3 min read

Blood in the water

If you want to achieve results that are outside the average you should expect to have to make choices that fall outside the average.

The most contested spaces will always have the lowest margins in business. Why would this be any different for choices in life? If you want to achieve results that are outside the average you should expect to have to make choices that fall outside the average.

The management framework Blue Ocean Strategy pits Red Oceans against Blue Oceans. Red Oceans consist of all of the industries that exist today. They’re markets with a palpable need served by competitors angling to position with the most differentiated product or serve at the lowest possible cost.

Industry returns do not vary that all much. The ranges of Total Shareholder Return may vary highly between industries but the averages are all quite similar. Industry selection only explains a small part of the variation in performance between firms. Winning strategies help companies capture a larger and larger share of the economic value pool in a market. Over time the benefits accrue to solidify the position of the top 1-2 incumbents in any given industry. Industry dynamics may change and shift over time of course. But if the incumbents don’t display an ability to integrate continuous learning and navigate an uncertain environment, another contender will take their place and replace their share of value captured.

This is the quintessential Red Ocean - a hotly contested market space where a small number of players capture the overwhelming share of economic value. They suck all the oxygen out and make it very expensive for challengers to take over. Either the challenger outspends the incumbent for long enough to take over or the industry dynamics shift before the challenger has run out of money.

Competitive careers are also Red Oceans. It’s obviously impossible for individual people to grow to have the effect of an industry incumbent on the labor market for consulting jobs, for example. But the competitiveness is no less intense for it. The fragmentation lowers the cost of replacing a resource that doesn’t perform or burns out.

Competitive careers are also the ’default’ choice for anxious overachievers. They’re championed by seniors as the right way to tick all the boxes and get all the right education to face the next challenges in one’s career. They’re mapped out as a way to long-term success and stable wealth. But this doesn’t make any sense in a Red Ocean framework.

Top tier consulting jobs in, say, London are a highly coveted product by way more people than there are roles available. We may never get detailed recruiting intention statistics at INSEAD but anecdotally, in my class, most people were interested in consulting and of those, most were interested in top-tier firms in London.

Labor markets work in the same way as potato markets so the more labor there is for a given role the lower the clearing price will be. Generally speaking more prestigious firms can afford to pay slightly less than less prestigious firms. We are told this is because part of the value of the job is the brand. But the answer that doesn’t try and rug you is that if you have more potatoes on the market the goods will clear at a lower price. If your goal is to work hard and find success, why would you ever think a highly competitive potato career is the way to achieve this?

Peter Thiel asked his students to interrogate themselves: what important truth do very few people agree with you on? What great company is nobody starting? We gape with fascination at technology unicorns wondering what formula for success have the founders discovered that gave them the keys to this success. In most instances, the answer is precisely that there is no formula. Markets are mostly inefficient, except when they are not. If there was a formula to building unicorns, someone would have done it already. Unicorns are successful precisely because they are doing something uncommon and strange.

OpenSea was funded by YCombinator in 2018 and raised $2.1m in November 2019. Imagine the heady days of late 2019, coronavirus was still just a weird virus emerging in Wuhan. Who in their right minds would think it is a good idea to start a website for buying and selling pictures of monkeys on the blockchain? In January 2022, OpenSea raised $300m for a $13.3bn valuation. I guess crypto monkeys are an important truth. Important truths are difficult. People point and laugh.

I’m sure there will have been people who worked at Google and gasped at the audacity of raising funding for a website that sells coded monkeys. In investment banking, VPs will openly say about leavers that “I don’t think this move is good for their career”.

If you are seeking adventure and looking to raise the possibility of hitting it big through the value of your work, getting into red oceans will lead you to collect a lot of logos and have very little to show for it. If you make the same choices as the average you shouldn’t be surprised to find your results oscillate around the average.

If you truly want to reach unusual results, you should be prepared to do unusual things.