Unlocking the Customer Value Chain: How Decoupling Drives Consumer Disruption

by Thales S. Teixeira

Similarly, and setting aside decoupling for a moment, we likewise find that technological innovation was not the primary driver that enabled players such as Ryanair, Costco, or car dealers to disrupt their markets. Rather, all of these firms built their success on the back of important changes to the business models that had prevailed in their industries. Business model innovation is a powerful force of abrupt market-level change, in some cases more powerful than technology.

If you examine other instances of decoupling, you will find that they, too, originate with customers, not with startups or their founders. To get ahead of disruption, we need to pay far more attention to customers than we ordinarily do, and commensurately less attention to competitors. We need to discipline ourselves to look at markets from the customer’s perspective, not just the company’s, and to understand customers’ evolving desires and behaviors.

Companies have much to gain by conducting the kind of customer-focused analysis I’ve laid out. Map the stages of your customer’s CVC to discover where you create value, where you charge for it, and where you sometimes erode it. Then ask yourself three questions: (1) Can you deliver more value in the value-creating activities without charging more? (2) Can you afford to capture less in the value-charging activities, everything else being equal? (3) Can you reduce eroded customer value without diminishing what you’re offering or capturing?

Firms often don’t need to respond to decouplers if they don’t threaten a significant portion of market share. Before mounting a response, in line with the discussion in Chapter 5, it’s important to consider if you need to respond at all. This decision entails balancing the cost of responding (financial and management’s time) with the risk of loss to the established business if you don’t respond. As regards the latter, executives at incumbent companies must consider two types of risk: the risk that a decoupler will enter the market, and the risk that it will steal a significant portion of your customers if it does enter.

Two-sided marketplaces are more challenging and complex to launch than other disruptors. It’s hard enough to acquire one type of customer in an online business. Two-sided marketplaces must acquire two distinct types of customers to their platforms, each with a distinct value proposition.

As a startup, as you acquire customers, make sure you truly deliver value. By centering the business around customer needs and wants, you stand to benefit in ways that go far beyond getting paid. All companies need R&D to build and test new products, marketing to advertise, and operations and quality control to service, troubleshoot, and solve user problems. Startups usually don’t have such an extensive workforce early on. Luckily, they don’t need to. By choosing their first customers wisely and serving them well, startups can do more with less.

Ultimately, two major factors explain startup failure. The first factor, unsurprisingly, is the failure of new businesses to acquire enough customers. This chapter has dealt with that issue. But starting a company also means acquiring enough of the right kind of customers, which leads us to the second, less obvious factor, explaining startup failure. Often enough, new ventures create value for their customers but fail to capture a large enough portion of this value to sustain a business.

Decoupling theory thus points us toward an alternative way of approaching growth. First, strengthen the core activity (the one your business first used to decouple). Then grow into adjacencies, focusing on one at a time. Strengthen the integration links binding the newly offered adjacent activities before moving outward into additional adjacent activities.

Since you’re not using different companies as you move along the CVC, you don’t need to worry about their varying policies or the different user experiences they offer. It’s all one integrated, harmonious process. By growing outward from its original business, aggregating adjacent CVC activities, Alibaba created multiple synergies for the shopper. And that drove more customers to adopt and use more of Alibaba’s ever-growing portfolio of services. Serving the interests of customers, Alibaba snatched up a larger share of the customer’s spending. The major insight they had? The cost to acquire customers for these new businesses was significantly lower, since Alibaba was already serving them. And with that came nine billion-dollar businesses with tremendous lockstep growth.

The beauty of leveraging customer-side synergies is that it reduces pressure on companies to try to find new customers for their new offerings. All they have to do is offer them to current customers—a significantly cheaper task to accomplish. In addition, the new offerings need not be best-in-class.

In evaluating where to grow next, think methodically about each activity in the customer’s value chain. Map out the CVC activities as seen by the customer. Then switch the focus back to you, determining the skills you would require in order to bring to market an offering that helps customers perform each activity. Compare these skills with those your company currently possesses. If the skills match up well, then you might viably couple that activity. Otherwise, you’ll need to fill in skill gaps by building skills internally, borrowing from others via a partnership of some sort, or buying them by acquiring people or businesses.

Because they lack significant resources to attract customers, disruptors approach their business with a different mindset. Uber didn’t have cars. Airbnb didn’t have hotel rooms. Netflix didn’t have stores. For disruptors, revenue growth originates in one place, and one place only: customer acquisition.

Regardless of the means to get those resources, startups milk resources to get customers, instead of milking the customers. Their mindset isn’t resource-centric but truly customer-centric. Just look at the metrics that startups commonly use: customer lifetime value, average revenue per user, and revenue per active customer.

Ultimately, a customer-centric company has a governing body and an executive team that not only understands digital disruption in general, and decoupling in particular, but also appreciates the force animating all healthy companies from their earliest days: a drive to better fulfill the customer’s needs.

The Big Seven categories correspond to a series of consumption choices that people must make in the course of their daily lives: where to live (housing, home goods, and maintenance), how to move (air and land transportation), what to eat (food, drinks, and their preparation), what to wear (fashion, cosmetics, and personal grooming), how to learn (formal and informal education), how to entertain (media, electronics, and sports), and how to heal ourselves (healthcare, physical and mental treatments). If you want to understand potential shifts in your industry, you should look to these categories for early signs.

Avoid looking only at the rise of drones, virtual reality, artificial intelligence, digital currencies, and other supply-side technological offerings. They are not necessarily waves of disruption. Ask yourself: What are these technologies fundamentally delivering to a broad spectrum of customers in various markets? Why are people embracing them, and why now? What underlying change in consumer needs and preferences is responsible for these technologies becoming perceived as valuable offerings?

Significant cost increases over a long and sustained period usually prompt consumers to make major changes in where and how they procure products and services. In these situations, an opportunity exists for disruptors to deliver significant cost reductions via new business models (e.g., decoupling).

Since consumer behavior never stops changing, make wave-spotting a routine process within your organization. Conduct a Big Seven present-casting exercise once every year or two. Doing so at six-month intervals or less is overkill, as it will possibly only allow you to pick up minor and ephemeral shifts.

Should be done at the same time as review of all risks