KTN’s Access to Funding and Finance team share their advice on analysing your company’s value chain to show your value to investors.
It is useful to explore and map how you fit in the value chain so that it is clear to you and investors where you create value and where you create a competitive advantage. Through mapping the value chain it can also highlight any gaps and potential risks that might sit within your commercialisation plan. Creating your value chain map is therefore another important task for an early stage company to do.
Value chain map
To develop your value chain map there are five key elements to consider:
- Inbound logistics – this encompasses everything from receiving raw materials to warehousing costs
- Operations – this is how you turn the ‘raw materials” into products and services and covers everything including your staff
- Outbound logistics – this is how will you get the finished product and/or service to the customer
- Marketing – this is how you plan to engage with your customers and end users. How will they know that you exist and why are you so special?
- and last…. Sales & Services – This is how customers will actually buy your product, and the value add of your ongoing service activities. These help maintain and also add value to your product and brand. Examples will include offers around excellent customer and repair services.
A useful tool to help with developing your strategy around this is Porter’s Principles.
If you are an early stage company there will be many uncertainties but you can get started and it will help you understand your Unique Selling Points and define your business model. Take a look at Porters Principles as a useful tool to help create this value chain map.
Evaluating your operational risks
Once you have your map, you can highlight the strategically relevant activities and the resources required to deliver these. Map out the relevant costs associated with this and identify if this poses any operational risks. Operational risks to consider:
- Are you dependent on certain suppliers?
- How price sensitive is your business ecosystem?
- How does your offering fit with existing products, services or processes?
- Do you know your sales cycle?
- If you are offering 24/7 support, are there sufficient resources to meet demand and does this prove cost effective?
Sometimes life’s not that simple…
Your value chain can be further broken down to reflect different customers or even to reflect more than one route to market, so you may wish to consider these individually.
When a product can be sold both B2B and B2C, multiple options present themselves. For example within software it could be an enterprise sale delivered via a systems integrator and/or a direct sale to the end user company. Equally if your company is selling overseas, you may find it more profitable to go through resellers or distributors.
Align your value chain with your business plan
Once you have captured and mapped all these elements, you should cross reference them with your financial and business plan.
When an investor can easily analyse your company’s value chain and can see value in each activity then you are showing that you are a good investment opportunity.