Office Hours: “Did we really find a blue ocean — or just a slightly better way to do the same thing?”
A student asked me a version of this in class. Here’s the answer I gave — the honest one.
The question, roughly as it came in: “How should we evaluate a company that’s supposedly created a blue ocean? Whole Foods found the blue ocean of organic. Trader Joe’s is its own thing. But is my corner grocery store really a blue ocean just because it’s the only one on the block?”
Quick Answer: most of the time, no. You didn’t find a new ocean. You found a slightly different way to do the same thing — and that’s a completely different business to evaluate.
Let me give you the example I always reach for, because it kills the romance fast. The iPod. Ask a room full of smart people whether the iPod was a blue ocean and most hands go up. Of course it was — it changed music forever.
It wasn’t.
There was a digital music player before the iPod, made by a company much bigger than Apple at the time: the Sony Network Walkman. It was tiny — about half the size of my Cornell ID. Solid-state memory, no spinning hard drive, so it didn’t break if you dropped it. On paper it was ahead of its time. The problem was getting music onto it. It could take a couple of hours to load a CD, you couldn’t easily reorganize anything, and it was just painful to live with.
Apple didn’t invent the category. Apple made it simple. Drop the CD in your computer, it’s on the iPod. Want to reorder your tracks? Change them in the software, synced instantly. Faster, cleaner, obvious. They did something better in a market that already existed — and they did it so well that everyone now misremembers it as the thing that created the market.
So here’s why this matters for how you value your company. If you’re genuinely first — doing something nobody has seen — there are no comps. You can’t point to a competitor’s revenue multiple. What you can do is walk into a firm that actually invests early, lay out the milestones you’re going to hit, and say: if we do these things, we think we reach X customers. They write a check against that story and that team, and whatever they’re willing to pay is the valuation. The market sets it, not your spreadsheet.
But if you’re the better-grocery-store — same game, sharper execution — then you get valued the boring, beautiful way: on revenue, on profitability, on the numbers. And honestly, that’s a great place to be. “Slightly better than everyone else at something people already want” has made a lot of fortunes. It just isn’t a blue ocean, and you’ll make worse decisions if you tell yourself it is.
So before you fall in love with the word: are you discovering a new ocean, or are you the iPod — about to win a market someone else opened first? Both can be huge. They’re just not the same bet.
Note: for reference, “Blue Ocean” is referring to the term coined by W. Chan Kim and Renée Mauborgne in their incredible book Blue Ocean Strategy.
For you, my subscribers - what are your thoughts on this series? What topics would you like to know about from a founder's or investor's perspective?