Latest / ContraMinds Podcast - Unlocking Personal Growth and Professional Excellence / Thales Teixeira on Digital Disruption Through Decoupling (#034)

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Thales Teixeira on Digital Disruption Through Decoupling (#034) · ContraMinds Podcast - Unlocking Personal Growth and Professional Excellence

• 0:00
  SPEAKER_00: In many countries like Brazil and India, people just they don't have access to a credit card.
• 0:05
  SPEAKER_00: It's very hard because you need to have this history, you need to have, you know, funds and and ability to pay.
• 0:12
  SPEAKER_00: And so that precludes many people from getting a credit card.
• 0:15
  SPEAKER_00: It's a long process.
• 0:16
  SPEAKER_00: And this company said, you know what?
• 0:18
  SPEAKER_00: We're just gonna give you a credit card and we're gonna give you a little bit amount of money.
• 0:22
  SPEAKER_00: And if if you pay off your debts every month, we're gonna give you more money to it.
• 0:25
  SPEAKER_00: No questions asked, Bam, here's a credit card, go shop online very, very quickly.
• 0:30
  SPEAKER_00: Everything else they didn't do, right?
• 0:33
  SPEAKER_00: And so the idea of decoupling comes in instead of looking at all the activities that you that your customers, uh that the customers of the market that you're trying to enter are doing, you focus on one that is not well done currently by the established players.
• 1:01
  SPEAKER_03: Hi, Thales.
• 1:02
  SPEAKER_03: Uh great uh having you as a guest in our podcast and uh thanks for accepting our invitation.
• 1:09
  SPEAKER_03: It's a privilege talking to you.
• 1:11
  SPEAKER_00: Thank you.
• 1:11
  SPEAKER_00: The pleasure is all mine.
• 1:12
  SPEAKER_00: Thanks for the invitation, Swami.
• 1:16
  SPEAKER_03: Uh Thales, I would like to straight away uh dive in into the conversation.
• 1:21
  SPEAKER_03: And uh the first thing I want to uh talk to you about is really uh where did you discover this uh uh concept of disruption being very different from what has been seen before to what is being seen today?
• 1:38
  SPEAKER_03: So where did you discover this?
• 1:39
  SPEAKER_03: And can you tell us the story behind how did you come about this uh you know difference that you saw?
• 1:48
  SPEAKER_00: Great.
• 1:48
  SPEAKER_00: So um I I think um the first time I saw it, it was in um maybe around 2010, and I was invited to Facebook headquarters to give a talk about my early research uh as a professor at the Harvard Business School.
• 2:06
  SPEAKER_00: And uh my research was on economics of attention.
• 2:09
  SPEAKER_00: I had written some articles on viral advertising for Harvard Business Review.
• 2:14
  SPEAKER_00: And so Facebook, before its IPO, it was a fast-growing company, uh, but not the giant that it is today, invited me to give a talk.
• 2:23
  SPEAKER_00: And I got to uh uh see Mark Zuckerberg program me on his computer and flip-flops.
• 2:29
  SPEAKER_00: And um I, you know, I gave my talk, and afterwards they were nice enough to give me a tour of the place, and and we had a chit chat, and I tried basically to understand uh um at the time what was Facebook's plan for really growing really fast.
• 2:46
  SPEAKER_00: And and they explained it to me, and I just wrote down uh a few pointers, and I just put it away, went back to Boston uh to my work, and um, and about a year later I was invited to to uh give another talk.
• 3:02
  SPEAKER_00: And this followed, right?
• 3:04
  SPEAKER_00: Um uh as my research would come out on economics of attention.
• 3:08
  SPEAKER_00: I was invited to give a talk at Netflix.
• 3:11
  SPEAKER_00: I went and I had a good friend who was a CMO of Airbnb at the time, and I visited many other smaller startups, and every time I visited them, I asked them kind of set of similar questions.
• 3:24
  SPEAKER_00: How are you planning to disrupt uh your market?
• 3:27
  SPEAKER_00: What are you gonna do different?
• 3:28
  SPEAKER_00: Uh, how are you gonna go faster than the others?
• 3:31
  SPEAKER_00: And they would start to explain to me very specific things about their industries, but as I started asking more and more this question to the same sets of businesses, um, I started seeing a common pattern.
• 3:46
  SPEAKER_00: And the pattern had less to do with their technologies.
• 3:50
  SPEAKER_00: And so my colleagues, like Clay Christensen and others, and reading about uh disruption in the trade press with the uh executives, consultants that talked about all the role of technology and disruptive technologies, uh, but these startups were talking much more about the customer changing behaviors and how they were planning to kind of offer something different and unique to customers.
• 4:15
  SPEAKER_00: And so that was the first glimmer that I started seeing that the reality that I saw with these startups was not uh um compatible with this idea of technology as being the biggest driver of disruption.
• 4:30
  SPEAKER_03: Interesting.
• 4:31
  SPEAKER_03: So uh so what was your take?
• 4:34
  SPEAKER_03: Uh was your take that uh you know technology was not the primary driver of disruption, but the business model is the primary driver, and uh, where did you come to that thesis and conclusion?
• 4:48
  SPEAKER_00: So I I think um um the first realization that I had was when I read an article and it was a very small startup.
• 5:00
  SPEAKER_00: It was a startup that was actually one person, and this person was about, I think, 17 years old.
• 5:07
  SPEAKER_00: And what he was doing is he had a website that was growing fast by selling watches online, watch e-commerce.
• 5:14
  SPEAKER_00: This was about 2011, I think.
• 5:18
  SPEAKER_00: And he was selling watches online, and I've and he was doing a lot of sales, great success, and he was 17 years old, and I, you know, I contacted him and I tried to understand what he was doing.
• 5:30
  SPEAKER_00: And basically what I realized is he was selling watches, but he didn't manufacture the watches.
• 5:36
  SPEAKER_00: The watches was manufactured in in China, as most watches.
• 5:40
  SPEAKER_00: Um he imported the watches, but he wasn't the importer.
• 5:44
  SPEAKER_00: There was another company importing and distributing the watches.
• 5:48
  SPEAKER_00: And he didn't make the website, he had like uh another company make the website, and you would go to his website and choose select the watches, and he didn't even uh uh uh fulfill when somebody bought the watches.
• 6:03
  SPEAKER_00: It was another company that did that.
• 6:04
  SPEAKER_00: So basically, this kid had a business, a thriving business selling watches, but he didn't make the watch, he didn't distribute, he didn't deliver the watches, he didn't make the website, he didn't almost anything.
• 6:15
  SPEAKER_00: I said, Well, what do you do actually?
• 6:17
  SPEAKER_00: Because he had his own brand and was successful.
• 6:20
  SPEAKER_00: And basically, he had a collection of companies that was working all across the what I call the customer value chain, which is the activities that you and me have to go through in order to compare, shop, purchase, and acquire watches.
• 6:37
  SPEAKER_00: And all he did was, you know, get use Facebook to get attention to his website.
• 6:43
  SPEAKER_00: But after that, there was all sorts of companies that did everything on his behalf.
• 6:49
  SPEAKER_00: And it dawned on me how you could have a thriving business with your own brand, and customers don't even know it, and that you're actually not doing any of these aspects.
• 6:59
  SPEAKER_00: You just put together different businesses and and they do different parts of the customer value chain.
• 7:06
  SPEAKER_00: And he was growing really fast.
• 7:08
  SPEAKER_00: And I thought, well, that's fascinating because in the past this was not possible, you know.
• 7:13
  SPEAKER_00: And and that's where I came up with this idea of decoupling, in which you look at the activities that customers have to engage through in the process of buying and using and disposing of goods and services, and you focus on only one activity, and in this case, uh this kid was focusing on getting attention to his uh and traffic to his website, and then you disregard all the other activities and let somebody else do it.
• 7:41
  SPEAKER_00: You let a competitor do it, you let a company that is specialized in doing it, but you just do one small activity.
• 7:49
  SPEAKER_00: And with that, he built a business model around just doing that and doing it very well because he understood that the most important thing in watch was people wanted something distinct and something that validated that that was a good purchase, and he did that with social media advertising.
• 8:06
  SPEAKER_00: The rest really wasn't a big problem.
• 8:08
  SPEAKER_00: There were companies willing to do that.
• 8:10
  SPEAKER_00: So that was the first idea of this that you go into uh as an entrepreneur, you go into see an opportunity.
• 8:18
  SPEAKER_00: Instead of doing everything, you focus on one small activity, and then you start building a business model around this.
• 8:27
  SPEAKER_00: And yes, there's technologies behind it, but it's not this idea of this disruptive technology that you have and nobody else has.
• 8:35
  SPEAKER_00: It's very unique in all these things.
• 8:37
  SPEAKER_00: Most of the time, entrepreneurs, including Facebook, for long periods of time, you just have the standard technologies available to everybody else.
• 8:45
  SPEAKER_04: So, Thales, let me ask you a follow-up question on this.
• 8:49
  SPEAKER_04: Um, most often when we see these models come up in popular books and stuff like that, we see it's it's almost like a stand-up comedian doing a routine on a Netflix special.
• 9:01
  SPEAKER_04: You see the polished version, you see the flawless implementation of the model, you see it uh interlinked quite beautifully with a lot of examples and other related uh evidence, right?
• 9:13
  SPEAKER_04: But I'm very interested to know that when you were coming up with this model, can you talk to me about the first iterations of the model and how you how opposing how you came up with uh the genesis of the idea and what was some contrasting evidence that he had that refined the model to the way that it actually is today?
• 9:36
  SPEAKER_00: So, you know, to explain that the model that it is today is basically this idea that in order to disrupt the market, if you as an entrepreneur uh uh are looking at all of the important activities that big established companies do.
• 9:52
  SPEAKER_00: So if you want to disrupt a bank, a bank does thousands and thousands of activities.
• 9:56
  SPEAKER_00: It provides checking accounts, credit cards, it provides mortgages, it provides uh uh uh insurance, uh, gives you loans, and all of these activities have a huge amount of resources, people, processes, and require money to build.
• 10:13
  SPEAKER_00: Uh and so if you're thinking about coming up with your own bank today as an entrepreneur, it's almost impossible if you look at it this way.
• 10:21
  SPEAKER_00: There's no way you're gonna do it.
• 10:23
  SPEAKER_00: You would have to have billions and billions of dollars, and you would have to have thousands of people to do it.
• 10:28
  SPEAKER_00: Yet there was a digital bank in Brazil called New Bank, and then many others around the world that started their own bank.
• 10:36
  SPEAKER_00: And the way they started their own bank is by instead of looking at all these activities, they said, well, let's look at one small activity that consumers uh are having a hard time.
• 10:49
  SPEAKER_00: And in many countries like Brazil and India, people just they don't have access to a credit card.
• 10:55
  SPEAKER_00: It's very hard because you need to have this history, you need to have you know funds and ability to pay, and so that precludes many people from getting a credit card.
• 11:05
  SPEAKER_00: It's a long process.
• 11:06
  SPEAKER_00: And this company said, you know what, we're just gonna give you a credit card and we're gonna give you a little bit amount of money, and if if you pay off your debts every month, we're gonna give you more money to it.
• 11:15
  SPEAKER_00: No questions asked, Bam, here's a credit card, go shop online very, very quickly.
• 11:20
  SPEAKER_00: Everything else they didn't do, right?
• 11:23
  SPEAKER_00: And so the idea of decoupling comes in instead of looking at all the activities that you that your customers, uh, that the customers of the market that you're trying to enter are doing, you focus on one that is not well done currently by the established players.
• 11:42
  SPEAKER_00: And you steal that activity for you two as a business to execute on.
• 11:48
  SPEAKER_00: In the case of New Bank, just offering a credit card, right?
• 11:52
  SPEAKER_00: And everything else you just forget about it.
• 11:54
  SPEAKER_00: And and so decoupling means that you decouple the customer value chain, the activities that customers do, and and you steal one and you start executing on it, and then when you do it well, you start growing uh and doing more activities across the customer value chain.
• 12:12
  SPEAKER_00: And and this initially, this process of uh decoupling is an entry strategy.
