How I Built This with Guy Raz - Less competition, more creation with Renée Mauborgne

Episode Date: April 4, 2024

Best-selling author and economics professor Renée Mauborgne thinks that too many entrepreneurs focus on the wrong things—consumed with making their companies outperform one another as they fight for a greater share of a crowded market space. But what if entrepreneurs focused on creating new markets instead of fighting over old ones?This week on How I Built This Lab, Renée shares insights from her Blue Ocean Strategy series to help founders crack open new opportunities. Plus, what is non-disruptive innovation and can it offset job displacement in the age of AI?This episode was produced by Kerry Thompson with music by Ramtin Arablouei.It was edited by John Isabella with research help from Sam Paulson. Our audio engineer was Neal Rauch.You can follow HIBT on X & Instagram, and email us at [e-mail] Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

This show is in partnership with Airbnb. This past summer, I took my family to Vienna, and it was incredible. We spent our days wandering the old streets, stopping for coffee and pastries, visiting museums, and just soaking up the history of one of the most beautiful cities in the world. And one of the things that made the trip so special was the home we booked on Airbnb. It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb.

Your place, with all of its personal touches and its amazing location, could make someone else's vacation even better. Your home might be worth more than you think. find out how much at Airbnb.ca slash host. Hey, it's Guy here, and before we start the show, I want to tell you about a super exciting thing. We are launching on how I built this. So if you own your own business or trying to get one off the ground, we might put you on the show. Yes, 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 sunbums, Tom Rinks, or marketing tips from Von 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 each week. week, we'll pick a few callers to join us on this show. You can send us a voice memo at

H-I-B-T at ID.wondry.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. Hello 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 Maubhorn,

an economics professor at the business school, Inceed, and co-author of bestsellers like Blue Ocean Strategy, Blue Ocean Shift, and most recently, Beyond Disruption. Renee 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 survived. 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. The 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 article is 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? And 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, you know, 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, a 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, and 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 a Bloody competition. And 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 called 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 de Soleil. And by the way, the founder is going to be on this show later in the year. How did Cirque de Soleil become in your mind an example, an archetypal example of the Blue Ocean strategy? Well, you know, it operated and 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, Gila Liberté and his team, their first circus set 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. And 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, low cost, created new market space, but we started the book with it because it was some but 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. I 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 existence?

saturated industry. For example, the automotive industry. I think of a brand like Rivian. And RJ Scorange, what he single-mindedly wanted to build, were electric trucks, pickups and SUVs. Nobody was doing it. People were focused, you know, 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 gold standard for electric trucks at the moment. And 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 to 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. I 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 carmakers. 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, right? 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 massive volumes once they prove and 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? Because 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 Sezario

entered that saturated market and, you know, within two years, they're close to $200 million in revenue. He has 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. I mean, I think he would argue, I don't want to speak for him, that brand trumps function. day. Do you think that in the end there's a case to be made for branding as a strategy in a 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 a utility that you offer. When 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. And 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. That's it. Yeah.

And so that's the real question. Where's the real value? How are you making someone's live, perceptively more beneficial and better for them? We'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. Welcome back to How I Built This Lab.

My guest is Renee Mauborn. 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. have the reach, they have talent, they have budgets. And 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 of thinking and humanness and the fear inside of it, overcoming that in an organization to make

that shift, is a little bit harder. And 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. You 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? You know, there's a number of people, a number of startups. They just want to create financial value so they can sell that brand. You know, Value 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 going to want to start thinking, you know, what is the quantum leap in value I'm able to deliver? and 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 that and a topic that we hear about a lot.

And some companies in this show have been disruptors. We mentioned Liquid Death and Harry. 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 of disruptors, Netflix, 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, it's 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, so 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's. Blue Ocean, but it's disruptive. Blue Ocean strategy, a lot of our examples are about looking across. So Cirque du Soleil, take some of circus, some of theater, opera, and ballet, and then create some 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. So 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. It's such a silly example. It's worth 500 million, right? But that industry is out. And probably growing, by the way. And growing. I would say grow. Absolutely, given 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, you know, 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, you know, 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. They'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. Welcome back to How I Built This Lab. I'm Guy Raz. Here's more for my conversation with professor and author Renee Maubourne. There are lots of people who listen to this show who do not have companies. In fact, most people who listen to our show are not necessarily entrepreneurs, but may one day want to become or are interested in maybe starting something on their own one day.

