Fin Maverick
Foundations VocabularyAccounting & ReportingEconomics & MacroQuant Methods & ProgrammingBusiness & Company AnalysisCorporate Finance & ValuationBehavioural Finance
Banking & Market InfrastructureFixed Income & RatesDerivatives & Structured ProductsPublic EquitiesTransactions & DealsPortfolio ConstructionFunds & AMCs
Private Markets & AlternativesRisk, Treasury & ControlAI & Digital FinanceStochastic Calculus & PricingWealth & Personal FinanceIndian Markets & RegulationProfessional Practice
CalculatorComparison
Frameworks
Explore Bootcamps
Equity ResearchPortfolio ManagementMutual Fund MasteryFinancial LiteracyInvestment Banking Analyst
Private Equity AnalystHedge Funds AnalystBreaking Into VCBreaking Into QuantsAI For Finance
Financial Analyst ProgramRisk Management ProgramPrivate Wealth ManagementDebt Capital MarketsDerivatives Foundation
Explore Internships
Equity Research InternMutual Fund Intern
Portfolio Management InternFinancial Literacy Intern
Explore Micro Courses

Equity Research6

Writing an Investment ThesisBuilding a Discounted Cash FlowReading an Annual Report FastReading a Sector Before a CompanySpotting Quality of Earnings Red FlagsBuilding a Revenue Forecast From Drivers

Portfolio Management3

Rebalancing: When, Why and What It CostsStrategic and Tactical Asset AllocationMeasuring Risk in a Portfolio

Mutual Fund Mastery3

Comparing Funds Without Being FooledHow a NAV Is Struck and Which Day You GetReading a Fund Factsheet Properly

Derivatives Unlocked4

Hedging a Real ExposureThe Greeks, PracticallyFutures, the Basis and What Moves ItReading an Option Payoff

AI For Finance2

Retrieval and Grounding for FinanceDocument Extraction in Finance

Breaking Into Quants4

Backtesting a StrategyHypothesis TestingCleaning Financial DataRegression for Finance

Breaking Into VC3

Sizing a MarketReading a Term Sheet as a FounderHow a Venture Round Actually Works

Financial Analyst Program4

Common Size and Trend AnalysisReading a Cash Flow StatementRatio Analysis That Says SomethingBuilding a Working Capital Schedule

Risk Management Program2

Credit Exposure and How It Is ReducedValue at Risk and What It Hides

Investment Banking Analyst3

Precedent Transactions and Why They DifferReading a Term Sheet StructurallyBuilding a Comparable Companies Table

Private Wealth Management3

Tax Aware Portfolio DecisionsBuilding a Client Risk ProfileGoal Based Planning Arithmetic

Debt Capital Markets3

Analysing an Issuer's CreditDuration and What It Does Not Tell YouBond Pricing and Yield Mechanics