• 12:18
  SPEAKER_00: How do you steal an activity to do for yourself?
• 12:21
  SPEAKER_00: And so to your to your question, Vinesh, uh, how did I evolve it?
• 12:26
  SPEAKER_00: Over time I started seeing startups grow fast.
• 12:28
  SPEAKER_00: And I asked myself, well, they enter a market through decoupling, but then how do they grow?
• 12:33
  SPEAKER_00: Well, they start looking at adjacent activities.
• 12:36
  SPEAKER_00: And adjacent activities in the customer value chain might say, Well, now I have a credit card and sometimes I can't pay it off, so I need a loan.
• 12:43
  SPEAKER_00: And so new banks said, Well, that's another activity, and let's start doing that as well.
• 12:49
  SPEAKER_00: And then they said, Well, now I have a salary, I need to sometimes put my money in, and so I need a maybe a digital account, a digital checking account.
• 12:58
  SPEAKER_00: And then new bank started offering that.
• 13:01
  SPEAKER_00: And then customers said, Well, now I have an account, I want to pay people online without my credit card, do transfer transactions.
• 13:09
  SPEAKER_00: They said, Well, let's give you a payments system.
• 13:12
  SPEAKER_00: And this process is what I eventually started calling coupling, because you couple activities, you add one activity to the other, to the other, to the other, and suddenly now a new bank is very getting closer and closer to what a traditional bank is, but for the digital age, right?
• 13:28
  SPEAKER_00: Uh, so that was another layer of innovation in my theory.
• 13:33
  SPEAKER_00: The biggest layer, I would say, that eventually I started seeing, and this is when I was teaching uh uh these concepts to Harvard Business School MBA students in my uh my elective course, and now I teach at the University of California the a similar version of the course, is understanding that if you look at activities of consumers, either banking consumers or consumers wanting to buy watches online or any product or service that consumers have to buy, if you map out these activities in the customer's process, what I learned through my students and through examples is that these activities can be classified into one and only one of three types.
• 14:17
  SPEAKER_00: Is it a value creating activity, an activity that the customer derives benefit from?
• 14:23
  SPEAKER_00: So being able to pay online is a value creating activity, being able to use a watch is a valid creating activity.
• 14:31
  SPEAKER_00: The other activity could be is a value eroding activity.
• 14:34
  SPEAKER_00: It's an activity that doesn't derive benefit for the customer, but that they are forced to do in order to achieve the benefit that they want.
• 14:43
  SPEAKER_00: So applying for a credit card, if you just apply for credit cards, that doesn't give me a benefit or you a benefit.
• 14:49
  SPEAKER_00: It's just the necessary thing you need to do.
• 14:52
  SPEAKER_00: Book a hotel such that you can use when you arrive at the trip.
• 14:56
  SPEAKER_00: Booking the hotel, filling out the form is a value eroding activity.
• 15:00
  SPEAKER_00: Sometimes comparing products, like comparing insurance products, is a value roading activity.
• 15:05
  SPEAKER_00: And so we do many value eroding activities.
• 15:08
  SPEAKER_00: And then the third activity is a value capturing, or what I call value charging activity, is the activity that you pay the business for, when you buy a lodge or when you pay your credit card bills, and so on and so forth.
• 15:19
  SPEAKER_00: So any product or service across the customer value chain will have value creating activities, value capturing, value eroding activities.
• 15:27
  SPEAKER_00: And when I understood this, I realized that no matter what industry you're in, no matter what product or service you're selling, there are three types of disruption that you can do.
• 15:38
  SPEAKER_00: You can either decouple a value creating activity or a value eroding activity or a value capturing activity.
• 15:46
  SPEAKER_00: And this kind of when I learned this, it suddenly started being able to apply the theory in a variety of industries, sectors, and countries.
• 15:57
  SPEAKER_04: So let me ask you another question where uh I think it's very interesting that you took the example of New Bank because New Bank brought forth this innovation in uh uh Brazil, which is uh a developing country, right?
• 16:12
  SPEAKER_04: So a key difference between uh a developed and a developing economies is uh uh developing countries is how their institutions and how their markets are organized and how these various actors engage with each other.
• 16:27
  SPEAKER_04: And so, based on how you have seen firms provide services to customers, my question is how do you what do you think are the differences between uh uh developed markets and developing markets when they're trying to create products and services across the value chain for customers?
• 16:44
  SPEAKER_00: That's a great question.
• 16:45
  SPEAKER_00: I think one of the big things that comes to mind is the issue of access.
• 16:51
  SPEAKER_00: Uh in the United States where where I live, and I live in the state of California, one of the richest uh states of the United States, uh access is not a big problem for products or services, right?
• 17:03
  SPEAKER_00: Uh whether you're in the upper class or middle or lower classes, you have access to many products or services.
• 17:10
  SPEAKER_00: It depends on how much you're willing to pay for it.
• 17:12
  SPEAKER_00: Uh, but in uh countries like India and Brazil, uh many, many people are called unbanked.
• 17:19
  SPEAKER_00: They don't have access to a checking account.
• 17:23
  SPEAKER_00: And when they don't have access to a checking account, they don't have access to financial services.
• 17:27
  SPEAKER_00: So they're not protected when there's inflation.
• 17:30
  SPEAKER_00: When there's inflation, they have cash, and their cash starts, they have cash at home enhanced.
• 17:35
  SPEAKER_00: And if it it really hurts them, and we're having a lot of inflation right now, it's hurting the the people that have that don't have protection against inflation, right?
• 17:47
  SPEAKER_00: And so the unbanked is a big portion of Brazil.
• 17:51
  SPEAKER_00: And uh in in these countries, uh having access to credit is super important.
• 17:57
  SPEAKER_00: And a credit card uh that allows me to pay for something, to buy something and pay it within 30 days, or if I don't have the money to pay it uh a few months later, um, that is kind of uh uh uh an important financial instrument that I have.
• 18:15
  SPEAKER_00: Uh the same thing when I get my salary, I can just put it in a savings account or invest it.
• 18:21
  SPEAKER_00: But in Brazil, people don't have this.
• 18:23
  SPEAKER_00: And the people who do, the interest rates are sky high, really, really high for many credit calls.
• 18:29
  SPEAKER_00: And so what New Bank decided to do is say we're we don't want to earn that much money through through kind of gouging our customers with credit card fees.
• 18:37
  SPEAKER_00: We just want to provide access to customers.
• 18:39
  SPEAKER_00: And so same thing in India.
• 18:41
  SPEAKER_00: Uh uh when when Flipkart came about in India, and and uh I brought uh um the the the the founder uh um of one of the founders of Flipkart in India, uh Bini Bensal, uh, to my class, and he basically said that like uh e-commerce was growing, but uh and it's extremely valuable for us to buy things from the convenience of our homes.
• 19:05
  SPEAKER_00: Uh but uh at the time in India, about 10 years ago, you know, if if uh if you didn't have access to payments, it was very hard to buy online if you didn't have a credit card.
• 19:17
  SPEAKER_00: And it was hard to sell online because most mom and pop shops that have products to sell, they couldn't have access to a website that they could kind of take payments and offer uh ship products and so on and so forth.
• 19:29
  SPEAKER_00: So his idea was to provide access to buyers and sellers to be able to transact online, and so I I I'd say among all things, access is the important differentiating factor in developing uh countries.
• 19:43
  SPEAKER_03: So Thales, uh, when you look at your uh concept of customer value chain, uh how is it different from the theory of customer journey?
• 19:53
  SPEAKER_03: Is there any overlap or is there a difference between uh customer journey and customer value chain and where are the differences and how critical are these differences?
• 20:05
  SPEAKER_00: Right, uh okay, so so yeah, I get that question a lot, right?
• 20:09
  SPEAKER_00: Well, the customer journey or the customer map, the customer process.
• 20:14
  SPEAKER_00: Um basically the customer journey has been around for a long time, and and and it it is a series of activities, uh generally linear but sometimes not, in which customers go through uh a process.
• 20:28
  SPEAKER_00: And the customer journey is generally uh um used to help marketers figure out uh how to sell products to customers.
• 20:36
  SPEAKER_00: And so it ends when a customer like you and me buy a product, when we buy a watch, when we buy a car, when we uh uh sign up for a subscription service or for a banking service.
• 20:48
  SPEAKER_00: Uh so that's one point.
• 20:51
  SPEAKER_00: And uh the customer value chain goes beyond it.
• 20:54
  SPEAKER_00: It's not just about selling products to people, it's about understanding how they compare products, how they acquire products, how they use the products.
• 21:03
  SPEAKER_00: You know, how do you and I use a product like a checking account?
• 21:07
  SPEAKER_00: Or how do we use an insurance product, right?
• 21:11
  SPEAKER_00: We sometimes compare options, we subscribe, we cancel, we use it, we do claims.
• 21:17
  SPEAKER_00: All of this is part of the customer value chain.
• 21:19
  SPEAKER_00: And for some, even for some products like a car, a house, or even a television, we could even go forward and think of after you use the product, how do you dispose of products?
• 21:29
  SPEAKER_00: And more and more people are reselling them online, sneakers.
• 21:33
  SPEAKER_00: There's a huge market for resell of use sneakers and handbags, right?
• 21:36
  SPEAKER_00: Luxury handbags.
• 21:37
  SPEAKER_00: A student of mine created a company that resells luxury secondhand handbags.
• 21:43
  SPEAKER_00: And he you he's working in the part of kind of disposing of products.
• 21:49
  SPEAKER_00: So the customer value chain goes beyond just the process of selling, that's number one.
• 21:53
  SPEAKER_00: And number two, it is a strategic tool for business model innovation, not just for marketing.
• 22:00
  SPEAKER_00: Or digital marketing.
• 22:01
  SPEAKER_00: It's used to understand how customers derive value, how customers are forced to do activities that erode value, and how companies and customers transact and exchange money by that principle that I said.
• 22:16
  SPEAKER_00: There's value creating activities, value uh capturing activities, and value eroding activities.
• 22:21
  SPEAKER_00: And so it's a much higher level tool to really kind of focus not just on customer acquisition but understanding a business model and a whole.
• 22:32
  SPEAKER_03: So clearly uh when you really look at customer value chain, there are probably uh what you call as granular customer activities that can create uh innovation in business models, right?
• 22:45
  SPEAKER_03: That's really uh I think something that you talk about.
• 22:47
  SPEAKER_03: And uh I think one great example that uh you know that you talk about is uh a customer uh a concept of a sharing economy where Uber uh or a Lyft uh it's actually a customer activity that they innovated, but a whole host of companies stole away uh a different business process or a different customer need and built a different business model.
• 23:13
  SPEAKER_03: Can you walk us through how it you know how it works and therefore how in the customer value chain stealing that part of that business made a huge new business model?
• 23:27
  SPEAKER_00: Sure.
• 23:28
  SPEAKER_00: So uh obviously uh if we think about the the customer value chain of transportation, right?
• 23:36
  SPEAKER_00: Historically, why do we buy cars?
• 23:38
  SPEAKER_00: Well, um the whole benefit of buying cars is to drive ourselves from point A to point B.
• 23:44
  SPEAKER_00: In the process of buying cars, if you map out the customer value chain, first you have the need, then you compare options, you go online, you go to the dealers.
• 23:54
  SPEAKER_00: Ten years ago, people would go uh on an order of three to four dealers, now they go uh to generally one or two dealers, they compare the options, they you know, see what they how they want to pay for it, the accessories, they acquire the the car.
• 24:10
  SPEAKER_00: Sometimes it takes a while for it to get to their house, they need to go back there, get the car, start using the car, and then you have maintenance.
• 24:18
  SPEAKER_00: Change the oils, change the tires, all this.
• 24:20
  SPEAKER_00: So it's a very long and tedious process, and many of these activities are value eroding activities.
• 24:25
  SPEAKER_00: Do you enjoy spending time changing the tires, putting gasoline?
• 24:29
  SPEAKER_00: Do you enjoy going and changing the oil of your car?
• 24:32
  SPEAKER_00: Do you enjoy the process of applying for finance?
