There's a hidden formula behind every unicorn startup—from Uber to Airbnb to Twitch. And it's not what you think.
Thales Teixeira, former Harvard Business School professor and current UC faculty, discovered this pattern after being invited to speak at dozens of high-growth startups. Despite operating in completely different industries, they all followed the same playbook for digital disruption—one that wasn't taught in any business school.
In this interview, Teixeira reveals the systematic approach to "decoupling" customer value chains—the engineering process behind billion-dollar disruptions that any entrepreneur can learn and apply.
Watch the full interview now on EO's YouTube channel! Below is the complete transcription of the interview. Minor edits have been made for clarity and readability.
Key Highlights:
"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."
"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."
"What I realized is that investors, venture capitalists, tend to value much more the value creating decouplers than the other two."
"Unfortunately, sometimes there's no way to predict whether you will be able to find a profitable formula... You have to try it. You have to have conviction."
"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."
"What I realized is that investors, venture capitalists, tend to value much more the value creating decouplers than the other two."
"Unfortunately, sometimes there's no way to predict whether you will be able to find a profitable formula... You have to try it. You have to have conviction."
The Hidden Pattern Behind Billion-Dollar Disruptions
What did you discover when speaking at startups like Facebook and Airbnb that led to your theory of decoupling?
Thales Teixeira: 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.
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.
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.
The Uber Case Study: Decoupling in Action
Can you walk us through how Uber used decoupling to disrupt the taxi industry?
Thales Teixeira: So one example of decoupling the customer value chain, we can identify it with ride sharing. So before ride sharing existed and Uber was one of the first ones, if you needed to get a taxi to the airport, basically you 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 there might be across the street from you, a few streets down, there might be lots of taxis waiting, and 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.
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.
The Foundation: Understanding Customer Value Chains
What exactly is the customer value chain, and why is this the first lesson you teach Harvard MBA students?
Thales Teixeira: 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 materials so you can open an account, have a checking number. All of these are steps in the customer's value chain.
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 materials so you can open an account, have a checking number. All of these are steps in the customer's value chain.
The Three Types of Digital Disruption
You mentioned there are only three types of decoupling. Can you break these down with examples from the gaming industry?
Thales Teixeira: 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 3 types of activity: value creating activity, value capturing activity, and value eroding activity. By definition, there can only be 3 types of disruption through decoupling.
The first one is decoupling a value creating activity. So I'll give you examples of these 3 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 on one and you go to a chat room where 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 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 is 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 3, which is decoupling value capturing activities is this idea that has become the standard of mobile games, which is the freemium 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.
The first one is decoupling a value creating activity. So I'll give you examples of these 3 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 on one and you go to a chat room where 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 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 is 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 3, which is decoupling value capturing activities is this idea that has become the standard of mobile games, which is the freemium 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.
The 5-Step Recipe for Decoupling Success
Can you walk us through your 5-step process using the PillPack example?
Thales Teixeira: The recipe for decoupling involves 5 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 problems.
Step 2 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 eroding; going to the pharmacy, filling out, remembering when to take what—all these things are value eroding. 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 doctor's visit and paying for the medication is a value capturing activity.
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. In this case of PillPack, what they realized 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 4 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 the startup. They would buy the pills and they would put the pills in 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 it out and another sachet from the roll would come out.
And then lastly the 5th step is once you decouple the process, remember you're stealing an activity from established players—what we call the incumbents—and so the established players, both the makers of medication as well as the sellers, the pharmacies might want to respond in a 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 PillPack realized, pharmacies have no motivation to do that because if pharmacists start sending medication to people's homes 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 get you in the door to buy medication and buy 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 dollars.
Step 2 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 eroding; going to the pharmacy, filling out, remembering when to take what—all these things are value eroding. 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 doctor's visit and paying for the medication is a value capturing activity.
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. In this case of PillPack, what they realized 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 4 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 the startup. They would buy the pills and they would put the pills in 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 it out and another sachet from the roll would come out.
And then lastly the 5th step is once you decouple the process, remember you're stealing an activity from established players—what we call the incumbents—and so the established players, both the makers of medication as well as the sellers, the pharmacies might want to respond in a 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 PillPack realized, pharmacies have no motivation to do that because if pharmacists start sending medication to people's homes 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 get you in the door to buy medication and buy 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 dollars.
The Dark Truth About Value Creation
What's the harsh reality about decoupling that MBA students quickly realize?
Thales Teixeira: 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. That's a very powerful insight. Unfortunately, sometimes there's no way to predict whether you will be able to find a profitable formula, a profitable 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.
Consequently, oftentimes 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.
Consequently, oftentimes 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 AI Revolution Through the Decoupling Lens
How should entrepreneurs think about applying AI using your decoupling framework?
Thales Teixeira: AI and particularly generative AI, have become extremely popular and successful and growing. What we're seeing is both established companies are trying to find use cases for AI and generative AI, and startup founders are thinking of opportunities of how to use this tool. 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 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 established 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.
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 established 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.
Your Next Steps to Master Decoupling
What's your advice for someone who wants to apply decoupling for the first time?
Thales Teixeira: 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 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 don't know very well. I wish you the best of luck in this endeavor.
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