while I was a professor at the Harvard Business School I was invited to give talks to many startups like Facebook like Airbnb they all operated in different Industries but they all thought about it in a very very similar fashion and I realized there was a common approach to digital disruption I did not know or understand or was not written before hi my name is Talis sasher I'm a professor at the University of California I was for 10 years a professor of at the Harvard Business School after you watch this video I hope that you will
understand the process of digital disruption or creating high growth startup can be engineered it can be designed and if you follow the tools and approaches you will be much more successful at creating a digital startup than if you just follow your Intuition or think of it in a very unstructured fashion so one example of decoupling the customer value chain we can identify it with ride Sherry so before ride Sherry existed in Uber was one of the first ones if you needed to get a taxi to the airport basically would have to go to the street
and try to hail a taxi cab or you would call a dispatcher to get that the challenge was that is that there might be across the street from you a few streets down there might be lots of taxes waiting and but none in your street and so when Uber came out it came out with the idea of facilitating this process of matchmaking riders with drivers Uber realized that there are enough drivers in the market there are enough cars in the market the problem was that some people didn't know where to get a car and some
drivers didn't know where to get passengers so Uber looked at the customer value chain all the activities that people required to do in order to get a car service to take them to a place like the airport after understanding the case of uber what you need to understand is this process is much more common than you would imagine and to really understand how common it is you need to understand what is the customer value chain and this is what I teach Harvard students and University of California students in the first day of an MBA course
the customer value chain are the series of activities that we as customers are required to do in order to acquire use and dispose of goods and services so for instance if you want to get a checking account you need to look at all of the available options of banks that can offer you a checking account then you go to a bank branch and then you apply for a checking account you provide documents and then they'll give you a checkbook and other material so you can open an account have a checking number all of these are
steps in the customer's value chain after an early stage founder Maps out the customer value chain the next step is identifying the weak Link in the customer value chain what the activities that in the market customers are having to do with established companies but that they are very unsatisfied with so the next step is really looking at an opportunity to steal that activity and this is what's called decoupling so how do I Define decoupling decoupling is the breaking of the links of the customer value chain Often by a digital player that has been historically provided
together by established companies when we go back to the case of Uber or Kaka or many other ride sharing companies around the world world there's a variety of weak links or activities that establish companies in this case taxi cabs do very badly where the cars the drivers and the Riders are going to meet in this case decoupling happened by looking at the opportunity to matchmake better and provide peace of mind for passengers that they'll get their car so once Uber decided to do that it stole customers from the established companies the taxi companies and it
grew and started providing more and more activities over time and this is the process of decoupling so how many different types of decoupling are there well as I just explained to you that in any customer value chain there are only three types of activity value creating activity value capturing activity and value eroding activity by definition there can only be three types of disruption through decoupling the first one is decoupling a value creating activity so I'll give give you examples of these three in the video game industry so twitch is a very interesting startup twitch basically
gives you the opportunity if you go to their website you go and you look at the list of video games and you click all one one and you go to a chat room that you see somebody from around the world playing that video game that you chose you can interact with the person who's playing the game or you can interact with other people in the chat room but what you cannot do is play the video game so what twitch really realized is that something that we all know playing a video game is a value creating
activity but watching somebody else play somebody who plays very well or somebody who's very entertaining is also a value creating activity and twitch broke apart this and decided to offer to Consumers to users just the value creating part of watching somebody play the game the second type is breaking apart value eroding activity if you in the past many years ago if you wanted to play a game buy it or rent it you would have to go to the store or have to go to the video game rental shop and you would go there and you
get the media come back home and play it that activity of going there choosing and coming back is a value eroding activity most people don't like to do it and so steam was another startup that came out with the idea of we will stream all the video games so you go online just like Netflix and you stream the video game and then type number three which is decou value capturing activities is this idea that has become the standard of mobile games which is the premium model you can play the game without having to buy the
game before you needed to buy the game you can decouple those activities and just play the game until you realize that you like it you can buy the game afterwards or you can spend money on Virtual items fortnite is one of the biggest examples of decoupling value capturing activity from a value creating activity of playing the game so as I've researched in a variety of Industries in a variety of countries what are the value of these companies that are disrupting with value creating decoupling value eroding decoupling and value capturing decoupling I started to see identify
what is the valuation of these startups at any point in time and what I realized that investors Venture capitalists tend to Value much more the value creating decouplers than the other two that doesn't mean that they can't grow tremendously it just means that investors prefer startup Founders that are trying to decouple through the process of separating value creating activities so the impact of decoupling on customers becomes very very strong when customers get the feeling for decoupling their customer value chain they know that there's a startup that is providing with a lot of focus one activity
much better than other established companies in the case of Uber or in the case of fex that are providing digital solutions to Consumers these businesses quickly attract consumers that were unsatisfied they grow really fast and they start looking at other opportunities for expansion of their business this other opportunity as I've identified it it invariably becomes defined as looking at adjacent activities in the customer value chain in growing out words in this in my book I call it coupling coupling is the adding of additional activities in the customer value chain after you did the process of
decoupling as a startup so in the case of uber Uber first started with we will provide you rides and then Uber said we will provide you with a delivery of food and then we will provide you with delivery of packages and so Uber grew outwards in the process coupling adding more activities that was stealing from other established companies in the market when I teach my courses to MBA students in the United States the students immediately realize that just because you can disrupt an industry or you can decouple that is no guarantee that you will actually
be financially rewarded for it so that's a very powerful Insight unfortunately sometimes it's there's no way to predict whether you will be able to find a profitable formula a profitable business business model by providing value to your customers as well as capturing some of this value for yourself in excess of the costs that you have to incur in order to provide value consequences often times entrepreneurs have to build a business scale the business learn the economics and then answer the question will I be able to make money will I be able to make a profitable