• 24:35
  SPEAKER_00: No.
• 24:35
  SPEAKER_00: This is necessary evils that we have to do, value eroding activities, right?
• 24:41
  SPEAKER_00: And so when uh Uber came about, the idea was just to eliminate a bunch of value eroding activities.
• 24:48
  SPEAKER_00: Do you want to do you need to go from your house to the restaurant, get an app, and then call a car, and then they'll take you there, right?
• 24:57
  SPEAKER_00: And so Uber started kind of decoupling the process, making it much simpler for you to get a ride.
• 25:03
  SPEAKER_00: And it grew fast, and it only recently became profitable or kind of uh you know, cash flow positive, but uh that's another story that's been losing money, and many ride-sharing companies in an attempt to dominate markets have been losing a lot of money uh in many countries.
• 25:22
  SPEAKER_00: Uh, and so, but Uber was essentially uh uh uh uh instance of decoupling in which the customer does not want to drive the car, wants to go from point A to point B within a city without driving the car.
• 25:37
  SPEAKER_00: Well, in some cases you want to drive the car because you're going to a supermarket or you're gonna go to many routes, right?
• 25:44
  SPEAKER_00: And so many companies started saying, well, you know, let's provide the car that you can just with an app, you can reserve a car, but you're not gonna get a driver.
• 25:53
  SPEAKER_00: You drive yourself, right?
• 25:55
  SPEAKER_00: So in Boston, Zipcar was one of the first ones to do that.
• 25:58
  SPEAKER_00: And in Europe, there's many uh uh companies that came about with this idea.
• 26:03
  SPEAKER_00: Here's a car parked, you get a little card, you enter the car, you use it, and then you return it, right?
• 26:08
  SPEAKER_00: So that's when you want to want to drive the car instead of be driven, which is uh um uh the Uber uh model.
• 26:17
  SPEAKER_00: But then if you want to go from one city to another city, uh if I wanted to go from Boston to New York, it was very hard to get an Uber driver to take me.
• 26:26
  SPEAKER_00: Or right now I'm in uh San Diego to kind of San Francisco.
• 26:31
  SPEAKER_00: Nobody's gonna take me there, right?
• 26:34
  SPEAKER_00: And so uh a startup out of uh France called Blah Black Car decided to become the Uber for uh city to city, and it became very, very successful in India where there's a lot of commute from different cities, and in Europe where there was a lot of commute from uh shorter distance cities, right?
• 26:53
  SPEAKER_00: So uh blah blah car became kind of what the Uber is uh uh the uh disrupting taxis, blah blah car is disrupting the bus from city to city, and that allowed you to do that.
• 27:05
  SPEAKER_00: So you can see that in principle the sharing economy is I can use something without owning it.
• 27:12
  SPEAKER_00: So I can use a car without owning the car, I can use uh uh luxury handbags or luxury dresses without owning it.
• 27:21
  SPEAKER_00: I can use a house without owning it, and that became Airbnb and many other examples, right?
• 27:28
  SPEAKER_00: So decoupling ownership from usage was the big power of the sharing economy.
• 27:34
  SPEAKER_00: And within the drive, the ride sharing model, there's many different segments of that, including my own favorite that I use all the time now, uh uh a founder from Harvard Business School created Turo.
• 27:47
  SPEAKER_00: And Turo means it is essentially it's very analogous to Airbnb, in which you, if you get a car, you can rent a car for a few hours for a few days, but you rent not a car owned by a company, but by your neighbor.
• 28:00
  SPEAKER_00: So your neighbor puts a car online that they're not using it, you go and you get your neighbor's car and you pay them just like you would do Airbnb.
• 28:07
  SPEAKER_00: So you see, there's a lot of segmentation in the sharing economies following.
• 28:12
  SPEAKER_03: Yeah, so uh so clearly, uh uh, you know, the way you break down the customer activity is very interesting, and uh you talk about the definition of a business model, right?
• 28:24
  SPEAKER_03: So, therefore, uh, you know, the business model, I think uh you've come up with a very interesting definition where you say business model from the customer's point of view and not just about creating and capturing value.
• 28:38
  SPEAKER_03: So, can you walk us through uh how you define a business model and how is it different when you really capture it through this whole framework of customer value chain?
• 28:49
  SPEAKER_00: Sure.
• 28:50
  SPEAKER_00: So so uh first of all, the vast majority of people that I talk to, very smart people, either students, executives, entrepreneurs, they don't have a clear notion of what a business model is.
• 29:02
  SPEAKER_00: When you ask them, what is your business model?
• 29:04
  SPEAKER_00: They generally describe what I call an operating model.
• 29:08
  SPEAKER_00: The operating model is essentially, you know, what are the activities that you're doing, what are the processes that you're doing, right?
• 29:16
  SPEAKER_00: And so uh many don't have this clear understanding.
• 29:22
  SPEAKER_00: Uh uh the the most basic and general generalizable sense of explaining what a business model is is how do you create value, and for whom do you create value?
• 29:33
  SPEAKER_00: And then how do you capture some of this value that you created in the form of profits, and from whom do you capture this value?
• 29:42
  SPEAKER_00: Right?
• 29:42
  SPEAKER_00: So, in the case of Facebook or social media, how does Facebook create value?
• 29:47
  SPEAKER_00: Well, one of it is by creating content, peer-to-peer content, right?
• 29:54
  SPEAKER_00: And and how does it capture value?
• 29:56
  SPEAKER_00: It captures value from advertisers.
• 29:58
  SPEAKER_00: It doesn't capture value by uh from the consumers, it captures value from advertisers, and it has a bidding mechanism to make sure it captures the most amount of value, right?
• 30:08
  SPEAKER_00: So that's kind of the simplest way to explain Facebook's business model.
• 30:13
  SPEAKER_00: Now, if you want to do uh uh firm-centric innovation, you take that approach and you innovate based on what your company wants to do, right?
• 30:23
  SPEAKER_00: So I want to do this, I want to do that, I want to make more money here.
• 30:26
  SPEAKER_00: You use the standard model standard definition of a business model innovation, and a business model, and then you innovate on top of that.
• 30:33
  SPEAKER_00: Now, consumers like you and me, we don't care about what businesses are doing.
• 30:37
  SPEAKER_00: We care about what problems we need to solve, right?
• 30:41
  SPEAKER_00: And so I have a bunch of problems in my day-to-day life that I need to solve.
• 30:45
  SPEAKER_00: And I don't care about the business model of the company, I couldn't care less.
• 30:49
  SPEAKER_00: Well, I well, we do because we're interested in understanding how to build businesses, but you know, my kids and my wife don't really care, right?
• 30:57
  SPEAKER_00: And so what they care is uh they need to solve uh uh uh problems or they need to acquire goods and services that they desire, and they're looking at what's the best option to do so.
• 31:10
  SPEAKER_00: And in the process of looking, they're evaluating things from their point of view, not from the company's point of view.
• 31:17
  SPEAKER_00: So they're looking at what creates more value for me.
• 31:20
  SPEAKER_00: And so uh we don't uh we don't in our house, we don't have cable television because we don't think that creates much value.
• 31:27
  SPEAKER_00: Having 300 channels, and then you have to be ready at the time that they're going to show the show that you want, and you flip through the channels and you missed it and you forgot about it, and it's a nightmare, and then you you're you have time, but you're not watching uh anything interesting, and you flip through and you take half an hour and you just give up, right?
• 31:46
  SPEAKER_00: That doesn't create value for me.
• 31:47
  SPEAKER_00: So when streaming came about, it created a huge amount of value for me because I could look at all the shows and then I say, well, now I have the time I can watch what I want.
• 31:56
  SPEAKER_00: And so that was an extremely uh value-creating activity for me, and that's how I evaluated streaming, right?
• 32:04
  SPEAKER_00: And then uh uh um the the capturing aspect, I said, Well, I don't care about I care about charging.
• 32:10
  SPEAKER_00: How do they charge me?
• 32:12
  SPEAKER_00: Well, they charge me a subscription and I can cancel any time, and I said, that's brilliant.
• 32:16
  SPEAKER_00: Okay, so now in our household, we've we've we've been uh using Netflix for uh uh 10 years or more at least.
• 32:25
  SPEAKER_00: And and and to me, it Netflix provides so much more value than it charges me.
• 32:31
  SPEAKER_00: So the difference between how much value it creates for me and it charges me is so big that if Netflix tomorrow said we're gonna double the price because my whole family uses it, I would say, of course, here's here's more money because it creates so much more value for me.
• 32:47
  SPEAKER_00: And and the cable companies create much less value for me and charge much more, so that's why I'm not a customer.
• 32:54
  SPEAKER_00: Right?
• 32:54
  SPEAKER_00: So that's the difference, right?
• 32:56
  SPEAKER_00: So what the big thing that I've learned by visiting all of these startups and advising startups and helping big companies create their own startups, and you know, working with my students to create these startups is this.
• 33:10
  SPEAKER_00: What I've come to realize is that customers disrupt markets.
• 33:16
  SPEAKER_00: It's not the startup that is disrupting markets, and it's not the technology that is disrupting markets.
• 33:22
  SPEAKER_00: It's the customer who wants something different, changes their behavior, and because startups are tend to operate, see it, and build a business model for that need faster, that's why startups are getting so much traction in many markets.
• 33:40
  SPEAKER_00: But the you need to have the customer changing their behavior, right?
• 33:44
  SPEAKER_00: So when you and I and Vignesh, when we arrive in a new city in an airport, and instead of getting a taxi, we just call you know Ola or Uber or Grab or any other ride-sharing company, that little decision that we made, multiplied by the millions and millions and millions of occasions of all these customers that decided that they don't want the taxi experience, that has disrupted these markets around the world.
• 34:14
  SPEAKER_00: When we decide instead of owning a second home for us to go for the weekend, just going online and renting somebody else's home, that big activity collectively has made huge disruption in the hospitality uh industry.
• 34:28
  SPEAKER_00: So customers disrupt markets.
• 34:31
  SPEAKER_04: I think I think that is a super, super powerful idea because uh when we look at the way that the behemoths of the past really sort of died down once the age of the internet came in, I think one way that we can actually process it is through this idea of layering, and that is what I wanted to ask you about, which is the the the IBMs of the world had a certain way of building products, they had a certain way of selling it to customers, they had a certain way of branding and marketing it and understanding whether it was succeeding or not.
• 35:03
  SPEAKER_04: And whereas when you look at the Airbnbs of the world and Netflix's of the world and uh the Wobby Parkers of the world, one thing that really stood out to me is that these young firms understood at their very core the theory of jobs to be done.
• 35:19
  SPEAKER_04: They understood what jobs that their customers wanted to do, they contrasted that with what the existing value chain was offering to customers, understood where there was D-links or poor linkages, and went and innovated in those spaces and actually gained market share by that.
• 35:36
  SPEAKER_04: Is my is my analysis correct?
• 35:39
  SPEAKER_00: Uh I you know you're you're spot on with this.
• 35:42
  SPEAKER_00: Um it's it's this um this idea that um so first of all you need to work or you have to you know help big companies to understand how they make their decisions.
• 35:54
  SPEAKER_00: And by working with many big companies around the world, um you know, the analogy that I make is uh going to a casino.
• 36:03
  SPEAKER_00: Big companies are like rich people going to a casino.
• 36:06
  SPEAKER_00: If you observe a rich person entering a casino, they don't go to the slot machines, they don't go to the roulette.
• 36:15
  SPEAKER_00: Why?
• 36:17
  SPEAKER_00: Because in a roulette or a slot machine, you and I versus a multimillionaire, we have the same chances of winning.
• 36:25
  SPEAKER_00: And rich people don't want that.
• 36:27
  SPEAKER_00: They want a better chance of winning.
• 36:29
  SPEAKER_00: So they want to the games in which their money has a slight advantage.
• 36:35
  SPEAKER_00: Poker.
• 36:37
  SPEAKER_00: Poker, if you arrive with more money than others, you can bluff, you can kind of put more money, you can put it all in, you can frighten your opponents.
• 36:46
  SPEAKER_00: So you have more resources, and big companies want to enter markets in which they have a quote unquote unfair advantage.
