This document outlines strategies for blue ocean startups, which combine blue ocean strategy and lean startup principles. It discusses value innovation using the ERRC framework to create an uncontested market space. Key aspects covered include using value curves to visualize differentiation, evaluating strategies based on focus, clear differentiation, and catchy slogans. The document also discusses frameworks for finding blue ocean strategies, validating strategies using buyer experience cycles, overcoming barriers to implementation, and metrics for measuring innovation using lean startup principles.

1. STRATEGY FAST TRACK:
MAKING THE COMPETITION IRRELEVANT
Blue Ocean Strategy + Lean Startup = Blue Ocean Startup
Gil Rachlin
www.linkedin.com/in/gilrachlin
@gilrachlin
www.blueoceanstartup.com

2. Table of Contents
• Introductions
• Basic Definitions
• Blue Ocean Strategy Basics – Value Innovation
• Finding Blue Ocean Strategy
• Strategic Pricing
• Execution
• When to Innovate Again
Innovation + Execution = Success
- Blue Ocean Startup- 2

3. Introductions:
 Name
 What you do?
 What would you like to achieve from the class?
Who am I?
www.linkedin.com/in/gilrachlin
@gilrachlin
3

4. Basics Definitions:
INNOVATION and STRATEGY
4

5. Some Definitions: INNOVATION
Innovation is the creation of better or
more effective Products, Processes,
Services, Technologies, or Ideas that are
accepted by Markets, Government, and
Society. Innovation
From Wikipedia, the free encyclopedia
Innovation used in Product, Business Model,
Disruptive Innovation, Sustaining Innovation, Open Innovation,
Innovation Management
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6. How Do Most Companies Promote Innovation
Vertical Innovation Approach
• Random connections
• Different skill sets
• Provide best chance for new and
innovative advancements (pixar)
Common Innovation Approach
• Use separate and divided internal / External
groups
• 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
- Blue Ocean Startup- 6

7. Some Definitions: STRATEGY
STRATEGY is a plan of action designed
to achieve a vision…gaining (or being
prepared to gain) a position of
advantage over adversaries or best
exploiting emerging possibilities.
Strategy
From 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 Planning
From Wikipedia, the free encyclopedia
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8. Examples of Innovative
Companies with Good
Strategy?
8

9. Innovative and strategic Companies
Entertainment
Publishing
Government
Information
Transportation
What made them Different from other players?
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10. Evaluating a Good
Company Strategy
10

11. Three Characteristics of a good strategy
Focus Split Catchy
Clear differentiation Slogan
from existing trend
• 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”
How to create innovation?
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12. Blue Ocean Startup?
12

13. Blue Ocean Startup?
Blue Ocean Startup
Innovate Execute
Blue Ocean Strategy Lean Startup
W. Chan Kim / Renée Mauborgne • Eric Ries •
Make the competition irrelevant Allocate resources as
DIFFERENTIATION and LOW COST = efficiently as possible:
Value innovation
• Develop MVP
• Validated Learning
• Build Measure Learn
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14. Focusing on Blue Ocean Strategy…..
Red Ocean vs. Blue Ocean
14

15. Red Ocean vs Blue Ocean Strategy
RED OCEAN STRATEGY BLUE OCEAN STRATEGY
Compete in existing market space Create uncontested market space
Beat the competition Make the competition irrelevant
Exploit existing demand Create and capture new demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of differentiation
differentiation or low cost and low cost
- Blue Ocean Startup- 15

16. Blue Ocean Strategy Basics
Value Innovation
16

17. Value Innovation
Overall strategy of all company activities to bring value
to themselves and to customers
Industry Customers
1) What is our industry? Players? 1) Who are our clients?
2) Industry elements? Characteristics? 2) Main usage of offering?
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18. Creating Value Innovation (ERRC)
2) Reduce –
below industry
Drop Cost
Reduce standards
New 4) Create –
Eliminate Value Create factors that industry
Curve never offered
1) Eliminate –
elements taken
for granted by
the industry 3) Raise – Add
Raise above industry Customer
standards Value
- Blue Ocean Startup- 18

19. Visualizing Value Innovation:
Value Curve
19

20. Value Curve – The Core of BOS
• Visual Representation of the
differentiation and added value
WHY VISUAL:
•Effective Wisdom Collection  Strategy Formulation
•Effective execution through communication  Strategy Execution
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21. Value Curve Evaluation
Example: SouthWest Airlines
21

22. Southwest Airlines – 4 Elements Table (ERRC)
List possible competitive elements !!!
Eliminate: Raise:
New
Value
Curve
Reduce: Create:
- Blue Ocean Startup- 22

