In 1984, Guy Laliberté co-founded Cirque du Soleil.

Soon, Cirque was bringing in revenues

that incumbents, like Ringling Brothers,

had taken more than a century to attain,

even though the circus business was in long term decline.

How did Cirque thrive in such a dismal environment?

The answer can be found in the theory that the business

universe consists of two kinds of markets,

red oceans and blue oceans, a concept pioneered by inset

professors, W Chan Kim and Renée Mauborgne.

Red oceans represent existing industries and markets

where industry boundaries and the rules of competition

are well-defined.

Companies strive to outperform rivals and grab a bigger

share of existing demand.

As the space gets crowded, fierce competition

turns the water bloody.

Competitive or market competing strategy it's

about how to occupy red oceans.

By contrast, blue ocean, or market creating strategy,

is about how to create and capture unknown markets where

demand is created rather than fought over.

In some cases, this spawns entirely new industries,

but most blue oceans emerge when a company alters the boundaries

of an existing industry, as when Cirque du Soleil blurred

the line between circus and theater.

Cirque made the acts more artistic and sophisticated,

attracting a whole new group of customers, adults

who are prepared to pay premium ticket prices that they would

for the theater or the opera.

Cirque also eliminated several elements

of the traditional circus, like costly animal acts and star

performers.

Cirque invented a new and profitable market space

without making the typical trade off between value and cost.

Cirque pursued both differentiation and low cost

in what Kim and Mauborgne called value innovation.

The simultaneous pursuit of value and cost

is the logic of Blue Ocean strategy.

Based on their study of more than 30 industries,

companies that can create blue oceans

usually reap the benefits for 10 to 15 years

because they are hard for rivals to copy.

To realize blue ocean potential, like Cirque did,

companies should chart a strategic course

past traditional industry boundaries

to create new market space.

[WAVES CRASHING]