to be on this show later in the year. How did Cirque du Soleil become in your mind an example, an archetypal example of the Blue Ocean strategy? Well, you know, it operated in the circus industry was in decline for years. Everyone claimed young people were crying out for video games. No one wanted to go see the animals and get peanuts in the tents. And so the industry was essentially written off as a declining industry. And, you know, Guy LaLiberté and his team, their first circus that they created was called We Reinvent the Circus. And the beauty of it was they were able in doing that by the leap in value they provided to lift the price point of the industry and bring in all new customers to it.

9:04And one of the fundamental keys in Blue Ocean is that the more you focus on benchmarking your competition, we do that in an intent to stand out. But ironically, it helps us commoditize our own industry. And we end up in a continuous drive of imitation, driving us right into where we don't want to be, commoditization and Me Too offerings. So Cirque du Soleil was a beautiful example. It achieved differentiation of low cost, created new market space. But we started the book with it because it was one that people, no matter what their background is, can kind of relate to, can understand, and can see the difference between these two paradigms and way of thinking about the industries.

9:45I want to dive so deeply into this. We've done so many companies that are examples of this. And I wonder whether Blue Ocean Strategy requires you to jump into an entirely new space or can you create a Blue Ocean Strategy as an offshoot of an existing saturated industry? For example, the automotive industry, I think of a brand like Rivian and RJ Scurringe, what he single-mindedly wanted to build were electric trucks, pickups and SUVs. Nobody was doing it. People were focused – companies were focused entirely on the small sedans. And now, you know, he has some competition. Tesla has a car and Ford has one, but they really are kind of the gold standard for electric trucks at the moment.

10:40And I wonder whether that kind of company could be considered an example of this. Well, for Rivian, I'd need to really look into it because, you know, Blue Ocean Strategy Value Innovation has a series of metrics. So one, is there a compelling value to the marketplace or am I just differentiation with a higher price point? How accessible is the mass of buyers, right? So you not only have a compelling wantingness to buy a product, but for the mass of the market you're going for, a compelling ability to pay for that. So with Rivian, I would want to go through that and think to myself, systematically, maybe what they've done right now is created this new market.

11:19I think Tesla's creating this blue ocean, right? It's going deep and wide and it's lower down. Yeah. Well, let's talk about Tesla for a moment because, I mean, it seems like that's a company that you have looked into and a company that did do many of the things that blue ocean companies do. It created an uncontested market space for a time. Now, of course, it's contested by some of the big Chinese electric car makers. But it didn't worry about competing against Ford and Chrysler and Honda and Toyota. It was trying to capture an entirely new market. Yeah. So I think the last thing Tesla did was try to benchmark the competition because if he did, the car wouldn't look anything like what it does today.

12:02Right. I think if you look at Apple, too, and even hear the old words of Steve Jobs, he's never focused on benchmarking the competition. He's always focused on the market and where they should go. And I think a lot of companies get distracted by the competition. And Tesla systematically has been trying to drop the cost structure of that car as well, drop the price point to open up bigger and bigger mass volumes once they prove the concept of the car. And now with all the robotics, again, trying to higher quality, lower cost, run it like a tight, mean machine and not compromise style. and, you know, get the long duration of the battery, of course, right?

12:40Because that's a weakness for e-cars. Do you think that a brand that tries to be disruptive, like, you know, we've done Harry's Razors, for example. Gillette dominates razors. Or another recent example is Liquid Death. It's one of the most saturated markets in the world. Water, bottled water. And Mike Cesario entered that saturated market. And within two years, they're close to$200 million in revenue. He's created a very significant brand through branding. So it's not necessarily a blue ocean product, but still it's had a significant impact through branding. And if you listen to that episode of the show, it's almost like a masterclass in branding.

13:28I mean, I think he would argue I don't want to speak for him that brand trumps function any day. Do you think that in the end, there's a case to be made for branding as a strategy in a red ocean? So first, you know, what you're telling me about the two examples, both in razor and in water, what it really shows is that in every red ocean, there are possibilities for growth when you dare to think differently and stop focusing on just benchmarking your competition, even when you go up with a company like Gillette, which is just the master of all the razors, right? We would argue that your brand is determined by your price versus the utility that you offer.

14:10when my price versus utility that I offer is dramatic and I offer a leap in value at a reasonable price point, I automatically have brand. I automatically get people doing word of mouth praise. I automatically get people giving me five stars. That said, there are cases where brand in itself can start to become like Ralph Lauren. He did things very differently, but he was selling a dream. He was selling a dream to people that you too could be part of this, you know, old European kind of refined elite, which worked very well for many, many years. So when you're talking about liquid death, you know, he's trying to sell a vision, a lifestyle, a way of thinking about it.

14:58And that can be well. But what I want to say is challenge yourself knowing that maybe the dream won't last forever and you need to deliver on that dream. And make sure on your strategy canvas, when you look at the utility you're offering at that price point, that total value you're offering really is going to make people recommend you because there are many brands that come up that are really cool and everybody wants to wear their label or on their hat or talk about it. But then maybe two years later, that's it. And so that's the real question. Where's the real value? How are you making someone's life perceptively more beneficial and better for them?

15:39We're going to take a quick break, but when we come back, more from Renee on why you don't need to destroy an old business to create a new one. Stay with us. I'm Guy Raz, and you're listening to How I Built This Lab.