• 36:56
  SPEAKER_00: Right?
• 36:57
  SPEAKER_00: And that happens.
• 36:58
  SPEAKER_00: So if you see a bank, a bank wants to enter a market in which they have an unfair advantage.
• 37:03
  SPEAKER_00: And what is their advantage?
• 37:05
  SPEAKER_00: Banks have branches.
• 37:06
  SPEAKER_00: So when they have, you know, a thousand branches, two thousand branches, they are thinking, what new product can we come up with that we can sell across all of our branches?
• 37:18
  SPEAKER_00: When a retailer supermarket, they want to go into a market and they want to squeeze their suppliers because they're big and they want to get lower prices and they want to sell it in all of their stores.
• 37:29
  SPEAKER_00: That is an unfair advantage versus a smaller supermarket or a one shop across the street.
• 37:36
  SPEAKER_00: Telecom operators, their unfair advantage is all of their cell phone towers and all of the cables that they've invested to put in people's homes.
• 37:44
  SPEAKER_00: So any new product in their mind is like, what can we do with our resources?
• 37:49
  SPEAKER_00: That's what I call a resource-centric view.
• 37:53
  SPEAKER_00: They focus on the resources and how do they take advantage, just like the rich person going into playing poker.
• 38:00
  SPEAKER_00: Right?
• 38:01
  SPEAKER_00: And when you contrast that with startups, startups don't have the resources.
• 38:06
  SPEAKER_00: They don't have the thousands of stores or the uh tens of thousands of bank branches.
• 38:14
  SPEAKER_00: The only thing that startups have is looking at, like you say, a customer need that is a pain point, unfulfilled, a job that the customer needs to be done that big companies are not doing well.
• 38:28
  SPEAKER_00: And so the startups have a focus on that activity, and they don't have the resources.
• 38:32
  SPEAKER_00: So they're trying to really improve the service for the customer, the product for the customer.
• 38:37
  SPEAKER_00: That's all they have.
• 38:38
  SPEAKER_00: And so they focus on that, versus the big companies are focusing on using their advantage to extract more value from customers.
• 38:47
  SPEAKER_00: And that's where it goes down.
• 38:49
  SPEAKER_00: A great story that I like to tell is uh in the United States, remember in the times of uh uh videos, uh video rental services.
• 38:59
  SPEAKER_00: So when Blockbuster went, and Blockbuster was the biggest company, it had tens of thousands of stores.
• 39:05
  SPEAKER_00: When Netflix came about with video by mail, Blockbuster started seeing people weren't going to the video store anymore, right?
• 39:13
  SPEAKER_00: And so Blockbuster said, well, we need to make more money, and they decided to sell candy and ice cream in the stores to try to make money.
• 39:21
  SPEAKER_00: Because then they had thousands of places to sell candy and ice cream, but they missed the point.
• 39:27
  SPEAKER_00: People were not going to the store anymore.
• 39:28
  SPEAKER_00: You can sell whatever you want at your store, it doesn't matter.
• 39:31
  SPEAKER_00: And you know, instead of them realizing that kind of people wanted convenience, they don't want to go to the store.
• 39:38
  SPEAKER_00: Going from your house to a store to rent out a movie is a value-eroding activity in your customer value chain, right?
• 39:46
  SPEAKER_00: Getting the first the DVD by mail, much more convenient, and then streaming the ultimate convenience that took down the you know the hundreds of thousands of video rental companies all across the world.
• 40:00
  SPEAKER_04: And and the other thing that I have also noticed is the amount of signal-to-noise ratio that big companies have versus small companies.
• 40:09
  SPEAKER_04: Because uh, when you are a small company, you actually have those true believers in your product who are actually using it and giving you constant feedback.
• 40:19
  SPEAKER_04: You launch a product, you you create a parallel Slack community or a Discord community, and your users are giving you feedback on an hourly basis, and you know you're getting live, real life feedback all signals, right?
• 40:33
  SPEAKER_04: Because the sample is so so controlled, versus when you're having large companies trying to adopt the same frameworks that a startup does.
• 40:43
  SPEAKER_04: Now, because IBM, let's say, has, for example, one million customers, how do they even distinguish what the signal and the noise are?
• 40:50
  SPEAKER_04: How do they even know today who their core customers are or what is the value that their customers are actually finding in the products and services that they are building?
• 40:58
  SPEAKER_04: So, what is your take on this sort of uh dichotomy that you see between large and small companies in terms of how users give them the data that allows them to build the right products for them?
• 41:10
  SPEAKER_00: So the way big companies innovate is they have lots and lots of discussions, lots and lots of meetings, board meetings, discussions, discussions, discussions, until at one point in time, because you have so many people, you're never gonna have consensus.
• 41:26
  SPEAKER_00: It's impossible.
• 41:27
  SPEAKER_00: The more people you have, the more different views you have, until somebody, more powerful generally, you know, smacks the table and says, This is what we're doing, and then they put all their resources in.
• 41:38
  SPEAKER_00: So they go very slow until somebody decides and you put all your resources in.
• 41:42
  SPEAKER_00: When you put all your resources in, you're not trying to get signals from the market whether they like it or not, whether you should invest more.
• 41:50
  SPEAKER_00: Then it's about kind of you're off to the races and you're going to race as fast as you can.
• 41:55
  SPEAKER_00: So many companies don't even do the process that you described of trying to understand whether you have product market fit, whether you should invest in this, whether you should pivot, move to another offering, change the offering, all of these things.
• 42:09
  SPEAKER_00: You're getting data from the customers.
• 42:11
  SPEAKER_00: But what companies use, big companies use from this data, is much more validation and figuring out how to charge more money and from whom to charge more money, instead of do my customers really like and value my product?
• 42:28
  SPEAKER_00: Right?
• 42:28
  SPEAKER_00: So this is where there's a big shift.
• 42:31
  SPEAKER_00: Startups, they first, their view is we need to create a very high value creating product, something that customers love.
• 42:40
  SPEAKER_00: Why?
• 42:41
  SPEAKER_00: Because if we do that, one day we might extract a portion of this big value, we might extract a portion and capture some of this value for us.
• 42:52
  SPEAKER_00: Big companies are always thinking about how do we maximize the amount of value we extract from customers.
• 43:00
  SPEAKER_00: And they're getting data to figure out who values our product more because whoever values more, we're going to charge more.
• 43:06
  SPEAKER_00: So it's a very, very different view, right?
• 43:10
  SPEAKER_00: Big companies, if you ask them, they say, what's the most important element of your business?
• 43:17
  SPEAKER_00: They'll say some resource, like the number of stores we have, the number of branches, the number of cell phone towers that we have.
• 43:24
  SPEAKER_00: That's the resource-centric view.
• 43:26
  SPEAKER_00: They think they build resources and make money out of these resources.
• 43:30
  SPEAKER_00: The customer is just like way down there.
• 43:32
  SPEAKER_00: It's like almost like a nuisance, a problem.
• 43:35
  SPEAKER_00: There's a customer there.
• 43:36
  SPEAKER_00: But we make money out of resources.
• 43:38
  SPEAKER_00: Startups saying we make money out of customers.
• 43:42
  SPEAKER_00: Customers are our most valuable resource.
• 43:46
  SPEAKER_00: And so that's when Netflix decided to move from sending DVDs by mail to streaming.
• 43:52
  SPEAKER_00: It imploded its business, all the resources they had.
• 43:56
  SPEAKER_00: They had a bunch of DVDs, they have warehouses, they just threw that.
• 44:00
  SPEAKER_00: A way to go from streaming.
• 44:03
  SPEAKER_00: When Flipkart decided to move from just a pure marketplace in which they didn't acquire the products to moving into kind of being a full service e-commerce shop, they realized they needed to educate the mom and pop shops to sell online.
• 44:21
  SPEAKER_00: And until they educated that, which is the investment in their customers, they needed to buy these products and ship it to consumers because consumers were having a very bad experience.
• 44:34
  SPEAKER_00: They were getting delayed products, broken products, all of these things, and it was imploding a flip cart.
• 44:40
  SPEAKER_00: So they needed to shift away and saying, who are our customers and how can we create value for them such that in the future we can capture value.
• 44:53
  SPEAKER_04: ContraMinds is a podcast dedicated to decoding people, minds, strategy, and culture.
• 44:59
  SPEAKER_04: We interview and learn from high performers so that you can apply these lessons on your journey to becoming the knowledge worker athlete you are meant to be.
• 45:07
  SPEAKER_04: The Contraminds Podcast is available on all leading podcast players.
• 45:11
  SPEAKER_04: And if you are interested in revisiting past episodes or taking a look at our show notes from this episode, please visit us at www.contraminds.com forward slash blog.
• 45:22
  SPEAKER_04: And now back to the show.
• 45:24
  SPEAKER_04: So Thales, just a just a final question in this thing.
• 45:27
  SPEAKER_04: It's it's I I I genuinely when you were talking about uh Blockbuster, there was a there's a question that I've not heard many people ask, so I'm gonna go ahead and ask you.
• 45:40
  SPEAKER_04: There's a lot of talk about product market fit, seeking product market fit, or what are some principles or some metrics that you have to sort of set to hit product market fit?
• 45:52
  SPEAKER_04: It varies from industry to industry and service to service.
• 45:55
  SPEAKER_04: But one question that I've not heard many people ask, and I want to ask you, is what is the opposite of product market fit?
• 46:02
  SPEAKER_04: Right?
• 46:03
  SPEAKER_04: So when you take a large company like a Blockbuster, which did have product market fit at one point, it lost that product market fit that it had.
• 46:12
  SPEAKER_04: So, what might be certain changes in the value chain that happened that made Blockbuster lose its product market fit?
• 46:21
  SPEAKER_04: And if you were a conscientious leader who was actually following the data trail, how would you sort of analyze that hey, we're losing product market fit?
• 46:29
  SPEAKER_04: How do we term this?
• 46:31
  SPEAKER_04: How do we put a contingency in place?
• 46:33
  SPEAKER_04: And how do we win back that loss or that that small territory that we lost to Netflix?
• 46:38
  SPEAKER_04: How do you think about that?
• 46:39
  SPEAKER_04: What is the opposite of product market fit?
• 46:43
  SPEAKER_00: That's a great question.
• 46:44
  SPEAKER_00: I've never I've never heard somebody express the question like that.
• 46:49
  SPEAKER_00: Um it's ever it's always about how do you get it?
• 46:51
  SPEAKER_00: How do you get it?
• 46:52
  SPEAKER_00: But your question is, you know, how do you lose it and what do you do to avoid losing losing it?
• 46:59
  SPEAKER_00: Um you know, uh I'll you know, I'll to really be good at it as an academic, I need to, I would need to think about it.
• 47:08
  SPEAKER_00: You know, I need to go back to the drawing board for the class.
• 47:13
  SPEAKER_00: Good.
• 47:14
  SPEAKER_00: But you know, for for not having the time to do that, I'll I'll give uh maybe a few pointers um about that.
• 47:22
  SPEAKER_00: So, first, going back to that first principle that customers disrupt markets, uh they they often disrupt markets because their needs change.
• 47:34
  SPEAKER_00: And one one dimension of changing needs that uh I've been observing working in a variety of industries, both for incumbent companies and startups across the world in Brazil and India, Europe, Asia now, and US, is consumers have started, uh have been on a secular trend of wanting more convenience in everything they do.
• 47:58
  SPEAKER_00: A need for convenience has exploded in a way that in the past it wasn't as wrong.
• 48:04
  SPEAKER_00: Right?
• 48:05
  SPEAKER_00: So uh um in and partially, you know, Amazon in the US was responsible for this.
• 48:12
  SPEAKER_00: Amazon just gave a dramatic amount of convenience for people to buy online and receive their packages.
• 48:18
  SPEAKER_00: And we as consumers, we don't have many brains for shopping for many different products.
• 48:24
  SPEAKER_00: We have one brain.
• 48:25
  SPEAKER_00: So the same way we make decisions about buying products online, we make decisions about buying education or which podcast do we listen to, or or where do we travel, or what car do we buy?
