Why founders should focus on value chains instead of point solutionsVenture Building
You’re an aspiring startup founder with a smart idea for a product or service. How do you set yourself up for success so that on day one you’ve laid the foundation for turning your idea into a viable business?
You do this by:
- Identifying the larger value chain connected to your business idea
- Cataloguing all of the links in your value chain, and
- Determining whether there’s a better place to be in the value chain
What is a value chain?
A value chain is an abstraction of an organization. It views companies as a system composed of multiple subsystems where discrete activities work together to generate value. Each discrete activity or process adds new value to the developing product or service.
At the industry level, value chains become value systems or “industry value chains”, where external partners like suppliers, distributors, manufacturers, and retailers connect.
Understanding the value chain or value system is abundantly helpful for Canadian entrepreneurs, innovators, and investors.
Founders often focus on point solutions instead of the value chain
Slow or limited access to capital is one of the Canadian tech ecosystem’s major challenges. This leads to an intense focus on point solutions.
In an effort to generate revenue, keep the lights on, and fund growth, entrepreneurs become laser focused on specific products or services.
In reality, they should be focusing on mapping out the entire value chain for their given industry. This exercise often produces two major insights:
- A greater market opportunity: Investigating the value chain of a point solution can unearth more lucrative startup opportunities. For instance, a company focused on creating a B2C investment app for consumers may find there’s a greater need for a streamlined B2B technology solution to meet Know Your Client (KYC) requirements for opening an investment account.
- A long-term strategy that focuses on value, rather than revenue: Entrepreneurs may spot opportunities to deliver irresistible value by building solutions for several points on a value chain. In this way, they can offer elements of the value chain for free and use that as a gateway for a more valuable solution that allows them to charge money. This also provides a long-term strategy to present to investors, so they understand the need to focus on value generation and scale instead of immediate profits.
Barriers preventing the Prairie tech ecosystem from benefiting from the value chain.
Canada has an abundance of innovative potential, but there are challenges that block innovations getting to market. Executing on a long-term strategy that de-prioritizes revenue in the short-term requires significant venture capital. Moreover, this capital can’t be hyper-focused on rapid returns. It must be able to wait until the unit economics exist to take the scale acquired and transform that into profit.
Once Canadian entrepreneurs have greater access to capital, however, applying the lessons of value chains helps companies overcome other challenges such as the country’s smaller consumer market and the handful of powerful incumbents in key industries.
Interested in learning more about the trends shaping the Canadian tech ecosystem? Download Harvest's "Builders' 2021 Almanac: Forecasting the future of Canadian tech innovation.”