If they're listening to this and they're thinking, okay, well, what is, where is an area that's beyond disruption? What is an industry or a category right now? What did you guys find? actually they're everywhere right they're everywhere um and what we don't realize i think often is how many problems that we take for granted that we think is just a part of life something to put up with that actually we can set about and start to address it to create a new market that doesn't disrupt anyone else so like in our school in ced it's international school most of the students all come from another country to attend and one of the students cameron stevens

He applied. He got in. He thought that was one of the hardest things was to get in. But then he could never get a loan because where he was domestically, they don't want to loan to you for foreign studies because they don't know if you're ever going to come back. And then on the other hand, if you get to France, they say, well, wait a minute, where's your local collateral? Who's going to sign for you in the country? What's your local worst history? There was no money there. So he had to delay his arrival. So he said, can we not unlock this market? So we're going to So he went out and created Prodigy Finance and he ended up unlocking it not only for MBAs, but for, you know, the legal field, the medical field, all these fields. And there was no competitor in that industry. One of the areas I think that you and your co-author Chan point out is age tech. You may not use that term age tech, but areas that focus on aging populations is interesting. I went to the Consumer Electronics Show in Las Vegas earlier this year, and ARP had an enormous booth like 30,000 square feet. And yet so much of the market is focused on targeting to people younger than that and not creating products and services for older folks. And they estimate that there is just an enormous opportunity to build products and services for certainly for rapid service.

aging populations in the United States, but all over the Western world and even in places like Japan and Korea. So, Guy, you make a great point. And aging is a big area. And you're right. Currently, most of the effort gets directed to that young crowd or younger age range, which actually, interestingly, might not necessarily always have all the funds to purchase so many things.

And so there is that overlooked area and it's growing and there's finance. But, you know, when I look around and I see like e-sports, multi-billion dollar industry, that was created, that's non-disruptive. When you change the lens and the way you think and the questions that you ask, you can often start to see opportunities right in front of you. No one would have believed there could be an opportunity in water. No one would believe in razors, but they are both. So yes, aging is definitely one area. Environment is another area. The migration of people, the way they're moving is another area. There's a lot of these big, big blocks that you definitely want to look at. But, you know, you can also just lean into

your own experiences. So, you know, different ideas of what you could offer. You know, could be environmental consulting as a all new non-disruptive area as well. Life coaching, non-disruptive, whole new market space as well. What are the questions that one should ask oneself when considering this? I think the thing you want to do, you as an entrepreneur is really lean into your experience. Just, you know, emphatically observing. You know, you notice things that don't seem to work. Instead of just, you know, rolling your eyes and telling your friend and going forward, just start thinking, what is it that I'm observing that doesn't seem to be working? Take a notebook with you and start writing things down. You know, just a little pad

and just like, this, this bothered me about this. Or this is what I drew. directly experienced. I think a lot of people, when they experience things that don't work, they don't like, they don't, life is this, this, this, and it's a quick complaint, but they never lean into and ask why, and how could I change that? We get a question sometimes from startups or smaller companies like solopreneurs, and they say, gosh, you know, to do all that research, we don't have funding, that kind of time. But you know what I would say? is most of the companies that create blue oceans, they never outsource their eyes. The power of directly observing, directly having conversations, interesting. When you tell people to do that, they're often

afraid. They don't know how to ask the question. It doesn't mean every person is going to give you insight, but what people are really good is telling your pain points. And so what I want to say to startups and everyone, you know, they say, how did Steve Jobs have such good insight? Or how does Scott Cook create quick and, you know, well, he saw all the frustration of using accounting online and no one even knew accounting. These real entrepreneurs get gut instinct because they're in the market, their doers, they're observing, they're using. But too many people have outsourced their eyes and they really shouldn't. Never outsource your eyes. Go and observe meet, talk, and see, and use your products and services. Renee, how, I mean, if the last,

20 years or more, but let's say the last 20 years, has been the story of disruptive creation. How do you see non-disruptive creation playing out over the coming decades? So, you know, I can't predict the future and I want to believe the past decade was not only disruption, but also largely creating blue oceans that weren't disruptive. Of course, technology is a means to an end. It's not an end itself. And the question is, what are we going to use that technology to create. As long as we're using technology, AI, and we direct it at productivity, which is important, and while there may be new jobs created in the medium to long term, usually disruption in the

short to medium term starts to let even more people go. So there's a lot of anxiety in companies today. What does this mean for me? I keep hearing about AI. I like it, but I'm afraid whether they voice it or not, it's almost in every industry. And so then the question becomes, though, how can we apply some of these new technologies to non-disruptive opportunities so that we can start to leverage them to not only create productivity, but as a society, we need to be creating new jobs as well. I don't have the answer to that future. But I do think for our societies to have a good balance between economic growth and people, I think it's a question worth asking.

Renee, thank you so much. Thank you. That's economics professor and author, Renee Maborn. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. It helps us out, and as always, it's free. This episode was produced by Carrie Thompson

with editing by John Isabella and research help from Sam Paulson. Our music was composed by Rompeteen Arableu. Our audio engineer was Neil Rauch, Our production team at How I Built This includes Alex Chung, Carla Estevez, Casey Herman, Chris Messini, Catherine Seifer, J.C. Howard, Malia Agadello, and Neva Grant. I'm Guy Raz, and you've been listening to How I Built This Lab.