• 48:36
  SPEAKER_00: We make the same decisions.
• 48:38
  SPEAKER_00: And we consumers have started getting a taste for high convenience, like buying something online and receiving it two days later, and we're applying it to many different industries, which is actually needs that we have.
• 48:54
  SPEAKER_00: So now I need to need to watch TV or watch movies, and to me, it's an inconvenience to go to a movie store to rent a movie.
• 49:03
  SPEAKER_00: I want to press a button and watch a movie.
• 49:06
  SPEAKER_00: Right?
• 49:06
  SPEAKER_00: So this need for convenience started rising in many industries, and many startups realized that and started delivering food, education, transportation, like Uber, uh healthcare.
• 49:19
  SPEAKER_00: You can go, you can go online and talk to your doctor as opposed to wait for a month and go to their office.
• 49:25
  SPEAKER_00: Right?
• 49:26
  SPEAKER_00: And this has been going across many industries.
• 49:28
  SPEAKER_00: So it's like dominoes that fall, and the first one was Amazon and all of the other ones.
• 49:33
  SPEAKER_00: So this need for convenience was really responsible for uh the downfall of Blockbuster because Blockbuster was not convenient.
• 49:43
  SPEAKER_00: I had to go and go to the store, and then I had to go through all of these movies and spend half an hour, an hour to choose the movie I wanted, and then I hope that the movie's there and nobody rented the movie, and then I go back and I watch it later.
• 49:58
  SPEAKER_00: Right?
• 49:59
  SPEAKER_00: So when the need for convenience started growing, blockbuster executives should have realized one, we are a very inconvenient business because if we mapped out our customer value chain, there's a lot of value eroding activities that we're forcing our customers to do.
• 50:16
  SPEAKER_00: And Netflix came and eliminated, decoupled all those activities.
• 50:20
  SPEAKER_00: And point number two, the need for variety, right?
• 50:24
  SPEAKER_00: Netflix are online, you have you know millions and millions of things to watch.
• 50:28
  SPEAKER_00: Uh, whereas in Blockbuster, you're limited by the volume of the store.
• 50:32
  SPEAKER_00: And now we want a huge amount of variety for everything that is available to us, and that's the power of online businesses that they don't have shelf space to worry about, so they can offer everything.
• 50:44
  SPEAKER_00: So, you know, I'd say that as we see these dimensions of consumers becoming more interested in certain criteria, like convenience, variety, and now more recently we're seeing consumers wanting more health, health and wellness with COVID.
• 51:00
  SPEAKER_00: Now they want health and wellness in everything that they do.
• 51:04
  SPEAKER_00: Uh, this is another dimension that is probably going to uh create product market fit for some startups, and as you say, break the past product market fit for some other businesses like banks.
• 51:18
  SPEAKER_00: I don't want to go to a bank branch and deal with all of this wait for people in a bank branch.
• 51:24
  SPEAKER_00: I I just don't want to deal with that, right?
• 51:26
  SPEAKER_00: I want something online, and so I'd say probably uh focus on these core dimensions and make sure that as your customers change, uh um you keep looking at particularly the value-roding activities that you're offering and figure out a way to eliminate those as the startups are doing.
• 51:49
  SPEAKER_03: Not I'm just going to zoom in into uh linked question uh where uh if you really want to look at the uh DK of your product market fit, right?
• 52:04
  SPEAKER_03: If I were to call it that way, right?
• 52:07
  SPEAKER_03: Uh you really are talking about something very interesting where you say where you say that executors must actually process the skill of wave spotting.
• 52:18
  SPEAKER_03: Right?
• 52:19
  SPEAKER_03: So where where if I'm working in a corporate, I tend to get comfortable with uh you know what happens every day.
• 52:27
  SPEAKER_03: Okay?
• 52:28
  SPEAKER_03: So therefore you need to have a sense of wave spotting in your skill where you're actually looking at business and saying, you know what, looks like there is a wave that's happening and I need to get my company ready for it or my product or my service ready for it.
• 52:44
  SPEAKER_03: So if I were to uh build that wave spotting skill, what are the kinds of skills that I need to develop uh in my arsenal to actually ensure that this DK of this product market fit probably, you know, uh I'm able to reduce it in my company.
• 53:07
  SPEAKER_00: Well, I'd say that uh you have to start by kind of uh uh understanding customers.
• 53:13
  SPEAKER_00: If you want to build customer-centric business model that provides real value for customers, or if you want to keep the value uh that you're offering to customers really high, you need to have customer-centric processes.
• 53:29
  SPEAKER_00: Now, for big companies, that is extremely hard to do uh because companies are really incentivized, and executives and managers and companies are incentivized to kind of grow the company, make more money.
• 53:44
  SPEAKER_00: So there's very few metrics of you know benefiting the customer, and this view that if you benefit your customers, you will indirectly get a benefit yourself and retain some of that benefit in the form of profits.
• 53:59
  SPEAKER_00: But it's mostly most executives are really focused about growth, about profitability, about kind of increase the take rate that they get from all the products and services that they offer.
• 54:10
  SPEAKER_00: So they're very firm-centric.
• 54:13
  SPEAKER_00: I every CEO that I meet, I asked if they're very customer centric, if they're customer-centric, and all of them, with one exception ever, told me, yes, we're very customer-centric.
• 54:23
  SPEAKER_00: Customers are most important for us in all these things.
• 54:26
  SPEAKER_00: But in the reality, you and I know when we shop for products and services, we're often badly treated by telecom operators, by banks, by airlines, uh, often by hotels.
• 54:37
  SPEAKER_00: We're not very well treated.
• 54:40
  SPEAKER_00: We don't feel that they're focused on us.
• 54:42
  SPEAKER_00: They're focused on, you know, them themselves as processes.
• 54:45
  SPEAKER_00: Only once the CEO of Siemens in Brazil told me, uh, Professor Tashira, I would like to say that we're very customer focused, but in reality, we're product focused.
• 54:55
  SPEAKER_00: We're an engineering-led company, and our engineers build the best products, and we think our products are the best in the world.
• 55:02
  SPEAKER_00: And we try to push those products to our customers and educate them to why our products are best.
• 55:07
  SPEAKER_00: And if they don't buy us our products, we just say, ah, you don't know what you're talking about.
• 55:12
  SPEAKER_00: You don't understand.
• 55:13
  SPEAKER_00: Like you don't know quality how to judge quality.
• 55:15
  SPEAKER_00: Right?
• 55:16
  SPEAKER_00: So that was the only case that somebody was really honest to me saying we're not customer focused.
• 55:21
  SPEAKER_00: And in reality, I think that's what most big companies are not.
• 55:25
  SPEAKER_00: They don't prioritize this, they don't incentivize this.
• 55:28
  SPEAKER_00: And so that how do you transform this?
• 55:31
  SPEAKER_00: It's the cultural transformation to really focus on customers.
• 55:34
  SPEAKER_00: And part of my job is going to big companies and kind of setting up processes and helping change the culture to do more customer-centric innovation.
• 55:45
  SPEAKER_00: And and before the wave spotting that is your question, you need to kind of like refocus on customers, right?
• 55:53
  SPEAKER_00: And many companies are far removed from their consumers, and that's a big challenge.
• 55:59
  SPEAKER_00: If you manufacture a product, so uh uh I I advise uh auto companies, they don't know what the heck their customers want, their consumers, because auto companies sell products to dealers.
• 56:13
  SPEAKER_00: And so every month, every week, they go to the dealers and they say, What do you want to buy?
• 56:18
  SPEAKER_00: What is good?
• 56:19
  SPEAKER_00: What do you need?
• 56:20
  SPEAKER_00: How can we get you to buy more of our cars?
• 56:22
  SPEAKER_00: And then the dealers focus on selling cars to us consumers.
• 56:27
  SPEAKER_00: But the auto companies, the auto executives, they don't really see, they don't really have this close relationship with their consumers.
• 56:35
  SPEAKER_00: So when consumers change, it takes a while for the auto dealers to realize it, and then it takes a long time for the auto manufacturers to understand it because they're not collecting the data for the consumers.
• 56:49
  SPEAKER_00: And every now and then they do a little survey with consumers, but it takes them a long time to do it, six months to do it, and they don't pay too much attention to this.
• 56:57
  SPEAKER_00: So the same thing with you know, uh many manufacturers of goods that there is a distributor, there's a retailer, and then there's a consumer.
• 57:07
  SPEAKER_00: They're far removed.
• 57:09
  SPEAKER_00: So, you know, so I mean to do this wave spotting, you need to be close to your consumer.
• 57:15
  SPEAKER_00: There's no way out of it.
• 57:16
  SPEAKER_00: You can't be on a phone line talking to somebody that's talking to somebody else that's talking to your end consumer.
• 57:23
  SPEAKER_00: You know, we play a game in Brazil of this phone line in which I say something, and at the end the other kid would uh listen, I would say it only in the ears, the other kid would listen to something completely different from what I said.
• 57:34
  SPEAKER_00: That's what happens uh uh uh in in big companies.
• 57:37
  SPEAKER_00: And so you need to get closer and closer to your end consumer, as close as possible.
• 57:43
  SPEAKER_00: And the closest way to do that, the best way is to sell it directly to your consumer as a way to understand them.
• 57:50
  SPEAKER_00: And when they change, you automatically see the signals.
• 57:54
  SPEAKER_00: Right?
• 57:54
  SPEAKER_00: And so that's extremely important.
• 57:57
  SPEAKER_00: You know, I visited many tech companies, Google, I visited uh uh Airbnb, I've talked to many Uber executives, uh, Netflix, as I said.
• 58:06
  SPEAKER_00: And one thing that I've learned about big tech companies, there's there's two priorities that they always have, no matter what product or service they're launching.
• 58:16
  SPEAKER_00: There are always two key priorities that they always they will never ever give up, no matter how much money they could make.
• 58:23
  SPEAKER_00: The first one is they want the relationship with the end consumer.
• 58:28
  SPEAKER_00: They will never be intermediated by another company, they'll sell directly to the end consumer.
• 58:35
  SPEAKER_00: Number two, they collect data on the end consumer.
• 58:40
  SPEAKER_00: They will always, always try to figure out how to collect data on the end consumer.
• 58:45
  SPEAKER_00: How do they buy, how do they use the products?
• 58:47
  SPEAKER_00: Because those two things, if you have the data on how consumers are using your products and you have the closest relationship possible, then the sky's the limit.
• 58:57
  SPEAKER_00: Whenever your consumer has a new need, you can quickly see it.
• 59:00
  SPEAKER_00: The signal is very, very strong and it's direct, and then you can be customer-centric.
• 59:06
  SPEAKER_00: And then these waves that you talk about will be very obvious to start to identify it.
• 59:12
  SPEAKER_00: But if you're far removed, if you're not collecting data, transactional data, and usage data on a day-by-day basis, you're just hinting at what consumers might be thinking.
• 59:25
  SPEAKER_03: So one of the CEOs who uh I was talking to, he said, you know, Swami, uh, we spend a lot of money on patents, and therefore, for me, I'm in deep tech, I have a lot of patents, and therefore I'm building competitive advantage for my company.
• 59:41
  SPEAKER_03: Do you see a correlation between patents and revenue growth and therefore uh actually uh you know earning market share?
• 59:49
  SPEAKER_03: Do you do you see any correlation at all?
• 59:53
  SPEAKER_00: So uh, you know, um in my book I did an analysis, maybe chapter one, and and by the way, the name of the book is called Unlocking the Customer Value Chain.
• 1:00:04
  SPEAKER_00: And uh I did some research to try to understand uh um this idea because as you say, many many companies have ideas, they create a patent, and they hope they'll secure what we call a moat, right?
• 1:00:16
  SPEAKER_00: A defense around it and be able to uh create products and sell them.
• 1:00:22
  SPEAKER_00: And uh and we work with lots of startups to get the patents and then the increase in revenues.
• 1:00:28
  SPEAKER_00: And suddenly what we realize by doing statistical analysis, rigorous statistical analysis, which it's my uh background and uh academic background, is that it's not that uh more patents generate more revenue.
