Entrepreneur - - By Andrew Neitlich

Where are you on the value chain?

A colleague of mine asks his clients to consider a cup of Starbucks coffee. The actual grounds in that coffee cost only pennies of the $3.75 you pay. At a diner, a cup of coffee might cost $1.50. But Starbucks manages to create a service experience that allows the company to charge 200X the cost of the actual product!

The same applies in professional services. Here are two examples:

1. A graphic designer charges a marketing consultant $350 to make a PowerPoint presentation look pretty. The marketing consultant charges his investment banker client $5,500 for the same PowerPoint, because he is producing a story that the client can use to raise money. The investment banker who hired the consultant gets $900,000 in stock for raising the money with the PowerPoint presentation.

2. A web designer charges $35 per hour to design the site for a new online service. The IT architect, who manages the designer, charges $6,000 per month ($150 per hour based on hours devoted to the project) to oversee the development project. And the owners of the company, who hire the IT architect, stand to make hundreds of thousands of dollars per month from the site.

Where are you choosing to play in the value chain? Are you the coffee grounds or the Starbucks?