business in the long term or not you have to try it you have to have conviction sometimes you have to Pivot but there is no fundamental rule of business that says if you provide value to customers you get a chance to capture value to be profitable the recipe for decoupling involves five steps the first step is mapping out the customer value chain very close to where I lived in Boston there was a startup called pillpack and what pillpack realized is that if you have to buy and consume many pills per day it's a very complicated
process and they mapped out the customer value chain as going to the doctor getting tested receiving a prescription then going to the pharmacy paying for the medication and then once you figure out all of this you have to create a plan to remember what time of day to take the medication then you take the medication and hopefully at the end you'll feel better you will solve your health problem step two is each of these stages in the customer value chain you need to classify it into value creating value capturing and value eroding so in the
case of pillpack taking the medication is value creating to become healthy but pretty much everything else is value eroding activity going to the doctor value eroding getting a prescription value rooing going to the pharmacy filling out remembering when to take what all these things are value roing we have to do it to get the benefit of taking the pills but in and of themselves they don't create value for the customer and then obviously paying for the do visit and pay for the medication is the value capture inactive the third step is identifying the weak link
the weak link again is that activity that customers have to do but they're not happy with the way they have to do it and in this case of pillpack what they realize is one of the big challenges particularly for elderly people that consume many pills per day is creating this organization scheme that tells them when they should take each pill when they should separate pills that they should not take together and remember to do that step four is actually breaking apart the customer value chain and stealing that activity which in the case of pillpack means
pillpack needed to create a way that they could do this activity on behalf of customers so customers wouldn't have to do it how did they decide to do that they created a subscription service in which you would send or the doctor would send directly the prescription to their the startup they would buy the pills and they would pill put the pills in little little sachets little plastic containers that were formed into a roll and every day you would pull the roll out and then you take the medication together and then after that you throw out
and another sache of the Roll would come out and then lastly the fifth step is once you decouple a process remember you're stealing in activity from established players or we call the incumbent and so the established players both the makers of medication as well as the sellers the pharmacies might want to respond in certain way and it turns out in my book I show that most of the responses of established companies to decoupling are very predictable so the fifth step is understanding what likely is going to happen and preempt the response the challenge is that
pharmacies also could have emulated or copied pillpack and did the same thing for their customers but as pillac realized pharmacies have no motivation to do that because if pharmacist start sending medication to people's home by prescription then what's going to happen is less people are going to go to the pharmacy and the business model of a pharmacy today is getting you in the door to buy medication and buying a variety of other things so the consequence was that pillpack realized that it didn't have this strong response from pharmacies to emulate and that allowed the company
to grow faster and a few years later Amazon purchased pillpack for more than a billion dollarss the most important step in understanding in decoupling in order to create a startup to disrupt a market is really identifying that weakest link in the customer value chair that's the best opportunity that you'll have to build a business that will most easily steal customers from Big established company that weakest link is the moment in the process of purchasing something that customers are most unsatisfied so to give an example in the insurance industry whether you are buying life insurance health
insurance or car insurance nobody likes this process nobody wakes up excited about having to buy or repurchase or change their insurance Poli but even in this process which is very complex to acquire Insurance one of the worst parts of the process is comparing across insurance policies for different companies many entrepreneurs realized this all around the world and created a wave of disruption called insure Tech and insure techs try to facilitate the process of comparing and choosing and signing up for insurance again they realize the weakest link in the customer value chain for a certain industry
and they build a business around this process in order to help customers compare insurance policies across different companies and by doing so they created a lot of value for consumers and they built businesses that grow really quickly when we think about customers uh New Opportunities arise when customers are changing their behavior either because they change their needs and wants or because they have unfulfilled needs and wants we start identifying opportunities for decoupling in certain markets when customers are unhappy we've learned over time that customers tend to be unhappy because of three factors the first factor
is they often find an activity expensive to do going back to the insurance industry many established insurance companies require you to go talk to insurance agent well you have to get in a car or get into the public transportation and you have to go there and and see them and that's probably expensive why couldn't you just do it online the other element is when customers are unhappy because it takes a long time to do something so in the example of getting a credit card if it takes two days to submit document and getting approval and
then two or three more days to receive a credit card customers are unhappy with that and then the third element is when customers are unhappy because it's a lot of effort to do something so going out getting a d d d for for a video game or a movie now people just want to do the streaming which is pretty much low or no effort so once we look at markets and we see Rising costs of money time or effort to do a certain activity that is when we see evolving opportunities for decoupling to come into
play AI in particularly generative AI have become extremely fattish and successful and growing we're seeing is uh both established companies are trying to find use cases for AI and general of AI and startup Founders are thinking of opportunities of how you use this tool now it's important to know that number one AI is a general purpose tool it can be applied in a variety of different scenarios instances and use cases just like the computer just like the internet that lies the problem if you don't know how to apply it correctly you might be a applying
it to some activity that will create very little value for the customer so it's very important to identify activities in which AI can be a tool to really increase value to customers by making again cheaper faster or easier to do a certain activity so I would suggest to you if you're thinking about applying AI for your business if you have a startup or establish business really make sure that you identify that customers are unhappy with an activity they're paying these costs in excess of what they think they should be paying and by using AI you
can in effect help them reduce how much money how much time or how much effort they take to execute that activity if you learned about decoupling the customer value chain for the first time with this video my advice to you is really to read my book internalize the concepts and then start trying to apply it to an industry that you know very well sometimes before you create something new it's nice to apply the methods and the Frameworks by recreating something that you already know so go ahead try it out and try to recreate that business
model using the tools of decoupling and unlocking the customer value chain before you think about trying to identify a new business model in an industry you probably know don't know very well I wish you the best of luck in this endeavor [Music]
