In today's overcrowded industries, competing head-on results in nothing but a bloody "red ocean" of rivals fighting over a shrinking profit pool. ... Tomorrow's leading companies will succeed not by batting competitors, but by creating "blue oceans" of uncontested market space ripe for growth.   - Blue Ocean Strategy, 2005

In Blue Ocean Strategy, Chan Kim and Renee Mauborgne put forth the proposition that neither industries nor companies survive over the long run, but what is really important is the strategic decision that a company makes to navigate a blue ocean, to sail in an "uncontested market space." They cite that the lists of "great" companies compiled by commentators on "successful" companies have taken snapshots of who was doing well at a point in time, but few of those companies still dominate, or are even in existence.

If you look at the 30 companies that comprised the Dow Jones Industrial Average when I finished law school in 1977, only eight remain on the list. Twenty-two companies, more than 70 percent of the list, have ceased to exist or have dropped so far in importance that they are no longer included in the DJIA. These 22 companies were leading global companies only 32 years ago and now they are gone. (Looking at the Fortune 500 lists for 1977 and 2009 produces similar results.)

Can a small company create its own "blue ocean" or do you have to be a battleship to take control? Or, phrased another way, "Can you navigate a blue ocean strategy in a small boat?"

I think the answer is "yes," but, like navigating any ocean, it is harder in a small boat. 

Most of the 22 companies that replaced the incumbents on the DJIA list of 1977 were already in existence in 1977 as large companies (Coca Cola, Boeing, Bank of America, etc.). But, there are a few current DJIA companies that were very small in 1977 or did not yet exist (Cisco, Intel, Microsoft, Wal-Mart, and Home Depot). This suggests that a small boat can navigate the blue ocean and create its own uncontested market space. 

I know from first-hand experience of the Intel and Microsoft story how they, as small companies, helped create the blue ocean of personal computers (without actually working directly together for many years). In 1975, Ed Roberts, with the help of Forrest Mims and others, introduced the Altair Computer, the first commercially viable personal computer. 

The Altair used a microprocessor from Intel, the first successful commercial use of the device as a general purpose computer. Bill Gates dropped out of Harvard and was joined by Paul Allen, his friend from high school, to lead software department for Altair. A group of recent Georgia Tech graduates focused their efforts on creating the Altair Business System (which became Peachtree Accounting Software three years later). The Altair Computer was the first commercially viable personal computer and it created a new blue ocean. And as we all know, it changed everything. And all of the companies involved in creating the Altair Computer were small. Intel was the largest, as a successful integrated circuit manufacturer, but it was a small business by the standards then and now. Altair itself had maybe 50 employees at its peak. Microsoft had only Gates for a while (Allen was actually an employee of Altair). There were about 10 of us in TCS Corp., which created the Altair Business System.

These small companies defined a vision, a blue ocean, and set sail. Altair itself was like a booster rocket and was consumed in the launch. Intel and Microsoft are the dominate companies in their industries and are both part of today's Dow Jones Industrial Average.  Peachtree Accounting has been sold several times, but still continues today as the second most widely used business accounting software in the world as a unit of Sage.

Of course, trying to navigate a blue ocean in a small boat can be tumultuous. An anecdotal example from early 1978, Peachtree Accounting was trying to get an inventory financing loan for the personal computers it was selling. I introduced Ben Dyer, who lead Peachtree for several years, to the head commercial lender of C&S at their Buckhead branch. The banker was intrigued with the story, but called me a few days later to say that the bank could not make the loan since the head of IT for the bank had told him that "personal computers were merely toys and were not capable of running business applications." Ben received the inventory loan from a bank in Boston that was banking high tech companies in northeast and had a better understanding of technology than banks in Atlanta. It's possible to navigate a blue ocean, but it's certainly not chartered territory. 

The personal observations about Intel, Microsoft, and Peachtree are echoed in the success stories of Wal-Mart, Home Depot and Cisco, the other small boats that are now on the DJIA list. They each identified an opportunity and created a blue ocean that enabled amazing sustainable growth, although competition now bloodies their oceans and makes navigation more difficult.

Interestingly, the small companies that succeed are frequently subject to the "incumbent's curse" themselves. And they, like the other incumbents, have to continue to identify new blue oceans and must have the courage to cast off without the certainty of where they will land. We have to be looking for those blue oceans, whether we are small or large, and be willing to take the chance on navigating that ocean, whether it is through launching our own boat or buying a boat that is already afloat.

John Hayes is an Atlanta businessman who has been part of four "blue ocean" opportunities - technology companies that create new markets in "oceans" not bloodied by competition. The first was computer-based work processing which Hayes created with Wang Laboratories. He organized the team that created the first mass distributed accounting application for personal computers, a product now called Peachtree Software, which continues to be a market leader after 30 years. He organized the team to put legal research on the Web, thereby opening online research to all lawyers. In 2004, he organized FTRANS, which is creating a new credit system for small and mid-size businesses. Hayes is a graduate of Georgia Tech and Emory Law School.