The Decoupling Method Harvard Teaches First

Chapter 1 · Narration: WOW Mentor

The Decoupling Method Harvard Teaches First

What WOW Mentor dissected is a single proposition: digital disruption is not a flash of genius but an engineerable process. You map the customer value chain that Harvard teaches on day one of an MBA, the series of activities we perform to acquire, use, and dispose of things, then break off the weak link customers hate most and steal that activity. Uber broke off matchmaking, not the car; PillPack broke off the pain of organizing pills, not taking them. Because activities come in only three kinds, value-creating, value-capturing, and value-eroding, decoupling comes in only three kinds, and investors prize the value-creating decoupler most. The cold truth is that disruption is not the same as profit, and the enduring point of entry, even in the age of AI, is wherever money, time, or effort makes the customer unhappy.

Today, WOW Mentor breaks down the blueprint for digital disruption that Harvard is said to teach on day one of an MBA: decoupling. The speaker is Professor Thales Teixeira, a professor at the University of California and, for ten years before that, at Harvard Business School. What WOW Mentor notices first is how he arrived at the framework. While at Harvard, he was invited to give talks to many startups like Facebook and Airbnb, and although they operated in completely different industries, they thought about the problem in strikingly similar ways. From that he realized there was a common approach to digital disruption, a single pattern no one had written down before. The line WOW Mentor takes most seriously here is what follows: building a high-growth startup can be engineered, it can be designed, and anyone who follows the tools will be far more successful than someone who merely follows intuition. In other words, what he sells is not inspiration but a process. Disruption is not a flash of talent but a procedure you can walk step by step, and that premise underwrites everything that follows. The first case he reaches for is ride sharing, specifically Uber. Before Uber, to get to the airport you would stand on the street trying to hail a cab or call a dispatcher. The trouble was that there might be no taxi at all on your street while, a few blocks down, plenty sat waiting. What WOW Mentor underlines is the real problem Uber saw. There were already enough drivers and cars; what was missing was not vehicles but information: some people did not know where to find a car, and some drivers did not know where to find passengers. Uber came out with the idea of smoothing that one process of matchmaking riders with drivers, looking at the value chain, all the activities to get a car to the airport. What WOW Mentor reads out of this is that Uber did not conjure a resource that had never existed; it restored a single broken connection between resources that were already there. Teixeira says this process is far more common than you would imagine, and to grasp how common, you first have to understand the customer value chain. What WOW Mentor notices is that he teaches this on the very first day of an MBA course, a sign of how foundational it is. The customer value chain is the series of activities we as customers must do in order to acquire, use, and dispose of goods and services. To get a checking account, you look at the available banks, go to a branch, apply, provide documents, and then the bank gives you a checkbook. Every one of those steps is a link. And after a founder maps out that chain, the next move is to find the weak link: the activity customers are forced to do with established companies but are deeply unsatisfied with. Looking for the chance to steal that one activity is exactly what decoupling means. So how does he define decoupling. Here is the sentence WOW Mentor reads as the heart of the talk: decoupling is the breaking of the links of the customer value chain, often by a digital player, of things that established companies had historically provided together, bundled as one. Go back to Uber, or Kakao, and you find weak links the incumbent taxi companies handled very badly. Chief among them was where the car, the drivers, and the riders would actually meet. Decoupling happened by seizing the chance to matchmake better and give passengers the peace of mind that their car would truly come. What WOW Mentor points out is that what Uber sells is not the ride but that peace of mind. Once Uber decided to do it, it stole customers from the taxi companies, grew, and over time provided more and more activities. That is the process of decoupling.

So how many types of decoupling are there. Here comes the logical knot WOW Mentor finds most elegant: in any value chain there are only three kinds of activity, value-creating, value-capturing, and value-eroding, so by definition there can only be three kinds of disruption through decoupling. The first is decoupling a value-creating activity, and he draws all three examples from video games. On Twitch you pick a game and enter a chat room where you watch someone somewhere in the world play it. You can talk to the player or the room, but the one thing you cannot do is play yourself. What Twitch realized is that playing a game is value-creating, but watching someone who plays very well or entertainingly is also value-creating. Twitch broke the two apart and offered consumers just the slice of watching someone else play. The second type is breaking apart a value-eroding activity. Years ago, to play or rent a game you had to go to the store, pick out the media, and carry it home, a value-eroding activity because most people simply do not want to do it. So Steam came out with streaming games online, just like Netflix. The third type is decoupling a value-capturing activity, which became the standard of mobile games as the freemium model. You used to buy the game first; now you play free until you decide you like it, then buy it or spend on virtual items. Fortnite is one of the biggest examples of decoupling the value-capturing activity from the value-creating activity of play. And here WOW Mentor relays an observation that matters especially. Having tracked these startups' valuations across many industries and countries, Teixeira found that venture capitalists tend to value the value-creating decouplers far more than the other two. It does not mean the others cannot grow enormously; it means investors prefer founders who decouple by separating out the value-creating activity. When the impact on customers becomes strong, they recognize that a startup is providing one activity with far more focus and quality than the incumbents. Whether Uber or FedEx, these companies quickly attract the consumers who were unsatisfied, grow very fast, and soon look for other opportunities to expand. What WOW Mentor points out is that the next opportunity invariably points the same direction: adjacent activities in the value chain, growing outward. In his book Teixeira calls this coupling, the adding of activities after a startup has finished decoupling. Uber started with rides, then food, then packages, growing outward by stealing more activities from other players. If decoupling is the entry, coupling is the expansion that stands on top of it. But here comes the moment WOW Mentor considers the most sober and honest in the talk. When Teixeira teaches MBA students, they immediately realize one truth: being able to disrupt an industry, being able to decouple, is no guarantee at all that you will be financially rewarded for it. What WOW Mentor finds so powerful is that it strips the romance off the word disruption. Often there is no way to predict whether you can find a profitable model that delivers value to customers while capturing some of that value for yourself, in excess of the costs to provide it. Founders often have to build, scale, and learn the economics before they can answer the question at all: will I make money in the long run. You have to try it, have conviction, and sometimes pivot. There is no rule of business that says if you provide value you get to capture value and be profitable. That is the chilling caveat he leaves behind.

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