• 1:00:44
  SPEAKER_00: It's actually the opposite.
• 1:00:46
  SPEAKER_00: More revenue generate more patents.
• 1:00:48
  SPEAKER_00: So instead of the patent being the key element that makes your company grow, for the vast majority of companies, including big tech, it's only companies that grow start getting more patents.
• 1:01:03
  SPEAKER_00: So patents are like uh, you know, the the um the fountain water in in your lobby of your big building.
• 1:01:14
  SPEAKER_00: It the that fountain, if you go into a bank in New York City or in Mumbai uh uh or Delhi and you see you enter and you see these beautiful fountains or a beautiful lobby, does that make the company richer?
• 1:01:29
  SPEAKER_00: No, absolutely not.
• 1:01:31
  SPEAKER_00: Nobody would say, well, you know, this is making also why do these big companies have it?
• 1:01:35
  SPEAKER_00: Well, because they're big.
• 1:01:36
  SPEAKER_00: So they make money and then they create their fountains instead of uh uh uh the other way around.
• 1:01:42
  SPEAKER_00: So kind of patents in most cases, not all of them, but in most cases, have shown to be a luxury, the result of success and growth versus the driver of that, right?
• 1:01:54
  SPEAKER_00: Uh because uh the vast majority of these patents are worthless.
• 1:01:59
  SPEAKER_00: Uh many of them, uh there's many workarounds.
• 1:02:03
  SPEAKER_00: So the patents is one way to do something, but then uh uh other competitors can explore many other ways.
• 1:02:10
  SPEAKER_00: Defending patents are extremely expensive, you and you end up uh enriching the lawyers above all, and uh you start focusing too much on trying to create uh paper-based innovation versus real customer-centric innovation.
• 1:02:26
  SPEAKER_00: And that's what's important.
• 1:02:28
  SPEAKER_00: So patents are extremely valuable for a few select cases, but there's an industry of lawyers that have helped make patents such a big uh strategy, which ultimately it really in practice it really is not what it seems to be.
• 1:02:44
  SPEAKER_04: So Thales, I just want to go back uh to this article that you had uh co-authored on Harvard Business Review Working Knowledge uh website where you were talking about how Uber, Airbnb, and Etsy attracted their first 1000 customers.
• 1:03:02
  SPEAKER_04: Now, there is always a struggle in startups to acquire their first customers.
• 1:03:07
  SPEAKER_04: Now, could you talk to us about the insights you uncovered when you looked at how these companies actually acquired their first 1000 customers?
• 1:03:15
  SPEAKER_04: And I have a follow-up question to that, so yeah.
• 1:03:18
  SPEAKER_00: Sure.
• 1:03:19
  SPEAKER_00: So so before that, you know, ever every time I write an article, I write down what I think is the answer to the problem, right?
• 1:03:26
  SPEAKER_00: And I talk to a lot of people and they help me.
• 1:03:29
  SPEAKER_00: What is the answer to the problem?
• 1:03:31
  SPEAKER_00: So, how does a a tech startup acquire its first thousand customers?
• 1:03:38
  SPEAKER_00: Well, before I went and visited and talked to these companies, my initial answer was, well, if you're a tech or digital startup, first you're gonna acquire them online.
• 1:03:50
  SPEAKER_00: Makes sense, right?
• 1:03:51
  SPEAKER_00: You're an internet company, why don't you use the internet to acquire?
• 1:03:54
  SPEAKER_00: Why don't you use Google and Facebook and so on and so forth?
• 1:03:58
  SPEAKER_00: Uh, and so I thought, you know, that would that would be one way to acquire.
• 1:04:04
  SPEAKER_00: Uh the second uh idea was that, well, if you look at Uber and Airbnb and Flipkart and Etsy and Facebook, and they're just amazing products right from the start.
• 1:04:18
  SPEAKER_00: They acquire customers because they were just amazing, they were great, they were so much better than the other ones.
• 1:04:23
  SPEAKER_00: So I wrote these two things down.
• 1:04:26
  SPEAKER_00: And in talking and seeing uh what these uh startups were doing in the early days, because there were a lot of articles about how they were doing now when they're already big, but I I didn't see it like I wanted to know the genesis when they were babies.
• 1:04:41
  SPEAKER_00: How does the baby grow?
• 1:04:43
  SPEAKER_00: How does the baby take their first steps?
• 1:04:46
  SPEAKER_00: And in talking to them, first I realized that uh the vast majority of them did not use Facebook or Google to acquire customers.
• 1:04:55
  SPEAKER_00: They tried, but it was too expensive, and it was like acquiring customers one by one.
• 1:05:02
  SPEAKER_00: That that wasn't gonna make them grow fast.
• 1:05:05
  SPEAKER_00: They couldn't take one step and another and another and another.
• 1:05:08
  SPEAKER_00: They needed a few jumps, and they realized that um the jumps that you get is by going offline, much more effective, and trying to convince people offline to use your product.
• 1:05:26
  SPEAKER_00: And if you go one by one, it takes too long.
• 1:05:28
  SPEAKER_00: So they would go offline to places where there are a lot of customers, right?
• 1:05:34
  SPEAKER_00: So, in the case of uh Uber, well, if you go to a street corner and try to get uh customers to use Uber for the first time, they're gonna say, Well, what I'm not gonna use this, why would I this is so risky?
• 1:05:47
  SPEAKER_00: So they would need to go to places where there were more demand for taxis than there were actually taxis.
• 1:05:56
  SPEAKER_00: So at the end of a concert or a sports event, there There's tens of thousands of people coming out, and there's not tens of thousands of taxis.
• 1:06:04
  SPEAKER_00: The first one gets the taxis, and then the other one had to wait or walk home or get a ride with a friend or something like that.
• 1:06:10
  SPEAKER_00: And so they went there and they kind of said, you know, you want to wait for the taxi?
• 1:06:14
  SPEAKER_00: Yeah, but there's this new service Uber.
• 1:06:16
  SPEAKER_00: Download this app, try it out, and see if you like it.
• 1:06:18
  SPEAKER_00: And they got a lot of customers.
• 1:06:21
  SPEAKER_00: At the airport, they got a lot of customers because there was a line waiting for taxis.
• 1:06:25
  SPEAKER_00: Airbnb, when when there were certain big events or big conferences in the US, all the hotels were occupied.
• 1:06:33
  SPEAKER_00: There was no place for people to stay.
• 1:06:35
  SPEAKER_00: South by Southwest was a case.
• 1:06:37
  SPEAKER_00: So they went there offline and started saying, hey, do you need a place to stay overnight?
• 1:06:41
  SPEAKER_00: Try Airbnb.
• 1:06:42
  SPEAKER_00: It's not great because we're just starting off, but hey, what are you going to do?
• 1:06:46
  SPEAKER_00: Where are you going to sleep?
• 1:06:47
  SPEAKER_00: And so they went and they, what I call number one, they acquire customers in bulk.
• 1:06:53
  SPEAKER_00: You know, they used other networks offline.
• 1:06:56
  SPEAKER_00: They did it offline and they acquired customers in bulk and went in bulk and got many customers at a time, right?
• 1:07:02
  SPEAKER_00: Not using my original thought, which is acquiring customers online one by one.
• 1:07:10
  SPEAKER_00: The other point that they did is uh, you know, this idea that the service it leads to this.
• 1:07:16
  SPEAKER_00: You know, if you don't have any alternative, you'll take whatever you can get.
• 1:07:19
  SPEAKER_00: So in the early days, when you look, and and when I teach the class of Harvard or at the University of California, I show the websites of these businesses.
• 1:07:28
  SPEAKER_00: They were awful.
• 1:07:28
  SPEAKER_00: They were god awful.
• 1:07:29
  SPEAKER_00: You go and look Flipkart's original website, it was awful.
• 1:07:33
  SPEAKER_00: Facebook was awful.
• 1:07:35
  SPEAKER_00: The vast majority of these companies were so bad, yet they acquire customers.
• 1:07:40
  SPEAKER_00: Why did they acquire customers?
• 1:07:41
  SPEAKER_00: Because they had something that that the others didn't, but uh uh they uh they went where people were needing it.
• 1:07:51
  SPEAKER_00: Again, Airbnb.
• 1:07:52
  SPEAKER_00: There was no hotels available, so might as well try this thing out.
• 1:07:56
  SPEAKER_00: And then people tried it, and then people started talking to each other that about it.
• 1:08:02
  SPEAKER_00: And so the word of mouth kicked in after a while, and it started growing the business.
• 1:08:07
  SPEAKER_00: So, and I teach my students.
• 1:08:09
  SPEAKER_00: First, you don't need to build a brilliant new product, an amazing website.
• 1:08:15
  SPEAKER_00: You just need to tap into a customer need that is being unmet and try to do it when you find an instance in which the demand far outpaces the supply of it.
• 1:08:30
  SPEAKER_00: Established companies get all of the customers, and there's still customers left because then you're not fighting with an established company.
• 1:08:37
  SPEAKER_00: Do it offline.
• 1:08:38
  SPEAKER_00: You'll learn to your point before, you learn about what customers want.
• 1:08:42
  SPEAKER_00: You'll have a relationship, you understand how to pitch to them, you'll learn very quickly, and you acquire in bulk.
• 1:08:49
  SPEAKER_00: I use the concept of other people's networks.
• 1:08:52
  SPEAKER_00: Go tap into other people's networks.
• 1:08:55
  SPEAKER_00: It could be a church, it could be a school, it could be the airport, it could be, you know, the end of a big sports event or a concert.
• 1:09:03
  SPEAKER_00: This is a network of people needing certain products or services.
• 1:09:07
  SPEAKER_00: Right?
• 1:09:08
  SPEAKER_00: And so, and then offer an experience that is good enough that will create the word-of-mouth cycle such that they'll tell their friends and friends of friends and so on and so forth.
• 1:09:19
  SPEAKER_00: That's how these companies acquire their first few thousand customers.
• 1:09:23
  SPEAKER_00: And it's very different from what they do today, and that's very important.
• 1:09:27
  SPEAKER_00: At every new stage of the startup, you need to change your customer acquisition strategies.
• 1:09:34
  SPEAKER_03: Uh so one thing uh that you you've written in this book, which uh you know caught my attention, uh Alice, is uh you said big companies uh have to do something called recoupling.
• 1:09:51
  SPEAKER_03: Right?
• 1:09:52
  SPEAKER_03: And while while you talk about decoupling, uh and we talked about how these large companies uh find it very hard to compete with these ones that decouple the market and de pu decouple the customer needs and uh provide uh you know a kind of a service to these customers, large companies uh if they want to compete have to recouple.
• 1:10:14
  SPEAKER_03: Uh, can you give me some example of uh recoupling?
• 1:10:18
  SPEAKER_03: And I think uh uh that's a good way of actually saying if I'm a large conglomerate or a large company, how do I recouple?
• 1:10:28
  SPEAKER_00: So uh as as you say, uh the big companies are being disrupted by decoupling because one or multiple startups are stealing activities from them.
• 1:10:39
  SPEAKER_00: So, in in one case, and I wrote a Harvard Business uh uh hard business school case, was on Best Buy.
• 1:10:46
  SPEAKER_00: Best Buy is a major electronics retailer in the United States, the biggest in the world, the biggest in the US.
• 1:10:53
  SPEAKER_00: In India, you might have what's the biggest electronics retailer in India?
• 1:10:57
  SPEAKER_03: You've got Chroma, you've got uh Reliance Retail.
• 1:11:00
  SPEAKER_00: So Reliance Countries does everything in India, so you got Reliance as well.
• 1:11:07
  SPEAKER_00: Uh uh so these businesses, if you're a retailer of electronics, people need to see the product.
• 1:11:15
  SPEAKER_00: You know, they need to see the TV, they need to hear the sound of the sound system that you're buying, and then they purchase, right?
• 1:11:25
  SPEAKER_00: So you need to go to the store, see it, if you like it, you buy it.
• 1:11:29
  SPEAKER_00: Online, companies like Flipkart and Amazon and Walmart that are selling electronics online.
