How Blue Ocean Strategy Relates To Real Estate Investing

The struggle for getting a consistent flow of leads for real estate investors is real, so every bit of help in the process counts. In this article, we will turn to a book which is popular among entrepreneurs – Blue Ocean Strategy by Chan Kim and Renée Mauborgne – for fresh ideas on lead generation.

Don’t worry, what follows is not a never-ending book club discussion; rather, it’s a short book review with a focus on the lessons real estate businesses can take from it.

These lessons apply to many aspects of real estate investing, not only to lead generation.

We’ll start with an overview of the content, but if you want, you can skip the next section and go straight to the part that talks about how the ideas from this book can help your business.

What’s the Crux of the Book?

Let’s cover a few key concepts put forth by the authors.

You Are in a Red Ocean

The traditional model for providing value with your service or a product is to compete with others to get a share of the market. Companies try to outperform one another, so the ruling principle is “my company’s gain is your company’s loss,” because the boundaries of the market are limited and clearly defined. In essence, this is a military concept adapted to business where you beat your opponent to stay alive.

This environment is described as a “red ocean” in the book. The waters are red from the big sharks feasting on the little fish, i.e. the supply is overtaken by those entities who can provide a more competitive offer. It’s a structuralist view of the market (the industry, the environment) and there aren’t new methods in this system, just a constant struggle to keep up with your competitors and to focus your efforts on doing the same things they do, but better.

The Blue Ocean Concept

On the other hand, the proposed “blue ocean” represents the new and uncontested markets that are not frequented by sharks, yet. To create a “blue ocean” a company has to restructure existing markets. This can be done by disrupting the demand and supply with improved solutions, eliminating key processes, addressing a pain or a segment of the market that’s usually overlooked, etc. It’s to bring forth “value innovation,” but this entails making a strategic shift before this new domain can come into existence. In theory, the potential for profits and growth in a blue ocean environment are unlimited, particularly if you tap into an otherwise ignored demographic.

The book offers tools for putting this concept into action: a four actions framework (raise, eliminate, reduce, create), strategy canvas, blue ocean strategy sequence, and others.

Also, it includes many examples of businesses from different industries that succeeded in making their competition irrelevant by finding new customers for the product or service they sell.

Reception 

Despite its remarkable international success (a Wall Street Journal bestseller awarded in China, Russia, Japan, and Poland), some readers have criticized the choice of examples and data that support the main thesis. However, the idea to create new markets and find new customers as opposed to competing in existing market conditions is regarded by many as revolutionary and exceptionally gratifying for those who make this strategic leap.

How Can Blue Ocean Strategy Make a Better Real Estate Investor Out of You?

Real estate investors are used to working in “red ocean” environments. How many times have you run across another real estate investor’s direct mail in the mailbox (or the doorstep) of a potential motivated seller’s house? I know, more than what you’d like to admit. Sometimes you personally know colleagues who do the same thing you do in a very small real estate market. And it’s all the same in the digital space too – that’s why Google Adwords are auctioned.

So, you know what it’s like to try to outperform other real estate investors in your area. You create yellow letters, they do a better version of your yellow letter (maybe they hand-write their letters). You start to push engaging content on your Facebook page, they do the same. Sooner or later, one of you will dominate the market by being exceptionally better – either in the marketing process or in the real estate investing businesses.

Blue Oceans Are Not a Competitive Advantage

Did you get the point put forth by Kim and Mauborgne? Don’t mistake improvement that allows you a competitive advantage in a red ocean (like doing direct mail better) with the transformative effect of creating a completely new way of doing things (like using Pay-per-click marketing when no one else does). The authors call this “value innovation” and it’s what allows you to discover a blue ocean.

There has to be more than one way to bring about “value innovation” in your business. After all, the authors have written several other books since, and even the original Blue Ocean Strategy highlights examples from different industries. The template for discovering blue ocean markets is:

• cater to demographics that are ignored;
• eliminating inefficient processes in the workflow (like using data service to find motivated sellers instead of driving for dollars);
• dramatically improve an existing process (not to polish the old one, but to take it to a whole other level).

What Can Real Estate Investors Do to Tap Into Blue Ocean Markets?

Well, online marketing was (and still is) a way to reach the blue ocean real estate markets, particularly if you are the first one to implement online marketing in your market. For example, if you rank high (top positions or first page) in search results for popular keywords in your market (like “sell my house fast in X”), chances are you beat other competitors who can invest a lot more than you do, by simply getting there first.

Same applies to Pay-per-click or Google Adwords – if you are among the first real estate investors who used this type of online marketing in your market, you can get better exposure through Google ads than most of the competitors who followed suit. It’s called a virtuous cycle, we had a podcast dedicated specifically to this.

Blue Ocean Strategy Can Transform Your Real Estate Investing Business

We know marketing best, that’s why we stick to using examples from that sphere. However, you can apply the blue ocean strategy to other aspects of your business, too. Is there a demographic that’s ignored by every single real estate investor in your market? Most probably there is, even if you can’t think of one.

But you can shift your focus and try to find this demographic. Maybe it’s the elderly and empty nesters in your neighborhood. Maybe it’s the divorcees who share ownership of a house. Maybe it’s the one motivated seller’s list that no one else is thinking about – I don’t know, that’s for you to find out.

Speaking of shifts in focus, have you ever considered venturing into commercial real estate or acquisition of land? This can be a potential blue ocean market for you. Sometimes, zoning changes due to one decision by the local government, and this can make or break real estate markets. Do you pay attention to these emerging markets?

And if you don’t want to make a radical change in your business plan, consider switching to a different type of property. If you closed deals on single family units, take a look at multifamily units. Or, try a new neighborhood, a new market.

Takeaway

Finding a blue ocean market is not an easy task – it requires a creative approach to the business process, and, sometimes, access to technology or skill that will make the old lead generation method obsolete. Real estate investors always need a new source of leads, so you can follow the principles described by Kim and Mauborgne to find a new stream.

Many real estate businesses fail within the first 5 years, so it’s OK to reevaluate your business before it’s too late, especially if the output of the existing system is not satisfactory. The blue ocean strategy is fit for this purpose, and you can try to put it into practice in your real estate market.