While a professor at Harvard Business School, I had the privilege of speaking with many of the world’s most innovative startups—companies like Facebook and Airbnb. They operated in vastly different industries, yet a common thread ran through their approach to growth. They all seemed to think about digital disruption in a similar, structured way, a way that wasn’t widely taught or understood at the time.
This led me to a realization: there is a common, repeatable approach to creating a high-growth startup. It can be engineered, designed, and taught. My name is Talis Sasher, and after ten years at Harvard, I now teach this very approach to my students at the University of California.
By the end of this blog post, I hope you’ll see that building a successful digital startup is not just about intuition. It’s about following a set of tools and a specific process that can make you far more successful.
Unlocking the Secret: The Customer Value Chain
At the heart of this process is an idea I teach my MBA students on their very first day: the customer value chain.
The customer value chain is the series of activities we, as customers, must perform to acquire, use, and dispose of a product or service.
Think about getting a checking account. You have to research different banks, go to a branch, fill out paperwork, provide documents, and receive your checkbook. Each of these is a step in the customer’s value chain.
High-growth startups don’t just create new products; they find a weak link in this chain and exploit it. They find a moment where customers are deeply unsatisfied with how an activity is done and then they “steal” that activity.
This is what I call decoupling.
Decoupling: Breaking Apart the Chain
Decoupling is the process of a digital player breaking the links in the customer value chain that have historically been provided together by established companies.
Take the early days of ride-sharing. If you needed a taxi, you had two choices: hail one on the street or call a dispatcher. The problem? There might be a dozen empty cabs just a few blocks away, but none on your street. This was a weak link.
Uber identified this pain point and decided to facilitate the matchmaking process between riders and drivers. They decoupled the activity of finding a ride from the traditional process of hailing a cab. They focused on this one activity and did it much better. Once they had a foothold, they began to add more activities, like food and package delivery—a process I call coupling—to steal more of the market.
The Three Types of Decoupling
My research has shown that any customer value chain has only three types of activities:
- Value Creating: Activities that provide a benefit to the customer.
- Value Capturing: Activities where the company makes money (e.g., paying for a product).
- Value Eroding: Activities that customers have to do but dislike (e.g., waiting in line).
This means there are three ways to disrupt an industry through decoupling. Let’s look at the video game industry for examples:
- Decoupling Value-Creating Activities: Twitch realized that while playing a video game is value-creating, watching someone entertaining or skilled play is also a value-creating activity. They decoupled the two, allowing people to just watch and interact with others in a chat room.
- Decoupling Value-Eroding Activities: Before Steam, if you wanted to play a new game, you had to go to a store, find the media, buy it, and bring it home. This “go and get” process was a value-eroding activity. Steam decoupled this by allowing users to stream games directly, eliminating the need to visit a physical store.
- Decoupling Value-Capturing Activities: The “freemium” model, popularized by games like Fortnite, decoupled the act of paying for a game from playing it. You can now play for free and only spend money later on virtual items, giving customers the value-creating activity without the initial value-capturing burden.
It’s worth noting that investors, particularly venture capitalists, tend to place a higher value on startups that decouple value-creating activities. This doesn’t mean the other types aren’t successful, but it highlights where investors see the most potential for growth and disruption.
The Five-Step Recipe for Decoupling
So, how do you put this into practice? I’ve developed a five-step recipe that entrepreneurs can follow. Let’s use the example of PillPack, a startup acquired by Amazon for over a billion dollars.
- Map Out the Customer Value Chain: PillPack mapped out the complex process of managing multiple medications: going to the doctor, getting a prescription, going to the pharmacy, paying, remembering which pills to take when, and finally, taking the medication.
- Classify Activities: They categorized each step: taking the pills is value-creating, paying is value-capturing, and everything else—going to the doctor, waiting at the pharmacy, and organizing pills—is value-eroding.
- Identify the Weak Link: PillPack realized the biggest pain point, especially for the elderly, was the effort and risk involved in organizing and remembering which pills to take each day. This was a significant weak link.
- Decouple and Steal the Activity: PillPack created a subscription service. Customers or their doctors would send prescriptions, and PillPack would purchase, sort, and package the pills into individual, pre-sorted sachets. They stole the value-eroding activity of organizing medication, doing it for the customer.
- Preempt the Incumbent’s Response: PillPack correctly anticipated that pharmacies wouldn’t easily copy them. Why? Pharmacies rely on people coming into the store to buy other items. Providing a mail-order service would undermine their existing business model. This lack of a strong response from incumbents allowed PillPack to grow rapidly.
Finding Your Opportunity: The Unsatisfied Customer
The best opportunities for decoupling arise when customers are unhappy. This dissatisfaction can be tied to three factors:
- Cost (Money): The process is too expensive. In the insurance industry, for example, meeting with an agent requires travel and time.
- Time: The process takes too long. Getting a credit card can involve days of waiting for approval and delivery.
- Effort: The process is too much work. Nobody wants to drive to a store just to get a video game when they can stream it with minimal effort.
When you see rising costs in terms of money, time, or effort for a particular activity, you’ve found an opportunity for decoupling.
Applying This to AI
Today, everyone is talking about generative AI. It’s a general-purpose tool, much like the internet or the computer, but its true value lies in its application. Don’t just slap AI onto an existing process. Instead, use the decoupling framework to identify a weak link—an activity that’s too expensive, slow, or difficult—and then ask: “Can AI be a tool to reduce these costs for the customer?”
That’s where the real magic happens.
If this is your first time encountering the concept of decoupling the customer value chain, I encourage you to read my book, internalize the concepts, and apply them. Start by analyzing an industry you know well and see if you can “recreate” an existing successful business model using these tools. Once you’ve mastered that, you can begin to identify the new, untapped opportunities for disruption.
I wish you the best of luck in your endeavor.