• 1:11:34
  SPEAKER_00: Well, how are you gonna see or hear the sound?
• 1:11:37
  SPEAKER_00: How are you gonna test the computer?
• 1:11:39
  SPEAKER_00: You know, you can't.
• 1:11:41
  SPEAKER_00: So, what did these businesses do?
• 1:11:42
  SPEAKER_00: What did Best Buy do?
• 1:11:44
  SPEAKER_00: Or what did uh Amazon do when it started competing with Best Buy?
• 1:11:48
  SPEAKER_00: It created an app that allowed you to go to a Best Buy store, check out what TVs were available, look at the screens, see which one you wanted to buy, and then you take a picture of the TV, scan the barcode, and then you see if uh Amazon is selling it online cheaper.
• 1:12:04
  SPEAKER_00: And because Amazon doesn't have employees, salespeople, doesn't have stores, you know, it could sell TVs cheaper than Best Buy.
• 1:12:11
  SPEAKER_00: And so consumers started decoupling Best Buy.
• 1:12:14
  SPEAKER_00: They would go to Best Buy, ask for salespeople's help, they looked at all of this, and then they would buy it on Amazon, what we call in the US Showroom.
• 1:12:22
  SPEAKER_00: You go to showroom and then you buy it online.
• 1:12:24
  SPEAKER_00: That was decoupling.
• 1:12:26
  SPEAKER_00: So Best Buy said, well, how are we going to respond?
• 1:12:29
  SPEAKER_00: First, it started saying, well, these people are coming in with cell phones and trying to see online.
• 1:12:35
  SPEAKER_00: What if we buy signal jamming devices, put it in the store, just like the ones that people use in prison to make sure that like when you try to use your cell phone, you can't.
• 1:12:44
  SPEAKER_00: It's blocked, just like if you were in prison.
• 1:12:47
  SPEAKER_00: Well, that's a crazy idea, right?
• 1:12:50
  SPEAKER_00: Very non-customer centric, like attacking your own customers and bad customers, smack it in the head.
• 1:12:58
  SPEAKER_00: Well, obviously, they were more thoughtful about that, and and they realized that if customers want to decouple, they want a showroom.
• 1:13:08
  SPEAKER_00: We need to let them.
• 1:13:09
  SPEAKER_00: We need to let our customers do what they want, what they value.
• 1:13:13
  SPEAKER_00: And so they started creating TV commercials saying, come to our stores, come showroom, come check out the new things, you know, you know, if you buy it or not.
• 1:13:21
  SPEAKER_00: Uh, but obviously, this broke the business model of Best Buy.
• 1:13:25
  SPEAKER_00: How can it sell if people are buying lots of products online on Amazon or elsewhere?
• 1:13:31
  SPEAKER_00: And so it needed to rethink its business model.
• 1:13:34
  SPEAKER_00: But this attempt at recoupling, which is forcing people to do both things, forcing people, if you come to the store, you will have to buy our products by trying to block Amazon wasn't working.
• 1:13:48
  SPEAKER_00: Other stores around the world have tried to recouple by charging customers.
• 1:13:53
  SPEAKER_00: If they leave the store and they don't buy anything, they have to pay five dollars, something like that.
• 1:13:58
  SPEAKER_00: There's examples of that in Australia.
• 1:14:01
  SPEAKER_00: Very, very anti-customer-centric, right?
• 1:14:05
  SPEAKER_00: Uh, there's examples of stores that are trying to figure out, well, let's let's sell them coffee or other things in the store or charge for parking, and then we're trying to make some money.
• 1:14:15
  SPEAKER_00: But ultimately, many of these attempts at recoupling failed.
• 1:14:18
  SPEAKER_00: I don't have in electronics retail, I don't have the success story to show of recoupling.
• 1:14:23
  SPEAKER_00: But that's generally what the the cut companies try to do.
• 1:14:26
  SPEAKER_00: If you break something and steal something for them, they want to get it back and recouple it.
• 1:14:32
  SPEAKER_00: So in the book, I explain how this often doesn't work because it is anti-customer.
• 1:14:38
  SPEAKER_00: And so what Best Buy realized is they asked the question well, you know, if we disappeared tomorrow, all our stars disappeared, who would miss us?
• 1:14:50
  SPEAKER_00: You know, what value are we creating and for whom?
• 1:14:53
  SPEAKER_00: Well, they knew that people that do showrooming would miss them, but also the manufacturers would miss them.
• 1:14:59
  SPEAKER_00: So if you're Samsung, LG, Sony, Panasonic, or others, now people don't have a place to see the TVs and test them.
• 1:15:10
  SPEAKER_00: Best Buy was one of the biggest.
• 1:15:12
  SPEAKER_00: And so what Best Buy decided to do is they started charging these manufacturers for putting the products in the store, whether they sold it or not.
• 1:15:24
  SPEAKER_00: And now Best Buy Today makes a lot of money from manufacturers exposing their products to consumers.
• 1:15:32
  SPEAKER_00: And so Best Buy became immune to Amazon, even became a partner of Amazon today because Best Buy makes some money from selling products, buying a product, putting a margin selling more expensive, but makes another portion of the money from showcasing products to consumers, whether they buy on the store or online.
• 1:15:52
  SPEAKER_00: And that in the book is what I call preemptively decoupling.
• 1:15:57
  SPEAKER_00: You just separate your business.
• 1:15:59
  SPEAKER_00: Now they have two businesses: one to make money out of manufacturers and one to make money out of retailing.
• 1:16:05
  SPEAKER_00: And you rebalance the business model, which is you take the value capturing portion, which is only making money out of retailing, and move it to the showcasing products.
• 1:16:18
  SPEAKER_00: So today Best Buy works just like a media company.
• 1:16:21
  SPEAKER_00: It brings customers in with great new products and discounts and all the new stuff, and it makes money from the manufacturers, just like a media company would do, just like a television uh station would do.
• 1:16:33
  SPEAKER_00: Attract attention and monetize that attention.
• 1:16:36
  SPEAKER_03: Fantastic.
• 1:16:37
  SPEAKER_03: Fantastic.
• 1:16:39
  SPEAKER_01: Uh so Pallas, uh, for some uh uh closing questions uh that we have uh for me, uh after listening to you, uh I wanted to ask you what are some of the books that have inspired you.
• 1:17:00
  SPEAKER_00: So so I think that uh the the first book you know I read was from my late colleague Craig Clay Christensen.
• 1:17:07
  SPEAKER_00: Um uh The Innovator's Dilemma.
• 1:17:10
  SPEAKER_00: I think it's a phenomenal book.
• 1:17:11
  SPEAKER_00: It shows how big companies die essentially.
• 1:17:16
  SPEAKER_00: How big companies fail to innovate.
• 1:17:19
  SPEAKER_00: And it's a brilliant uh uh uh treaty on explaining the mechanics by which big companies die.
• 1:17:26
  SPEAKER_00: Uh and it's a very unique book, and it's it's extremely impacted my my life.
• 1:17:32
  SPEAKER_00: And I talked to Clay Christensen many times in the process of doing my own research until he he he died a few years ago, but he left a great legacy.
• 1:17:42
  SPEAKER_00: Uh unfortunately, the book doesn't say how to avoid death.
• 1:17:47
  SPEAKER_00: Um, the book uh tells a lot about how big companies die, but it really doesn't tell how to avoid the death.
• 1:17:54
  SPEAKER_00: It's just a description of how big companies die.
• 1:17:57
  SPEAKER_00: Another book, um, um The Lean Startup by Eric Rees.
• 1:18:03
  SPEAKER_00: Um I think that's a great book, and it talks about a lot about you know pivoting, experimentation, and uh uh getting signals from customers.
• 1:18:12
  SPEAKER_00: So the lean startup is I think it's a great book.
• 1:18:16
  SPEAKER_00: Uh Crossing the Chasm that talks about kind of the early adopters, the late adopters, the laggards by Roger Moore.
• 1:18:24
  SPEAKER_00: I think it's a great uh book on uh understanding the difference between customers and their uh um value for innovating, because as a customer, if you're the early adopter, you're taking risks.
• 1:18:38
  SPEAKER_00: And often companies or startups don't realize that.
• 1:18:42
  SPEAKER_00: The first few customers to use Uber, essentially you are taking a huge risk.
• 1:18:47
  SPEAKER_00: You're going into somebody's car, and this is not a company, and you hope they won't kill you.
• 1:18:54
  SPEAKER_00: It's at night.
• 1:18:54
  SPEAKER_00: I hope they're not gonna kill me.
• 1:18:56
  SPEAKER_00: I hope they're not gonna just throw my because I don't know.
• 1:18:58
  SPEAKER_00: I've never heard of Uber.
• 1:19:00
  SPEAKER_00: What?
• 1:19:00
  SPEAKER_00: It's not a taxi, it's like a person's car.
• 1:19:02
  SPEAKER_00: Who's this person?
• 1:19:03
  SPEAKER_00: I don't know.
• 1:19:04
  SPEAKER_00: Right?
• 1:19:04
  SPEAKER_00: So there's risks to doing that.
• 1:19:07
  SPEAKER_00: There's risk to renting a house on Airbnb because you arrive there and the house doesn't exist or it's not not their house.
• 1:19:14
  SPEAKER_00: You paid somebody.
• 1:19:15
  SPEAKER_00: So oftentimes innovators forget that consumers are taking risks for the first time.
• 1:19:23
  SPEAKER_00: And and and you need to figure out how to get customers to trust and be willing to take the risk, and the reward has to be bigger, right?
• 1:19:32
  SPEAKER_00: And so I think that's kind of those are three books that I'd say.
• 1:19:36
  SPEAKER_04: So Thales, my thanks, Thales.
• 1:19:38
  SPEAKER_04: So my next question to you is what does the word success mean to you?
• 1:19:43
  SPEAKER_00: What does the word success mean?
• 1:19:45
  SPEAKER_00: I well, you know, I think success is uh varies by by each person.
• 1:19:50
  SPEAKER_00: Each person has a measure of success.
• 1:19:52
  SPEAKER_00: Uh but I think uh success is basically what do you want to achieve and how close are you to getting there?
• 1:19:59
  SPEAKER_00: Right?
• 1:19:59
  SPEAKER_00: And so if you want to achieve building a big business, that's great.
• 1:20:03
  SPEAKER_00: If you want to actually uh build a nonprofit and and provide lots of values to many consumers and people around the world, that's great.
• 1:20:13
  SPEAKER_00: That's kind of your objective.
• 1:20:15
  SPEAKER_00: Uh and so each each one of us has to define kind of what what they want to achieve.
• 1:20:22
  SPEAKER_00: Um and success is how how closer are you getting to that?
• 1:20:28
  SPEAKER_00: Um first you need to know where you want to be, right?
• 1:20:32
  SPEAKER_00: There's this uh nice saying that I love to uh about uh Alice in Wonderland, the children's book.
• 1:20:39
  SPEAKER_00: And uh Alice sees kind of uh um one of the you know this this this big rabbit in the woods, and Alice and Alice says, you know, uh um which path should I take?
• 1:20:52
  SPEAKER_00: Because there's many paths.
• 1:20:54
  SPEAKER_00: And basically the rabbit says, uh, so where do you want to go?
• 1:20:58
  SPEAKER_00: And she says, Well, I don't know.
• 1:21:01
  SPEAKER_00: And the rabbit says, Well, then you can take any path.
• 1:21:03
  SPEAKER_00: Any path will get you there.
• 1:21:05
  SPEAKER_00: If you don't know where you're going, any path will take you there.
• 1:21:08
  SPEAKER_00: So you need to know where you're going because or else you can't make decisions on which path, which route to take.
• 1:21:15
  SPEAKER_00: Right?
• 1:21:16
  SPEAKER_01: So I'd say that's you know, success is driving towards that that end goal that you have in mind.
• 1:21:25
  SPEAKER_03: Great.
• 1:21:25
  SPEAKER_03: Uh Thales, my next question is uh what's the one piece of great advice that you've ever received?
• 1:21:36
  SPEAKER_00: So um you know I was in uh I I did college in Brazil and uh and then I wanted to get a job like everybody else.
