Oct 05, 2023
The Relationship Between Technology and Business Success
Interview with Thales Teixeira, Co-founder of Unlocking the Customer Value Chain
Founder Focused
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At a Glance
- Who: Thales Teixeira is a professor at the University of California. He previously spent ten years as a professor at Harvard Business School.
- What: He is the co-founder and CEO of Decoupling.co, a digital consultancy, and the author of Unlocking the Customer Value Chain.
- Lesson: Digital disruption comes from decoupling one weak link in the customer value chain that customers hate, not from owning better technology.
In this video, Thales Teixeira, former Harvard Business School professor and author of Unlocking the Customer Value Chain, unpacks what actually drove the 2010s disruption wave, when Google, Facebook, and Netflix upended newspapers and media incumbents. He argues it wasn't the technology itself but the platform business model and "decoupling" that gave startups their edge, and what that means for the current AI hype cycle.
Key Takeaways:
Technology Never Causes Disruption on Its Own
Netflix did not invent streaming, every competitor had access to the same technology. What won was building a business around a need customers already had, not owning a new gadget.
The Real Test for Digital Disruption Is Speed, Not Size
A giant losing market share only counts as digital disruption if it happens inside 7 to 15 years. A slow decline over decades is ordinary business, not disruption.
Three Ways to Decouple: Create, Capture, or Erode Value
Twitch let people watch instead of play, a value creating move. Freemium removes the payment step, a value capturing move. Game streaming skips owning physical media, a value eroding move.
AI Will Not Disrupt Anything Until a Business Model Catches Up
The internet did not upend markets the moment it appeared, it took years for companies to build real business models around it. Teixeira expects the same lag with AI.
Google Glass Proves Technology Alone Is Not Value
A well engineered, expensive gadget can still flop if customers never adopt it. Blockchain, bitcoin, and the metaverse are chasing the same fate: hype without adoption is not disruption.
Customers Do Not Always Know What They Want
Asking customers what they want rarely surfaces the truth. Teixeira argues you have to observe behavior, not just run surveys, to find where real dissatisfaction hides.
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.
Introducing Thales Teixeira, Co-Founder of Decoupling.co
How can a small company win big companies? Is high technology the key to a successful business? Let's dive into the story with Thales Teixeira, the author of Unlocking the Customer Value Chain.
My name is Thales Teixeira. I'm a professor at the University of California. Prior to that, I was a professor at the Harvard Business School for 10 years, and I'm the author of the book Unlocking the Customer Value Chain. I'm also a co-founder and CEO of Decoupling.co, a digital consultancy and advisory company.
My book 'Unlocking the Customer Value Chain' is an explanation of how startups are fighting to disrupt large established companies, and how those big companies are responding to the rise of the startups. It looks at cases such as Wayfair and TripAdvisor. Through the process of this research, I learned, to my astonishment, that it wasn't just purely using new technologies or disruptive technologies. They were unlocking the customer value chain.
Digital Disruption
What is the customer value chain?
The customer value chain is basically the series of activities or steps that consumers need to do in order to acquire, use, and then dispose of products. For example, if I want to buy headphones, first I need to become aware that I need something. Then, oftentimes when I'm aware, I just start looking around passively. At some point in time I become an active comparator. That's the third step in the customer value chain. I go to the store, pay for it, take it home, and learn how to use it. One day I might throw it away or resell it. So all these activities are part of the value chain that creates value for me as a customer.
Could you explain digital disruption?
Digital disruption is a phenomenon characterized by two elements. The first element is that big established companies, think Boeing, IBM, BMW, Mercedes, lose a sizable amount of market share. The second condition is that it happens in a relatively short period of time. We're not talking about 100 years or 50. We're talking about 15 years, sometimes 10, sometimes 7. So wherever I looked in which a big established company lost a sizable amount of market share in less than 15, sometimes 10, years, that is digital disruption.
Could you explain the difference between the customer centric approach and the company centric approach?
In the 80s, 90s, and 2000s, there was competition, but not that much. Companies were much more powerful than they are today because customers wanted their products. Switch to today: if I go to a store here in California, there's a dozen brands of television, and in many categories, clothing, automobile, electronics, the customer has become more powerful. So companies now need to adapt to the customer, as opposed to the other way around. Instead of competitive strategy thinking about how to win, companies need to be customer centric, understanding what customers want and delivering what they want.
Why is a customer centric approach so important, especially in digital disruption?
The driver of digital disruption is generally assumed to be these so-called disruptive technologies. What I learned is that customers disrupt markets. When I visited many startups, the first ones I visited were Facebook, Netflix, Airbnb. They didn't have new, better technologies than the other companies. Those technologies were available to all of them. What startups were doing at the time was a process that was very customer centric, focusing on where customers were unhappy. Customers were changing their behavior, and by focusing on that, startups built a business to satisfy those new needs and wants.
Some people may say that Netflix's business was enabled by streaming technology, but the core difference was giving value to the customer. The vast majority of digital disruption cases are ones where a technology is available and the startup understands the customer value chain. They look at one activity where they think the customer is unhappy, and they decide to do that activity better for the customer.
Now, if you think about it, what technology did Netflix have? Reed Hastings, the CEO and founder, saw that people wanted more convenience. They wanted to watch whenever they wanted and wherever they were. He realized there was a new technology already available: streaming. Netflix didn't invent it. It didn't own it. Everybody had access to it. Netflix took advantage of it because Netflix knew customers were changing their needs and wants and changing their behavior. That is a fundamental element behind what we observed. In a few cases, a company has a proprietary technology that is innovative and nobody else has, but very few cases are like that.
