Ex-Harvard Professor Reveals the Hidden AI Formula for Explosive Startup Growth

In a discussion with Talis Tashera, a former Harvard MBA professor, the focus is on leveraging AI effectively in business by understanding the customer value chain. Tashera emphasizes starting with identifying customer problems rather than creating trendy products and highlights the missteps companies like McDonald's have made by not aligning AI applications with customer needs. He introduces the concept of "decoupling" to disrupt markets by addressing weak links in the customer value chain, as demonstrated by companies like Twitch and PayPal. Tashera advises businesses to map value drivers and apply AI strategically to enhance productivity, reduce costs, and maintain competitiveness.

• The customer value chain involves identifying problems customers face and creating software solutions to address them.
• Many businesses mistakenly create products based on trends rather than customer needs, leading to forced solutions that don't solve real problems.
• The focus should be on understanding the entire customer value chain to develop meaningful startup ideas and business structures, especially in the age of AI.

"A lot of people do this backwards; they create that product because it's cool and because it's trendy and then they try to force a customer problem onto that solution which is not the way to go."

• This quote highlights the common mistake of creating solutions without identifying genuine customer problems, emphasizing the need for a customer-centric approach.

• The question for businesses is not whether to use AI, but how to use it effectively to grow their business.
• With the accessibility of AI technologies like OpenAI, the challenge lies in choosing the right processes and functions to apply AI for maximum impact.
• Companies should focus on strategic drivers of success and areas that distinguish them from competitors when implementing AI.

"The big question as you ask is am I using it correctly? Am I looking at the right processes in my business at the right functions and features?"

• This quote underscores the importance of strategic application of AI, ensuring it's used in areas that offer significant benefits and align with business goals.

• McDonald's attempted to use AI in drive-throughs, partnering with IBM, which was not known for AI advancements, leading to suboptimal results.
• The implementation focused on a process where customers were already satisfied, failing to address a real customer problem.
• The AI tool was not adequately tested, resulting in increased drive-through times and customer dissatisfaction.

"When they applied it, they didn't really test out if that there would have significantly reductions in cost, time, and effort."

• This quote illustrates the pitfalls of inadequate testing and misaligned AI applications, emphasizing the need for thorough testing and alignment with customer needs.

• Companies should find the right partners who are at the forefront of AI research and products.
• Focus on strategic areas that make the company distinct and leverage AI to enhance these strengths.
• Implement a test-and-learn approach to ensure AI solutions reduce costs, time, and effort for customers.

"You should really test, test, test, test and learn. Make sure that whatever you do before you launch it, you're actually reducing the cost of the process."

• This quote highlights the importance of continuous testing and learning to ensure AI implementations deliver tangible benefits.

• Startups should focus on narrow activities in the customer value chain where established companies underperform.
• The concept of "decoupling" involves identifying and improving specific customer activities that incumbents handle poorly.
• Successful startups often start with one or two activities that disrupt markets by offering superior solutions.

"The startups that really grow to disrupt markets, they start focusing on one or two very narrow activities in the customer's value chain."

• This quote emphasizes the strategy of targeting specific activities for improvement, allowing startups to effectively disrupt markets.

• The customer value chain consists of value-creating, value-capturing, and value-eroding activities.
• Value-creating activities provide pleasure or utility to customers, while value-capturing activities generate revenue for companies.
• Value-eroding activities are necessary but do not provide direct value to customers.

"The customer value chain is all the sequence of steps that customers do in order to derive value from products and services."

• This quote explains the concept of the customer value chain, highlighting the different types of activities and their roles in delivering customer value.

• Decoupling involves isolating a specific activity within the customer value chain and focusing on enhancing that activity to capture more customers quickly.
• Twitch exemplifies decoupling by creating a platform for watching others play video games, rather than developing or renting games themselves.
• The decoupling strategy allows businesses to identify areas where customers are dissatisfied and build a business around improving that specific experience.

"Decoupling is the act of looking at the customer value chain, figuring out where customers are unhappy, and building a business around that single activity."

• This quote explains the concept of decoupling and its focus on improving specific customer experiences to capture a market niche.

• The technological barrier to entry has significantly decreased, allowing more individuals to create software and enter the tech space.
• Success in entrepreneurship is not solely dependent on technology but on identifying and solving customer problems.
• Historical examples such as Facebook and Netflix illustrate that initial success did not rely on proprietary technology but on enhancing customer experience.

"The technology barrier has never been lower; anyone can now become a software builder."

• This statement highlights the reduced difficulty of entering the tech industry due to advancements in technology, emphasizing the importance of problem-solving over technological innovation.

• Entrepreneurs should focus on understanding the customer value chain to identify problems that need solving.
• Mapping out customer activities helps distinguish between value-creating, value-eroding, and value-capturing activities.
• Disruption is most likely to occur in areas where customers are dissatisfied, known as weak links in the value chain.

"Map out all the activities in the customer's value chain to identify which ones are value-creating, value-eroding, and value-capturing."

• This quote advises entrepreneurs to analyze the customer journey comprehensively to spot opportunities for innovation and disruption.