23. Southwest Airlines – 4 Elements Table (ERRC)
List and place the competitive elements !!!
Eliminate: Raise:
• Class Choice • Friendly Service
• Central Airport • Speed
New
Value
Curve
Reduce: Create:
• Price • Frequency
• Lounges
• Meals
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24. Value Curve – Southwest Airlines
Eliminate Reduce Raise Create
- Blue Ocean Startup- 24

25. 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 convincing
Southwest: “Speed of a plane at the price of a
car anytime you need it”
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26. Frameworks and Tools To
Finding Blue Ocean Strategy
26

27. Frameworks and Tools Include
• Six Paths from Red to Blue
• Buyer Experience Cycle
• Barriers to copying BOS
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28. Finding a way across oceans
- Blue Ocean Startup- 28

29. Redefining Market Borders :
The six conventional boundaries of competition
Industry
Best in Same Alternative
Sector Definition
Same competing
group Strategic Groups
Different
(e.g. luxury cars, economic Differentiation
cars, and family cars)
Improve service to
Same customer Buyer groups Redefine customers
(buyer, user or influencer)
Maximize Existing value Complementing
Scope of product or
In range similar to their products and
service offering
sector. services
Accept Existing Functional-emotional
Improve pricing inside orientation of industry
Redefine
industry
Define trends over
Present Time line
time
- Blue Ocean Startup- 29

30. Apple iTunes (ERRC) Path from Red to Blue
Eliminate: Raise:
• Buy Whole CD for one song • Best Sound Quality
• Control on Usage and
Usage learning
• Availability for users (one
place to find all)
• UI, Browse, Search
New
Value
Curve
Reduce: Create:
• Price per song (+Try Before • Complement with iPod/
you buy) Mac
• Liberal Licensing to
download digital content
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31. What did Apple iTunes Realize?
Eliminate Reduce Raise Create
- Blue Ocean Startup- 31

32. Beyond Existing Demand
32

33. Going beyond existing demand – Non Customers
Find user resemblance
Third Layer
(teeth whitening)
(Never
Used)
Second
Layer
(Refuse to
Why refuse? Use)
Static ads on bus
stops of benches
Your Market
First Layer
(minimal use
Give value on usage ready to
(Prêt a Manger) jump ship)
Go for the largest potential market
- Blue Ocean Startup- 33

34. Netflix (ERRC) goes beyond existing demand
Eliminate: Raise:
• Fees (Late, Shipping, • Search Capability
Handling) • Partnerships, Affiliates
• Due Dates
New
Value
Curve
Reduce: Create:
• Num office/store Locations • flat-fee unlimited rentals.
• Mail Service
• Online Streaming
- Blue Ocean Startup- 34

35. Value curve of the Netflix
Eliminate Reduce Raise Create
- Blue Ocean Startup- 35

36. Competitive Barriers
36

37. 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.
- Blue Ocean Startup- 37

38. Strategic Pricing
38

39. Strategic Pricing Flow
Extraordinary
Benefit Define Pricing
Corridor
Strategic Pricing
Target Profit
From Benefit,
Price, and Cost
Target Cost to Adaptation
Efficient and
Partnerships
Innovative Pricing
Pricing Innovation
- Blue Ocean Startup- 39

40. Pricing Corridor of the Masses
Diff shape
and function
Same Diff Shape Same
purpose Same function Shape
Large Barrier of Entry
Hard to Copy
Some Barrier of Entry Med Price Pricing Corridor
of the masses
Low Barrier of Entry
Easy to mimic
(*) Shape size is proportionate to number of buyers that product attracts
- Blue Ocean Startup- 40

41. BOS Validation Cycle
41

42. Validate the Buyer Experience Cycle
Consumer Benefit
Is there an extraordinary value to the consumer
(Purchase, Delivery, Usage, Add-ons, Maintenance, Removal) No – rethink
yes
Price
Is your price accessible to mass consumers No – rethink
yes
Cost
Can you reach target cost for revenue at strategic price No – rethink
yes
Adaptation
What are the barriers in implementing your strategy? Are you
dealing with them? No – rethink
yes
BOS is Valid
- Blue Ocean Startup- 42

