Own a more valuable customer relationship

Your place in the chain

Picture a company that makes one part inside someone else's product. Its customer is the product maker, not the person who uses the final thing.

It can grow in two ways.

Improve within its role: sell more parts, raise prices, or make a better part.

Change its position: reach the end customer directly, or become the place where payments flow.

The second path can make a startup more powerful. It also asks much more of it.

Map who owns the relationship

A value chain is the line of companies a product passes through before it reaches the end customer.

To map it, ask simple questions. Who talks to the end customer? Who collects their money? Who hears their complaints?

Whoever does those things owns the customer relationship.

If that is someone else, you depend on them. A better part does not remove that dependency.

Two candidate moves

Paul Graham asks whether a component supplier could change its position in two ways.

It could own the customer relationship, speaking to end customers itself.

Or it could become the place where payments flow, so money passes through it.

Graham treats both as candidate transformations. They are options to test, not outcomes every company can achieve.

Payments alone are not value

A common mistake: thinking that if payments run through you, your product becomes valuable.

It does not. Routing money through a startup changes who holds control. It says nothing yet about whether customers are better off.

Graham's test is strict. The change must make the customer's situation better.

Taking control without that benefit is not enough.

Weigh control against benefit

Every proposed shift has two sides: how much control you gain, and how much the customer gains.

High control with little customer benefit is extraction. High control with real customer benefit is a shift worth arguing for.

A better product with no position change keeps you dependent, even if customers like it.

Map it, then justify it

Try this on any product you know.

First, map the current relationship: who speaks to the end customer, who collects payment, who hears feedback.

Then name the shift you are considering.

Finally, state the customer improvement. What does the customer get that they do not get today?

If you cannot answer that last question, the shift is about control, and control alone is not value.

A small startup makes a part that a bigger company puts inside its own product. The bigger company sells to the users. Changing the startup's position in the value chain, rather than only earning more in its current role, would mean the startup decides to _____.

• sell to users directly under its own brand
• charge the bigger company a higher price

Answer: sell to users directly under its own brand

Selling directly to users under its own brand changes the startup's role in the chain. Raising the price only earns more revenue inside the same role, still as a supplier to the bigger company.

Taking over more of the customer relationship can remove a _____ on another company. But the change is only justified if it makes the _____'s situation better.

Answer: Taking over more of the customer relationship can remove a dependency on another company. But the change is only justified if it makes the customer's situation better.

Owning a step that another company controls can remove a dependency on that company. The governing test, though, is whether the customer ends up better off. Gaining control without that benefit is not enough.

A startup builds analytics software. A reseller sells it under the reseller's own brand. The reseller talks to users, handles their subscriptions, and receives their feedback. Who owns the customer relationship right now?

• The reseller, because it talks to users, bills them, and hears their feedback
• The startup, because it built the software the users rely on
• The startup, because its software does the task users pay for

Answer: The reseller, because it talks to users, bills them, and hears their feedback

Owning the relationship means being the one who talks to users, handles their subscriptions, and hears their feedback. Here the reseller does all three. Building the software does not give the startup the relationship.