• Disruption is not limited to high-tech industries; traditional businesses can also innovate through new business models.
• The car wash industry experienced a major breakthrough with a business model innovation, leading to increased profitability and investment interest.
• This example demonstrates that innovation can stem from rethinking business models rather than relying solely on technological advancements.

"A major breakthrough happened in car washes with a business model innovation, leading to high profitability."

• This quote illustrates how traditional industries can achieve significant success by innovating their business models, independent of technological changes.

• Subscription models can change consumer behavior by offering convenience and reducing decision fatigue.
• Consumers often prefer a "set it and forget it" model, which can lead to increased business value.
• Businesses can innovate by understanding consumer desires for simplicity and convenience.

"You will pay this much and you can wash your car as many times as you want that caused such a dramatic change because many people say hey I don't want to be paying 15 20 25 bucks I can just pay a flat fee and I'm going to be able to come and bring my car to wash all the time."

• The quote illustrates how a subscription model can address consumer reluctance to pay per use, thus increasing perceived value and customer retention.

"Understanding that consumers often time they want solutions that is a what I call set it and forget it."

• This highlights the consumer preference for convenience and simplicity in service offerings, which can lead to business model innovation.

• Successful businesses identify problems rather than selling solutions directly.
• Target consumers by understanding their pain points and offering tailored solutions.
• Begin with problems you understand or have experienced to develop viable solutions.

"If you identify people that have a problem you sell the problem you don't sell the solution and that's important."

• This quote emphasizes the importance of addressing the consumer's problem rather than pushing a pre-existing solution, which can lead to more effective marketing strategies.

"Start maybe with a problem that you understand or you had before."

• Suggests leveraging personal experience with problems as a starting point for solution development, ensuring relevance and relatability.

• Collect consumer data to validate business problems and solutions.
• Use AI strategically to analyze large volumes of data, enhancing productivity and insight accuracy.
• AI can transform unstructured data into actionable insights, supporting decision-making processes.

"We created Bots that go online and reviews read all of these reviews on online in different websites and gets the information on reviewers."

• Demonstrates the use of AI to efficiently gather and analyze customer feedback, providing valuable insights into consumer satisfaction and pain points.

"Use AI very very end of the process use AI to help you get a lot of scale."

• Highlights the strategic use of AI in scaling data analysis efforts, ensuring the process is efficient and impactful.

• AI is transforming business operations by increasing speed and efficiency.
• Businesses need to adapt their models to remain competitive in an AI-driven market.
• The integration of AI should be purposeful, enhancing productivity rather than being used for its own sake.

"AI is going to disrupt everything from generative AI just humans cannot beat AI in terms of speed."

• This quote underscores the transformative impact of AI on business operations, emphasizing the need for businesses to adapt and integrate AI effectively.

"The AI we have today is the worst it's ever going to get."

• Suggests that AI technology is rapidly advancing, and businesses must continuously evolve to leverage its full potential.

• Many companies equate AI solely with chatbots, limiting their understanding of its potential.
• A better chatbot is rarely a strategic advantage in the competitive landscape.
• Understanding AI's value requires identifying business-specific value drivers.

"In their minds, it's like AI is a chatbot. If you think about it, very few companies out there having a better chatbot than competitors is a source of a distinct strategic advantage."

• The quote highlights the common misconception that AI's primary application is in chatbots, which often does not provide a significant competitive edge.

• Value driver mapping helps identify unique business strengths in the eyes of customers.
• It involves pinpointing features that distinguish a company from its competitors.
• The process is crucial for determining where AI can be effectively applied.

"Value driver mapping is super critical. What are all of the value drivers that make your company better than competitors in the eyes of the customer?"

• This emphasizes the importance of understanding unique business attributes to leverage AI effectively.

• Netflix improved its recommendation system by using AI to analyze viewer engagement.
• The process involved identifying expressive viewer reactions to content.
• Enhancements led to increased viewer engagement and reduced churn.

"We identified where people were most expressive using an AI expression tool... That actually increases engagement, increases likelihood of people watching, therefore reduces churn."

• The quote illustrates how AI-driven insights into customer behavior can enhance business outcomes.

• AI adoption can free up employees to focus on higher-value activities.
• Education is vital to alleviate fears of job replacement.
• Companies should guide employees to new opportunities rather than cut jobs.

"This is what's happening. We're trying to get you to save time so you can use up more time to be more productive in the value-added activities in which only you can do."

• The quote underscores the importance of communication and education in integrating AI into the workforce.

• Executives face a choice between cutting jobs or reallocating freed-up employee time.
• Smart executives should leverage AI to create new opportunities rather than just cut costs.
• Employees should proactively seek to redefine their value within the organization.

"Now I'm freeing up my employees' time to do other things, and I have a lot of other jobs or ideas or concepts or innovation attempts."

• This suggests that AI should be seen as an opportunity to innovate rather than merely a cost-cutting tool.

• AI can be categorized into generative, predictive, and automation AI.
• Each category serves different strategic purposes in business operations.
• The goal is to optimize resources and focus human capital on tasks AI cannot perform.

"Always think about kind of what's our generative AI strategy, what is our predictive AI strategy, and what is our automation strategy."

• The quote outlines the need for a comprehensive strategy that integrates various forms of AI to enhance business efficiency.