43. Executing Innovation
43

44. Solving Organizational Barriers
44

45. Solve the 4 Barriers to Strategy Implementation
•Seeing means believing
•Meet unsatisfied customers
Cognitive
Challenging
Existing Status •Maximize budget value
•Enlist Angels, Silence Devils Quo •Focus on clear, main
and…. channels(most influential
•Use Secret Advisor to senior people in org).
management.
Political Financial
Resistance from Limited
powerful parties Resources
Motivational
Lack of with
Fair Process: employees
Engagement! •Aquarium Effect (viewed by all)
Explanation!! •Achievable fractions (start with MVP)
Expectation (Clarify)!!!
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46. Value curve of the NYPD with Bill Burton (1994)
Eliminate Reduce Raise Create
- Blue Ocean Startup- 46

47. Implementing Innovation
Lean Startup Style
47

48. Innovate - Build – Measure – Learn
Ideas/
BOS
Innovation
Learn /
Insights Build /
Two Hypothesis: Resources
• Value Creation
Hypothesis - BOS
• Growth Engine
Hypothesis / Drivers
(Growth Engine: Viral,
Sticky, Paid)
Product /
Data / MVP
Reports
Base Line
Measure /
• Product Analytics: Metrics
• Customer Analytics
• Marketing Analytics
- Blue Ocean Startup- From Lean Startup Loop 48

49. What is Measured?
KPI – Key Performance Indicators
• Product Analytics:
– Insights to usage patterns, bug paths etc.
– Improve product roadmap, customer service
etc.
• Customer Analytics
– Customer behavior to optimize services for
customers and dealers.
• Marketing Analytics
– Keyword bidding to improve performance and
reduce costs
– Weblog data to offer additional services etc.
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50. 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 with
something in common.
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51. Cohort Analysis:
Core engagement metric:
Time on Site
Cohort retention
• 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?
Courtesy of: http://jonathonbalogh.com/2012/03/24/introduction-to-cohort-analysis-for-startups/
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52. Engine of Growth Funnel Metrics: AARRR
Initial MVP After
Optimization
Engine of Growth Viral Paid
Acquisition: Visit Site / 5% 1 7%
Registration Rate
Activation: Sign Up 17% 90%
Retention: Come Back Too Low 5%
Referral: Invite Friends Too Low 4%
Revenue: Buys Product 1% 11%
Lifetime Value Minimal $1 per backup

53. Sample Success Metrics 1
• Growth Driver: Recurring subscribers.
Product Usage after releasing a new recurring revenue feature

54. 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
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55. 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)
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56. When to Innovate Again
56

57. When to Innovate again?
Ongoing Process to develop Blue Ocean next to Red Oceans.
Innovate when the barriers go down!
Or else….?!
Borders and Barnes &Nobles: Amazon –
Blue Ocean – In Store Service Repeated Blue Ocean:
Nook – Too late? - Online book store to
- Online market place to
- Mobile book to
- Online cloud
Blockbuster: Netflix–
Blue Ocean – Rental of movies for Repeated Blue Ocean:
few dollars Instead of high cost of - Subscription (no late fees)
movies. - Online Streaming
Subscription / Streaming – Too late?
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58. 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
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59. Question????
Remember:
If you get over the hill, you’ll begin to pick up speed!!!
Stay Hungry, Stay Foolish!
Steve Jobs.
- Blue Ocean Startup- 59

60. Thank you!!!!
Gil Rachlin.
Slides: slidesha.re/STQzMg
Class Feedback:
http://generalassemb.ly/education/class-feedback/
Contact Info: 646.580.0058
gilrachlin@gmail.com
www.linkedin.com/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
- Blue Ocean Startup- 60

61. Additional Info:
61

62. 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
Developed by:
Eric Ries
-Silicon Valley entrepreneur and author.
- Recognized for pioneering the Lean Startup movement
- Blue Ocean Startup- 62

63. Blue Ocean Strategy
• Simultaneous pursuit of
DIFFERENTIATION and LOW COST = Value innovation
• Methodically innovate without competition
(make the competition irrelevant)
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- 63

64. Cirque Du Soleil Case Study
64

65. Cirque Du Soleil – 4 Elements Table (ERRC)
Eliminate: Raise:
• Stars Shows • Uniqueness
• Animal Shows
• Seat based pricing
• Parallel stage shows
New
Value
Curve
Reduce: Create:
• Humor Entertainment • Subject Theme
• Thrill and Danger • Comfortable Viewing
environment
• Different Shows
• Music and Dance
Choreographies
- Blue Ocean Startup- 65

66. Value curve Sample - Cirque du Soleil
- Blue Ocean Startup- 66

67. ERRC in Value curve - Cirque du Soleil
Eliminate Reduce Raise Create
- Blue Ocean Startup- 67

68. Value Curve Evaluation
68

69. 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 and
scenery.
– The acts of Nouvelle Expérience blend theatre, music, circus
arts 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.”
- Blue Ocean Startup- 69