The De-coupling Opportunity

This topic needs a bit of context and background.

When businesses generate cash surpluses, suddenly there is a demand by the investors/market to do something with the cash. You give in to the merchant bankers and buy businesses, or build new businesses ( or buy back shares if you have no ideas left. )

Over time, the original razor sharp specialist becomes a conglomerate ( which looks more like a shopping basket). And then the ‘Conglomerate Discount’ happens. It is the discount to the stock valuation for a firm which is spread across multiple businesses ( and hence has thin focus and poor core competency!) . A classic example is how GE was discounted by the stock market since the management attention is spread across multiple unrelated businesses.

Way back in 2000, Jack Trout exclaimed ‘ Differentiate or Die’. Unless you are sharpening your differentiation, you will lose in the market place .

On the other hand, given the shorter business cycles today, the obsolescence rates for current businesses are much faster. So businesses have to find new sources of growth replacing the older ones.

Those are both sides of the coin for the dear reader. The case to specialise and the case to diversify.

Now let us look at the de-coupling opportunity. As someone tries to reimagine an existing industry/market place, one way is to re-imagine the full business model and process. The other ( and perhaps cheaper/less risky) way is to de-couple and re-imagine ONLY a part of the business process. It does not bring radical changes to the market but it would still give the innovator enough incentive and opportunity.

Here are a couple of examples to understand ‘Decoupling’ opportunities.

A market place platform replaces a showroom of limited choices , with multiple choices and convenience. Thus it is decoupling the showroom part of the chain and making it significantly better.

A stock trading app is decoupling the broker/advisor based stock selection to knowledge enhancement and self service based investment management.

Why is it cheaper/less riskier? Because you are changing a portion of the process which makes customer/market adoption easier and your chance of success higher. It is also a prudent way to influence the market when you are small.