Decoupling
Decoupling is the breaking apart of the activities in the customer value chain, often by a startup or a disruptor who steals one or very few activities to perform better than what the established company was doing. To give one example: to get a credit card, you go to your bank and apply. You wait because they have to process and evaluate your credit score or your ability to pay. Then they send it by mail, you receive it, and you start using it. Oftentimes this whole process takes 3 to 7 days. Some fintechs around the world decided to decouple this process. You go to the website, fill out very little information, and they automatically decide whether to give you a credit card. If they decide yes, they give you a number so you can start shopping online immediately.
Your book introduces three phases of business model innovation. Could you explain the three phases, and especially how decoupling differs from the first two?
Disruption comes in waves. Suddenly something happens and many industries are disrupted. The first wave happened when the internet became popular in 1994 and 1995. That was a process of unbundling. For example, I used to buy a CD when I was young, and it had 15 to 20 songs. I couldn't just buy one. Today you don't buy that anymore. When you want a song, you just buy one song. The internet and these new businesses broke apart the product and sold consumers just pieces of it.
Around the year 2000, a new wave came called disintermediation. Companies decided that instead of selling their products and services to another company that would sell to the end consumer, they would go directly to the consumer. Travel agencies used to buy services like hotels and airfare and sell them to travelers. Now all hotels and airlines have a site you can buy directly from. Disintermediation is breaking the supply chain and crossing over to sell directly.
Decoupling is also a form of breaking, but what's broken is the customer value chain. Instead of a company doing everything, a startup comes and breaks that apart and does just one sliver of that activity for you.
Do you think there will be a fourth wave coming from AI?
That's a very good question. It's possible AI will be a wave of disruption. Generally what we've observed is that technology alone doesn't cause digital disruption. When the internet came, it wasn't a huge disruption in the market right away. It took many years, sometimes decades, for companies to create new business models around it. My guess would be that yes, AI will create a lot of opportunities as a technology, but the biggest impact on people's lives will take a little longer, as companies understand what customers are unhappy doing today and then create a business model that needs to be good for the customer and good for the startup creating it.
I'd like you to explain the three types of decoupling you mention in the book.
Any industry with decoupling can be classified into value creation decoupling, value capturing decoupling, or value eroding decoupling. The first type is a value creating activity: doing that activity alone creates value for customers. Twitch, a video game disruptor in the United States, doesn't let you play the game. It lets you watch somebody else play. Playing a game is a value creating activity, we all know that, but watching a game being played is also a value creating activity. Twitch decoupled that, offering only the option to watch others play games, and built a business that sold for $1 billion to Amazon.
Value capturing decoupling is when you eliminate or reduce a value capture activity. The most common way is offering a game for free, the freemium model, which decouples having to pay before you play.
The third type is value eroding activities: activities that, done in isolation, don't benefit the customer alone. In video games, the value eroding activity that gets decoupled away is streaming the game itself. More people, instead of buying a game, stream it, so they don't have to go buy the media, put it in their console, or download anything. No matter what product or service you're selling, each activity can be value creating, value capturing, or value eroding.
Why do you think an innovative business model matters more to success than highly developed technology?
I definitely don't want anybody to think technology isn't important. We see technology everywhere, but a lot of technology brought to market fails and nobody wants it. I have an example here I use: Google Glass. I bought it years ago, paid more than $1,000 for it. It's useless today. Customers didn't adopt it, and it went away. The same with blockchain, bitcoin, and the metaverse. A lot has been talked about, but few companies are adopting them. The technologies that become disruptive are the ones customers choose to adopt, where customers say there's value in that: electric cars, mobile phones, huge value there. That's why the focus has to be on the customer. Once you focus on the customer, you figure out how to create value for them. A business model is a way to create value for certain customers and then capture value from that. Technology, as I view it, is a motor to the business model. If the business model is doing well, technology alone is not what will disrupt markets.
How can Startups win Big Companies
Why do you think small, new companies like startups have an edge over big companies in disruption?
Startups start with nothing, so for them it's just about going up, and the way to go up is to acquire customers. To acquire customers, you need to create value for them. Big companies aren't like that anymore. They're not always thinking about the customer. They're thinking about how to keep their job or make money for investors. There's a lot of cultural and process differences.
Could you explain a framework that entrepreneurs can execute right away?
I call it a recipe for decoupling. The first step is to map out the customer value chain. You choose an industry, banking, education, healthcare, and focus on a group of customers, then map out the activities they're required to do to consume the products and services they want.
Step two is to identify the weak links, the activities where customers just don't like something and the company doesn't do it well. In traveling, one thing I was most unhappy about was having to find a hotel in each city, compare options and availability, and fill out forms just to see the price. It was a nightmare. That's a weak link. Once you identify it, you map out what kind of activity it is: value creating, value capturing, or value eroding. Then you try to break that link and steal that activity for yourself. Startups aren't trying to replicate everything. You're not going to build a better hotel; the reservation system is what's bad. So you create an online booking system where you fill out your information once, and never need to again.
To steal that activity, you want to increase the specialization forces, essentially saying: do all these other things with this company, but do this one with me, because I'm much better at it, and I'll make it easy for you. These forces act on the consumer, pulling the other way from integration forces, the forces that get a consumer to do everything with one company, the way a supermarket wants you to buy everything under one roof.
And lastly, every time there's a big disruption attempt in an industry, if you break something that belongs to somebody, they're going to be unhappy. They're going to respond. If you can predict what they're likely to do, you need to preempt it. You need a strategy in place.
You advise entrepreneurs to stay close to customers and talk to them. What's a good way to talk to customers?
One thing to remember is that what customers think is generally not what they say. You can't just ask them to tell you their problems and expect to understand. It's not just about creating a survey. You need better tools to first observe what they're actually doing, and from that data, get signals of what they're unhappy with. It's not easy, and that's probably why many companies don't do it, or don't do it well.
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