Swimming in the Red Ocean with Blue-tinted Goggles
If you want to start a company, it is a good idea to have a competitive edge. That’s common knowledge. What is less common knowledge is the different forms that edge can take. If you want to start a convenience store, location is key: it doesn’t matter if you have the best selection or the lowest prices if you are an easier walk or drive than somewhere with better selection and prices, particularly for one-off purchases like milk or ice cream. If you want to start a restaurant, on the other hand, having distinctive cuisine or much higher quality/authentic versions of other restaurants’ fare can help you sustain your business and be more important than location. And if you’re in a creative field, cultivating a type of production that people cannot get anywhere else, which imitators just can’t match, can be your key to a sustainable business and possibility wealth.
(My personal model for a creative competitive edge is Neal Stephenson. Every one of his books, at least since the cyberpunk parody Snow Crash (1992), has writing that you cannot get anywhere else: every page has a sentence or paragraph that is funny, insightful, or both, and that you want to read aloud to the nearest person in your vicinity.)
Then there is a Blue Ocean Strategy. This concept, developed by W. Chan Kim and Renee Mauborgne, describes business strategies that are noncompetitive, because they exist in fields and deal in markets that have no competitors. The mental image is that of a red ocean full of sharks drawn by blood in the water, who fight each other to secure meagre scraps, and a blue ocean where there are no other sharks and thus no feeding frenzy, and a shark can glut itself on all the fish. Peter Thiel makes a similar observation about strategy in From Zero to One: competition shrinks profit margin, and leads to excessive focus on what competitors are doing rather than innovating. Zvi Moshowitz and Scott Alexander refer to this as the triumph of Moloch, a nightmare state of perfect competition where everyone is involved in a Red Queen's Race to maintain their position.
In the media cooperative I joined, we believed we had a Blue Ocean Strategy.
We were wrong.
With the Wrong Idea, there is no Right Time
You have probably seen examples of 3D projection mapping. If not, the first page of a YouTube search will show you some very impressive results. The company we started had the capacity to do those very impressive displays, at a low price point, in the early 2010s.
That we had the technology was due to Paul, our technical guy. He had bought, at a bargain price, several high-definition projectors, capable of producing ultra-sharp images on walls a hundred feet across and forty to fifty feet high. With the open source software we had, he could ‘map’ images and video around objects like cubes, pyramids, and pillars, making them appear to be projections from the object, almost like a television screen. In a darkened room or theater, or outside on a dark night, the effect was stunning. Everyone we showed it to was blown away by it.
What made us think we had a blue ocean strategy was that no company in our city, in our province, was offering it at the time. To see things like we were producing, you had to go to concerts by major global pop stars, or internationally-televised sporting events or award shows. Surely many people would want such a service, we naively thought.
We weren’t just offering Paul’s 3D projection mapping. We offered a suite of services around it. We had a social media manager, an event planner, a writer (your humble narrator), a videographer, and ____ supplied top-notch video editing skills. We also could build and host modern websites. So not only did we have an innovative product, we had a suite of services to sell around it.
The mistake we made, as so many technically-focused companies do, was to put product ahead of market. We were enthused about the technology, but had no idea who we would sell it to. Our naive hopes that “everyone” was the market were rapidly dissipated - how do you even reach “everyone?”
Owen and Paul came up with our initial early markets: wedding planners and storefronts.
First, the wedding planners. Surely, we naively thought, a bride would want our projection mapping to make her special day that extra bit special. We shot a demo video in a community gymnasium, showing how we could decorate a bland space with light, creating the illusion of being at sea, on tropical beaches, or being beneath the stars and constellations. Part of my sales legwork for the company was, together with a magician friend of Owen’s named Brad, taking this video around a wedding expo, showing it to both wedding planners and brides to be, and gathering email addresses. We collected a few dozen, and did give in person demos to several, but no sales.
It turns out that brides to be do want a special day, but what constitutes ‘special’ in weddings is things like nice locations, invitations with good graphic design, a stunning dress, and a beautiful cake. Not stunning light shows.
Storefronts were another idea. In a mall, or along a main street, businesses use their shop windows to lure in potential customers with interesting displays. Mannequins, dioramas, product pyramids, and video screens are used to create an interesting effect. Sometimes a simple sign will do: a liquor store a few blocks from my house advertises its prices for vodka, beer, and wine, but larger than all of them is the sign with its operating hours: "10 AM to 2 AM, 7 days a week."1
Our second idea amounted to this: the projectors we had could spare shops regular changing of their displays - a few geometric shapes could be set out, and new products and images projected onto them. And there was interest in this: Owen, whatever I will say about him later in this essay, was a good scout for business. Real estate agents, franchise operators, and a range of other business people dropped by our (very rundown, seedy, embarrassing to reflect back upon) office to talk with us about what we could do for them. They took our promotional literature, watched our demos, talked about ideas, and never called us back. We never even quoted anyone a price - and come to think of it we never ever set down what we thought a reasonable price would be. Which leads to my next topic …
Lack of Professionalism
Many people claim to despise capitalism, or “trade-tested betterment,” as Deirdre McCloskey calls it. Much of this is simple affiliation - your crowd despises capitalism for … reasons, and you say you do in order to belong, all without having to have a deep sense of what capitalism even is.2
Why, then, was I working in a company full of people who claimed to despise capitalism? Honestly, they were nice, they asked me to work with them, and they had some prior success to show. The lack of respect for capitalism rapidly became a sticking point.