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18:51Welcome back to How I Built This Lab. My guest is Renee Maborn. In 2017, she put out a follow-up to Blue Ocean Strategy called Blue Ocean Shift, Beyond Competing. Do you think that existing established companies are sort of better placed to adopt a Blue Ocean Strategy with new products? Or do you think that a company starting completely from scratch has a bigger advantage in creating a blue ocean strategy? So I think they both have distinctive different advantages. The startup will look to the established company and say, oh, they have the resources. They have the reach. They have talent. They have budgets.

19:31And then the big company will look to the startup and say they don't have bureaucracy. They don't have my boss asking for current numbers. So no matter where you are in your life, somebody looks better and you look at yourself, but somebody's looking at you in the exact opposite way. And the key to life is to look at what you have and how do you make the difference. So we see it as effective both in small companies and in large companies. And I would say for established companies, some of the old ways of thinking and humanness and the fear inside of it, overcoming that in an organization to make that shift is a little bit harder.

20:06And so therefore, in the book Blue Ocean Shift, we talk about humanness and how do you get people to build the confidence to take the journey with you. Whereas when you have a startup and they're getting all their close friends with them and they're gung-ho to start something new, that fear is a little bit less, obviously, right? So they're ready to go out and conquer all new lands. Whereas the established company is not only thinking about what they can gain, but they're really thinking about what they might lose in the process as well. And so Blue Ocean Shift is all about, you know, what works, what doesn't, how do you bring your people along and what are the key challenges they ask and how do you address those challenges in a way that can create some level of intellectual satisfaction so they're willing at least to take the next step in that journey with you.

20:54You know, we've had in the past founders, and I have a lot of respect for this perspective, who say, I'm building a 100-year brand. I want to build the next GE. I want to build the next Nike, whatever it might be. But we've also had some founders who I think have been brutally honest and have said, look, it's not that important to me to build an enduring brand. If I can create enormous value in five or six years, that's pretty good too. I think both are great. And you need both. I think the question is, what kind of value are they talking about? There's a number of people, a number of startups, they just want to create financial value so they can sell that brand.

21:37Value Innovation Blue Ocean Strategy is about unlocking a leap in value for the marketplace. But you know what? Horses for courses, right? everyone doesn't have to follow the same perspective but what I would say is if I'm looking to build a hundred year brand and I'm that company or I want to create a brand where I not only create financial success for myself for my workers for my life but I want to create that same brand that also creates tremendous value for society for my customers I think no matter which company you're in you're going to want to start thinking you know what is the quantum leap in value I'm able to deliver?

22:18And is it based on a price point that the target mass of buyers that I am looking at can afford so they not only aspire for what I'm offering, but are actually able to realize that aspiration and purchase it? All right. So let's transition into your latest book because it's about an area and a topic that We hear about a lot and some companies on this show have been disruptors. We mentioned Liquid Death and Harry's and others. Your new book, your latest book is called Beyond Disruption. And essentially, you're arguing that the disruption approach may not be the best approach. I mean, some of the biggest brands and companies over the last 20 years are disruptors.

23:03Netflix, all the fame companies, Netflix, Airbnb, Amazon. I mean, these are companies that had huge disruptive impact on those areas. I mean, Amazon put lots of booksellers out of work, out of business, and Netflix certainly had an impact on movie theaters. But they've also brought incredible value to consumers as well. So tell me a little bit more about the thinking around disruption and, in your view, its problematic ripple effect. So actually, our view is that disruption and what we talk about beyond disruption, we have this idea called non-disruptive creation or non-disruptive innovation when you create a new market beyond the bounds of an industry.

23:46So there's nothing to displace. Our assertion is not that that is superior and there's something wrong with disruption. We're making the point that the entire field of innovation is really overridingly in the last number of years focused on how do I disrupt? The second I set to disrupt, I take aim at the existing industry with an aim to take it down, whether in full or in part. That's important. And when industries are ineffective, inefficient, induce moral hazard, hurt the environment, those industries, it's beneficial to society to disrupt. But what we started to find out in our research, we saw, yes, some cases of opening a blue ocean are disruptive, like Amazon.

24:27It's blue ocean, but it's disruptive. Blue ocean strategy, a lot of our examples are about looking across. So Cirque du Soleil takes some of circus, some of theater, opera, and ballet, and then creates a market within. But then we saw something that really intrigued us. We saw that there were a number of markets that were created with actually no displacement at all. And we asked our question, is that just a random occurrence or is that the tip of the iceberg or something more? And what we're saying is you can broaden your horizon to not only look at disruption, but look at this non-disruptive opportunities as well.

25:01So that is really the aim. It's not to take disruption down, but to open up this other part, the other end of the innovation spectrum and say, let's not forget about this too. So instead of like inventing the refrigerator and putting like ice sales people out of business, you come up with something entirely new where nobody's doing it anyway. Yeah. So you come up with something beyond the bounds of an existing industry. So pet Halloween costumes is such a silly example. It's worth 500 million. Right. But that industry is probably growing, by the way, and growing. I would say growing. Absolutely.

25:37Given what I see in New York. But, you know, that's completely outside microfinance in the industry, the finance industry completely outside. Sesame Street was outside Kickstarter outside the finance industry. Right. Square now block outside the finance industry. credit card companies, none of them even attacked it. It just waltzed right in because it didn't go up against Goliath. So Goliath didn't care about it, right? So the question is for especially startups, they often want to aim to take over an existing industry, but don't think those established players are just going to sit there and say, well, welcome to my sandwich, please take it.

26:16They're going to increasingly fight. We're going to take a quick break, but when we come back more from Renee on why entrepreneurs should look to their own experience to figure out which problems they want to solve. Stay with us. I'm Guy Raz, and you're listening to How I Built This Lab.