This is a great time to build new blue ocean businesses.
The head of a well-known angel group suggested entrepreneurs quantify market size by the total number of customers who’d “consider buying” times the annual market price.
Let’s think about that.
When Google released their search engine there were a lot of competitors and they didn’t have a monetization strategy, just a really good search engine. Under that analysis, Google was a dog with mange. Yuck. Feh. Another search engine — and there were many at the time — with no monetization strategy? Hard pass.
Facebook was a me-too social network connecting people for no particular purpose. Haven’t you heard of MySpace? And look what happened to Friendster. Social is a pit for dumb money.
Tesla was ridiculous by this measure. Electric cars? Uh … a number multiplied by zero is …? SpaceX was even stupider: the market for low-cost private rockets is nonexistent and, in any event, governments build rockets.
Apple v1, with the personal computers? Toys created by stinky hippies. Real computers don’t sit on desks. Pass. Apple v2 with mobile? Cute but still a pretty small market: who needs a computer in their pocket? Come back when there’s a market. Microsoft? Same schtick as Apple v1 but built by rich kids with shoes and better hygiene.
Digital Equipment Corp (DEC) that created the mini-compter and gave us interactive computing - really? What’s the point of a small computer for a workgroup or individual person? Anyway, who even wants an interactive computer? I mean, computers are for tallying sales receipts on punch cards. Stupid idea.
Gillette’s disposable blades? Are you kidding? Every male over 12 knows how to sharpen his own razors or uses a service and women have no need for razors at all. The market for pre-sharpened disposable blades is nonexistent.
Ford? Tally up the small number of cars in the world when Henry was hacking out the Model T. Cars are for rich people: tiny niche with lots of competition.
Even Boulton-Watt, the business that brought us the steam engine and launched the Industrial Revolution, was pretty niche stuff; factories were located near rivers and powered by water. Why would anybody even want a powered factory in or near a city?
This type of analysis is red ocean thinking: accepting as-is market boundaries. It would’ve stifled countless high-impact baby businesses and caused investors to lose out on unimaginably large profitable investments. Investors should want early-stage blue ocean businesses: those baby blues are the goal. Those who want a developed market with verifiable metrics and financials are probably more comfortable in public markets.
That doesn’t mean investors should look to far-out pie-in-the-sky ideas. Every one of the businesses above could easily describe how they added value even if the details of how they’d profit from that were sketchy at first. The value wasn’t far out, new, or difficult to understand: people had horses before cars, after all. Instead, these businesses were delivering a lower-cost and more convenient way of delivering that value.
Many of the businesses relied on new technologies but, despite their classification as tech companies, the tech was catalytic to the easy-to-understand value proposition. That is, nobody bought Google because they want a personal search engine (though Google did try selling one early on). They use it for what that engine provides: fast, accurate, valuable search results and pay by giving up personal information used to create contextual ads. These businesses redefined market boundaries and created blue oceans of everyday products and services.
I’ve lived through a few tech booms and busts. When I first moved to Silicon Valley there were lots of houses to rent at prices that seemed astronomical to a then young me moving from the midwest but, in hindsight, were pretty cheap.
I arrived before the dot-com boom but, years later, after the bust, I’ll never forget seeing my headlights shine straight through the newly built Excite @ Home building that was entirely empty. Those pictures of used computers and chairs where there used to be people? I knew plenty of the people who sat in them. I’d just sold a business to a Fortune 500, joining the company, and countless people were asking for a job. It was a crap time.
I get the skittishness, the desire for firm metrics after the more recent carnage. But that’s exactly the opposite of how an early-stage investor should be thinking. Much like my young self thought those silicon valley houses were pricey people a decade or two from now will look at many startups and be gobsmacked anybody passed.
As for red oceans, there’s certainly nothing theoretically wrong with carving out and competing in a red ocean niche. But our data (and, yes, I believe strongly in data) indicates it’s unlikely to ever grow into a blue ocean. Those niches may do well — self-storage, car washes, and lawn care services can all make for a very comfortable lifestyle — but they’re not the type of thing either Silicon Valley investors or entrepreneurs have traditionally aspired to.
Warren Buffet famously said be fearful when others are greedy and greedy when others are fearful. OK - so his own portfolio just lost $53 billion but it’s still good advice and, anyway, he accrued enough money to lose that much in the first place.
Now is the time to start and fund new businesses, not revert to small niches that aim to out-compete in red oceans. Build new and different things focused on blue oceans that make competition irrelevant. Whether it’s the next Google, Microsoft, Apple, or the Wii, Wawa, or Marvel Studios find those painpoints and create solutions that solve them. I’m doing it myself: working on a new type of anti-phishing cybersecurity system (check it out: https://www.olenable.com and contact me if you have any interest in a better anti-phishing solution).
Investors are scared, markets are fragile, and lots of businesses formed in the past few years are doomed. History tells us that is exactly the right time to invest and build and not be boxed in by the status quo.
I have lots of schooling and lots of experience — I’ve sold multiple startups — and now I’m in academia at a top business school with multiple bestselling case studies at Harvard Business Publishing. At INSEAD, I’m blessed to be around brilliant people. Still, some of the very best advice I got was in a high school government class from a civil rights activist turned government teacher. “Reach for the stars, because anything else is beneath you,” she told us And so, we reach, trying to build those blue oceans one at a time while making money and leaving the world a little better than we found it.