• 1:21:49
  SPEAKER_00: And the jobs weren't that good when you come out of college.
• 1:21:52
  SPEAKER_00: Many of the jobs didn't seem like that wonderful to me.
• 1:21:56
  SPEAKER_00: Wonderful businesses, but when you would ask them, what am I supposed to do?
• 1:22:00
  SPEAKER_00: They would say a bunch of things that weren't that valuable.
• 1:22:03
  SPEAKER_00: And um and then uh uh I had a a professor who's who encouraged me to do a master's in statistics say, Don't go get a job now, you're too young.
• 1:22:13
  SPEAKER_00: Go go do a master's in statistics and understand very deeply um how to uh uh create knowledge from data.
• 1:22:24
  SPEAKER_00: That will be extremely powerful for all of your career.
• 1:22:27
  SPEAKER_00: And I said, but I want to make money.
• 1:22:29
  SPEAKER_00: And he said, You're too young to make money, you're not gonna make much money because you have very little differentiated skills versus other people that are coming out.
• 1:22:39
  SPEAKER_00: You might think you're amazing, but you're actually not.
• 1:22:42
  SPEAKER_00: And until you can prove that, you're just going to make just a little bit amount of money.
• 1:22:47
  SPEAKER_00: And now is the time for you to develop yourself.
• 1:22:50
  SPEAKER_00: And I think that was extremely valuable advice, right?
• 1:22:53
  SPEAKER_00: So if you're coming out, like just learn as much as you can.
• 1:22:58
  SPEAKER_00: And then later on in life, when you've learned so much, you can extract in the form of you know, uh, getting a job and working andor building a business, something like that.
• 1:23:09
  SPEAKER_00: So early on, I'd say like the big advice was to learn as much as I could and leave the process of value capturing that we've been talking about for later on.
• 1:23:23
  SPEAKER_00: Try to not want to capture a lot of value when you're 20, 21, 22, because there's so much complexity in the world, so much that you need to invest time in kind of creating knowledge, and later on in life you can kind of start extracting value.
• 1:23:38
  SPEAKER_00: And for the most successful people in the world that I've talked to, the most success when measured by a certain amount of wealth, they they keep telling me, totalist, like I'm 60 or I'm 70 or I'm 80 or I'm 55 or I'm 40, you know, like um 80 to 90 percent of my wealth I re I captured in the last 10 years of my life.
• 1:24:01
  SPEAKER_00: So you can see that um, you know, like if if you learn powerful ideas and concepts and theories and you learn about the word as much as possible, you learn that becomes fuel for you.
• 1:24:18
  SPEAKER_00: And then later on in life, it's so much easier to monetize that than if you just try to make money and get the job that pays more early on in your career.
• 1:24:26
  SPEAKER_00: And that's what I think.
• 1:24:27
  SPEAKER_04: So Thales, my next question to you is if you could invite four guests for a dream dinner, who would they be?
• 1:24:34
  SPEAKER_00: Alright, so I've thought about this.
• 1:24:36
  SPEAKER_00: I've thought about this.
• 1:24:37
  SPEAKER_00: It would not be Swami and Place.
• 1:24:40
  SPEAKER_00: I apologize, but if I only have four, if I have many, I can invite you guys.
• 1:24:45
  SPEAKER_00: But if I only have four, it would probably not be neither of you in Portugal.
• 1:24:51
  SPEAKER_00: Uh I think uh one I admire, uh uh the former uh U.S.
• 1:24:55
  SPEAKER_00: President Barack Obama.
• 1:24:57
  SPEAKER_00: I really admire him.
• 1:24:58
  SPEAKER_00: I would have him at the table.
• 1:25:01
  SPEAKER_00: I admire his thinking, his clear thinking.
• 1:25:04
  SPEAKER_00: You know, eight years as president of the U.S., he would be extremely valuable uh to think about.
• 1:25:11
  SPEAKER_00: Um, I would invite, you know, you didn't say if it was alive or dead, so I would definitely uh invite Steve Jobs to to the dinner.
• 1:25:19
  SPEAKER_00: I just just you know, understanding kind of uh how his mind works would be extremely fascinating.
• 1:25:26
  SPEAKER_00: But there's only so much you can learn in a dinner.
• 1:25:29
  SPEAKER_00: You need to have fun and you need to enjoy and have a few good laughs.
• 1:25:33
  SPEAKER_00: So uh I would uh this uh this also deceased uh um he was a kitchen chef, Anthony Burdain.
• 1:25:40
  SPEAKER_00: I really liked he was he had these shows that would travel around the world and eat, and I thought he was such a fun guy, like such a cool guy, right?
• 1:25:48
  SPEAKER_00: You know, this is like a cool, fun guy.
• 1:25:50
  SPEAKER_00: Um I would I would love to to uh have that.
• 1:25:54
  SPEAKER_00: And then um, and then the last one would be definitely a comedian.
• 1:25:58
  SPEAKER_00: I it could be many of them, but I would just want to laugh, and and there's many comedians uh uh out there.
• 1:26:04
  SPEAKER_00: Um Stephen Colbert is uh is a great comedian, uh, and uh um David Chappelle that I watched, uh very controversial, but somebody just to make me laugh during dinner, uh I think it would probably be something like those four.
• 1:26:19
  SPEAKER_04: That is a superb lineup.
• 1:26:21
  SPEAKER_04: I'm I I am probably gate crashing that dinner, so please forgive me.
• 1:26:26
  SPEAKER_03: Very cool.
• 1:26:27
  SPEAKER_03: Um my next question uh out of the last two questions, uh Thales is uh what would be one piece of advice that you would give to an 18-year-old in an university or college today?
• 1:26:42
  SPEAKER_00: Innovate.
• 1:26:44
  SPEAKER_00: Innovate.
• 1:26:45
  SPEAKER_00: No doubt about it.
• 1:26:46
  SPEAKER_00: It's like I think uh uh you know uh um part of the allure of your podcast, Contra Minds.
• 1:26:53
  SPEAKER_00: Contra Minds is, I think, you know, like you know different from the standard, right?
• 1:26:58
  SPEAKER_00: As I would understand it.
• 1:26:59
  SPEAKER_00: Like it's like you know, thinking differently, just like the Apple tagline, right?
• 1:27:04
  SPEAKER_00: Think different, uh, but like thinking differently, innovate.
• 1:27:08
  SPEAKER_00: Um, you know, when I graduated from college, there wasn't no the path to innovation wasn't available.
• 1:27:14
  SPEAKER_00: You either kind of you either was were rich and you would take over the family business, or you would go get a job in a big company, IBM, Coca-Cola, Boeing, uh, Microsoft, all these things, and rise up as an executive.
• 1:27:29
  SPEAKER_00: And I'm talking about undergraduate in business education.
• 1:27:33
  SPEAKER_00: But the startup path, mostly if you wanted to build a business, you would probably build like a restaurant or a hotel, something.
• 1:27:40
  SPEAKER_00: It wasn't available now.
• 1:27:42
  SPEAKER_00: And today I see the premium that markets and big companies are paying for innovation is sky high.
• 1:27:52
  SPEAKER_00: You build something, the valuations are just dramatic.
• 1:27:55
  SPEAKER_00: There's never never that I can think of in the past, there's been such A premium to innovation as it is today.
• 1:28:04
  SPEAKER_00: So I think as a young person coming out of college, you would be almost stupid to not want to try to come up with something innovative, an innovative product, innovative service, in an innovative business.
• 1:28:21
  SPEAKER_00: Like innovation is at its highest price in the market today.
• 1:28:28
  SPEAKER_00: So spending time with anything else to me is almost inconceivable given the energy, the youth, the desire for disruption, and the market will pay for it if you come up with something.
• 1:28:48
  SPEAKER_00: And so there's there's out there examples of small innovations that have gotten multi-billion dollar uh valuations or cash outs.
• 1:28:57
  SPEAKER_00: So you know, I I just say kind of if you're not if you're not thinking going out there seeing customers that are unhappy and building something for them, I'd probably almost say you're wasting your time.
• 1:29:11
  SPEAKER_01: You're wasting your 20s, so to speak.
• 1:29:15
  SPEAKER_04: So Thales, my final question to you is and before I uh ask, I want to thank you for sharing your valuable time with us.
• 1:29:24
  SPEAKER_04: You spent uh close to what an hour and a half, 90 minutes with us, and I hope you had a great time.
• 1:29:31
  SPEAKER_04: And uh just as an extension of that, uh now that you've been a part of the conversation, you had a chance to experience uh what it's like.
• 1:29:40
  SPEAKER_01: Um my final question to you is this um who someone you would like to see as a guest on Contra Mans?
• 1:29:50
  SPEAKER_01: Well, I think I'd like to see a somebody who's really thinking something very differently, who's saying something very differently from the others.
• 1:30:05
  SPEAKER_00: Um I like to think somebody to to see somebody who is talking about you know innovation and entrepreneurship in a in a very different way.
• 1:30:18
  SPEAKER_00: Uh I've uh there's a few people that I've read um certain articles.
• 1:30:25
  SPEAKER_00: Uh Steve Blank is one um that would come to my mind.
• 1:30:30
  SPEAKER_00: Eric Reese would also come to my mind.
• 1:30:34
  SPEAKER_00: Um as a you know, a potential guest that I would love to hear him speak.
• 1:30:40
  SPEAKER_00: But um entrepreneurs, uh Sarah Blakely has been remarkably successful.
• 1:30:46
  SPEAKER_00: Um I would like to hear her.
• 1:30:50
  SPEAKER_00: Um I think also uh female entrepreneurs that they're taking a very different approach to entrepreneurship.
• 1:30:58
  SPEAKER_00: Uh uh they see things different from what men and young uh uh men entrepreneurs, male entrepreneurs do, and I I think there's a lot to be said about the female founder voice that I would like to learn.
• 1:31:15
  SPEAKER_01: And there's many examples of those.
• 1:31:17
  SPEAKER_03: Thanks, uh thanks, Pallas.
• 1:31:19
  SPEAKER_03: Uh uh, we absolutely enjoyed uh this conversation.
• 1:31:24
  SPEAKER_03: It was completely uh I would say authentic.
• 1:31:28
  SPEAKER_03: Uh things that came from your heart and the way you spoke, uh we really thought uh we learned a lot of things.
• 1:31:37
  SPEAKER_03: And personally, I learned a lot of things uh out of the many concepts that you have left behind, and uh I'm going to reflect on them, see if I can put them to practice, and I'm sure our audience uh they're going to really enjoy the depth of what you said and the way things need to be done to disrupt markets, uh, because customers disrupt businesses, and therefore uh it's important that we disrupt ourselves uh to ensure that we remain relevant uh in today's world.
• 1:32:12
  SPEAKER_03: Thank you very much.
• 1:32:13
  SPEAKER_03: And it was an absolutely invigorating conversation with you.
• 1:32:18
  SPEAKER_00: I'm so glad to hear that.
• 1:32:20
  SPEAKER_00: Swami and Minash, thank you so much for the invitation.
• 1:32:23
  SPEAKER_00: This was a true joy and pleasure to talk to you.
• 1:32:26
  SPEAKER_00: Obviously, I'm very excited about these ideas and any new idea that comes out in the space.
• 1:32:31
  SPEAKER_00: There's huge opportunities, and thank you so much for putting together this and other sessions of the Contra Minds podcast.
• 1:32:38
  SPEAKER_00: Um, you're doing something extremely important, which is disseminating knowledge.
• 1:32:42
  SPEAKER_00: And I really uh uh tip uh my hat to both of you for doing so.
• 1:32:46
  SPEAKER_04: Thank you so much, Thanos.
• 1:32:48
  SPEAKER_02: It is an absolute privilege.
• 1:32:51
  SPEAKER_02: Thanks for listening to this episode.
• 1:32:54
  SPEAKER_02: For selected links and detailed show notes, visit www.contraminds.com slash blog.
• 1:33:02
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• 1:33:13
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• 1:33:16
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• 1:33:19
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• 1:33:26
  SPEAKER_02: Thanks for listening and stay safe.