Value chains are bogus

1 min read

How we can tell you’re a customer?

My bank just paid interest on my savings account. And since they are paying me, they must be my customer, right? Because, what is fundamentally different between transactions with customers and suppliers? The former pays money and the latter gets paid, right? No?

Or, when I pay Google with my data, am I a supplier? What then makes me Google’s customer? The relative contribution to my or their bottom line? No?

This question is interesting when you are building business models. Customers get treated differently and with more priority. So, simple question: how to tell customers from suppliers other than “I know it when I see it”.

In the middle

Entrepreneur means middle man. Her place in the value chain implies there is an upstream: suppliers, and a down stream: consumers. And in the middle there she is, the entrepreneur. Performing and endless two-step process of buying up low and selling on high; making profits on the value gradient.

Fig 1. Value chain with entrepreneur

Value chains answer the ancient question: “Where does value come from? What causes things to be valuable?” Well, down the economic rabbit hole we go. The value chain “explains” how expectations and price signals cascade through adjacent markets, and the next one, and the next. And then… it’s turtles all the way down.

Until we seem reach the end of the line. The place where consumer want things. And on the other end mother nature. The place where farmers, fishers, miners and recyclers extract stuff, seemingly from no-one, like solar panels. And the rest of the economy is somewhere taking (preneur) up the parts in between (entre).

Fig 2.a A typical I-O model, value flows the wrong way.

Most business models models are therefor depicted as a left to right Input-Troughput-Output model. Flowing from left to right. (As of the marginal revolution 150 years ago we know, in fact, that value is created by suction at the top of the chain. Value is made by “wanting an extra units of that”, not by units of labor.) An entrepreneur has to constantly predict how the value chain will react to existing flow, and new flows. By constantly checking for what if scenario’s.

Right?! Wrong…

This paradigm of a chain and role of the entrepreneur gives rise to a hell of of problem. What is fundamentally different between transactions with customers or suppliers respectively? It’s hard.

Recursive Transactional Algorithms

This is the answer…

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