Our company as structured as a cooperative. Each member owned a share, and had full voting rights with all the other members. This is a fine system if you want to run a grocery store, a small furniture making shop, or save your small towns only pub, but not a great one for a business in a fiercely competitive environment like live event planning and corporate video production. And despite our pretensions to a Blue Ocean Strategy, we were in very red-water competition.
In supplying videography and photography, we competed with wedding videographers. In supplying decorations, we competed with wedding decorators. And wedding planners have preferred suppliers. These are people they have worked with before, whom they trust to deliver on time and on budget. Because in business to business transactons, people are disappointed if you don’t deliver everything you promised on time and on budget. If you disappoint a bride on her wedding day, she is going to be pissed. Negative Google business reviews will be the very least of your concerns.
So the wedding planners would not take a chance on us.
Realtors, franchisees, and other business owners were more willing to try innovative things, but they were out off by something more tangible: as mentioned above, our utter lack of professionalism.
The nadir of this was a visit and demonstration we made to the trade office of our provincial government. We secured the invite through a friend of a friend, an assistant deputy minister in the department. This was a big break: not a job, but a promise of work, a chance to impress people in charge of buying (and selling) billions of dollars worth of goods and services, both for the province and outside of it. Trade junkets, international sales, trade shows, all of these would be within our grasp if we made a good impression. I was anxious. I didn’t realize I would end up mortified.
Mea culpa, I had no clue how government contracting worked. We all thought - I thought - that we would walk in, make an impressive demonstration, and in a few weeks or months the department would call us for a job or with an invite to a trade delegation. We never even got far enough for that to be an issue.
The whole team and I met up in the lobby of the office tower where the trade office was based. I was wearing a suit, Owen was wearing a suit. Our magician friend was wearing a suit.
Our social media director was wearing a Hawaiian shirt and cut off shorts.
So I sat through this meeting, with introductions, exchanges of business cards, and a video demo of our services. The three trade officers - all of whom were dressed in suits - to their credit, nodded politely, asked intelligent questions, and said they would consider our offer. Whenever one of them wasn’t speaking, I noticed their eyes looking from one of our team to another, perhaps mentally singing a Sesame Street song:
One of these things is not like the others
One of these things just doesn't belong...
We never heard from them again.
Our office was a mess, with computer cases and monitors balanced on rickety card tables. There were gouges in the drywalls (not made by us), and a carpet that had not been cleaned since the Reagan administration. Fast food wrappers overflowed the wastebasket, and the bathroom down the hall was barely sanitary - though on the last point, we shared our floor with half a dozen other businesses, and cleaning the bathroom was the building management’s responsibility.
No one who visited our office ever bought anything from us. Our few sales were to groups whom we dealt with at coffee shops or wine bars. And that brings me to another problem
The Wrong Clients
We were paying ourselves just $2,000 a month each.3 Colin had given us a $30,000 line of credit at the Bank of Canada’s prime rate. With five of us, that gave us three months of runway to show some progress. Colin was open to lending us more, but he naturally wanted to see some evidence of business development. Owen and Paul had clients when we all started the company, business prospects they had arranged to do work for, so we had reason to think we could make some money in three months.
The problem her was twofold: our inability to wait, and the clients Owen and Paul cultivated.
First, our inability to wait. Of all our team members, I was the only one without financial debt (moral ones yes, financial debts no). Student loans, mortgages, credit card debt, all my fellow cooperative members owed money to big banks. In some cases, big money. Which meant they needed income each month, whereas I, supported by my loving wife’s government salary and benefits, could continue to seek the grand opportunity.
I became aware of this while making a presentation to the team. I drew a 2x2 matrix on the screen, and used it to indicate the kind of clients we should be seeking:
What we needed, I argued, was clients with revenues large enough to consider our services, businesses that were not struggling to survive. We also needed to go after for-profit companies, those who understood that one could spend money to make money. I felt sure I knew how to pitch to entities like that - I had been, and still was at the time, a freelance copywriter: I was comfortable selling things to people who wanted to make money.
Owen and Paul had not started a cooperative because it was a sound choice for corporate organization. They had a vision thing: an alternative economy of cooperatives run by their employees for the benefit of their employees, cooperating with and selling things to one another and their local communities. They had founded a cooperative as a statement of belief in this vision. Ideally, they would sell only to other cooperatives. Both, fortunately, had enough sense to be impure in whom they took on as clients, but the focus on the small, the local, the not profit focused was still there. My proposal did not go anywhere.
Every paying client Owen and Paul had found before were nonprofits: charities, community associations, NGOs. They were able to buy our services because they had government grants. I tried to point out that none of these clients were likely to be repeat business, and sustainable business is repeat business: from the multinational corporation to the corner store, every long lived business has repeat customers. By their dependence on government grants, none of Owen and Paul's prior clients could be depended upon to buy our services again, even if they wanted to. Eventually, we would run out of potential clients.
And that’s just what happened. And then our larger competitors started to offer the service. We were sunk. It just took a few months to realize it.
I despair to think of anyone, post undergrad, who needs to buy beer at one in the morning.
My favorite anecdote about this way of belonging is from the Canadian philosopher Andrew Potter: he relates the story of how, as a teenager, he lost his virginity fairly promptly once he started wearing dark clothes, dyed his hair black, and started running with his high school’s Goth crowd.
Note I said nothing about taxes. This will become important later.