Private Equity Analyst2

Fund Waterfalls and CarryThe LBO in Structure

Hedge Funds Analyst2

Short Selling MechanicsLong Short Mechanics
Courses
Explore Career Roadmaps
Investment Banking AnalystEquity Research AnalystVC AnalystPrivate Equity AnalystHedge Funds Analyst
Quant AnalystAI For FinanceFinancial Analyst ProgramPrivate Wealth ManagementDebt Capital Markets
Risk Management ProgramDerivatives FoundationPortfolio ManagementMutual Fund Mastery
PartnershipsShowdown
Log inSign up
VC Analyst · CoreTrack
1Business, Industry & Company Analysis
iBusiness Fundamentals and Models
The Business EcosystemThe Business ModelStakeholdersThe Business Life CyclePlatform BusinessesHow to Build a…The Value NetworkMonetisationUnit EconomicsThe Profit PoolTake RateB2B vs B2C
iiRevenue and Pricing
The Revenue ModelRevenue Growth vs Monetisation…Pricing PowerRecurring RevenueAverage Revenue Per UserARPU vs Average Order ValuePrice DiscriminationGross Margin vs Contribution MarginFixed Costs vs Variable Costs
iiiOperating Model and Supply Chain
The Operating ModelThe Value ChainThroughputThe Supply ChainVertical IntegrationVertical vs Horizontal IntegrationProcurementCapacity UtilisationJust-in-Time vs Just-in-Case InventoryMake vs Buy
ivCustomers and Brands
Brand EquityCustomer LoyaltyCustomer Segments and the JourneyCustomer EconomicsHow to Analyse Customer…Distribution ChannelsCustomer Acquisition Cost
vCompetitive Advantage and Moats
The Sources of Competitive…Competitive RivalryEconomies of Scale and…Network EffectsSwitching CostsCost Leadership vs DifferentiationHow to Test Whether a Moat Is Eroding
viIndustry Structure and Sector Behaviour
Industry TypesConsolidation and FragmentationSubstitutesBuyer PowerSupplier PowerThe Industry Life CycleHerfindahl-Hirschman IndexSector vs IndustryCompany Analysis vs Industry AnalysisCyclical vs Defensive SectorHow to Apply Porter's…How to Analyse Competitive…
viiMarket Size and Addressable Market
Market SizeMarket Concentration vs Market ShareTop-Down vs Bottom-Up Market SizingDemand DriversThe Adoption CurveGrowth DriversMarket FragmentationMarket ShareHow to Interpret Market Share Changes
viiiInnovation and Technology Shift
InnovationResearch and DevelopmentTechnology Adoption and DiffusionThe Product Life CycleProduct Innovation vs Process InnovationDigital TransformationCannibalisationDisruptive InnovationThe Technology S-Curve
ixCorporate and Business Strategy
Corporate and Business Strategy ComparedHow to Build Business…How Execution Risk Can…Organic and Inorganic Growth ComparedGrowth Investment vs Capital ReturnOrganisation Design and TransformationHorizontal vs Conglomerate DiversificationCentralised vs Decentralised OrganisationCompany Research vs Investment ResearchHow to Separate Facts,…
xManagement and Governance Quality
Management QualityFounder-Led vs Professional ManagementThe PromoterThe BoardInstitutional OwnershipPromoter Ownership vs Institutional…The Agency ProblemIndependent DirectorsInsider OwnershipHow to Analyse Ownership…How Capital Allocation Shapes…
xiStrategic and Business Risk
Business RiskPlatform vs Pipeline BusinessAsset-Light vs Asset-Heavy vs…Commodity vs Branded BusinessHow to Write a…The Business Risk RegisterStrategy in PracticeStrategic Risk vs Financial RiskHow to Evaluate a…How to Build a…
xiiBusiness Research Method
Business AnalysisCompany Filings as a Research SourceCompetitor MappingThe Variant ViewPrimary ResearchPrimary vs Secondary Research
2Private Markets & Alternative Investments
iPrivate Markets Foundations
The Private FundHedge Fund vs Mutual FundHow to map a…How to distinguish a…Category I, II and III AIFs ComparedAlternative Investment FundPrivate MarketsPrivate Markets vs Public MarketsPrivate Equity vs Venture CapitalPrivate Credit vs Public CreditLong-Short vs Market NeutralHow to map Private Credit SeniorityHow to read a…How to map a…How to read a…How to map Private-Market Exit RoutesClawbackIlliquidityPreferred ReturnNAV Financing vs Preferred EquityFund RegistrationMultiple on Invested CapitalBuyout vs Growth EquityManagement Fee vs Carried InterestNAV vs Fair ValueNAV Financing vs Continuation VehicleGP vs LPHow to trace a…How to map a Fund LifecycleHow to read a…
iiPrivate Fund Structure and Governance
Limited PartnerThe Limited PartnershipPlacement MemorandumCommitment, Call and Capital AccountCapital CallCarried InterestHow Conflicts of Interest…Fund AdministratorFund SponsorKey-Person ProvisionsGeneral PartnerHow Limited-Partner Advisory Committees…Side LettersThe Waterfall
iiiFund Lifecycle
Fund Formation and TermRealisation and DistributionInvestment Period and Harvest PeriodDistributionFundraisingFinal CloseFund TermPrivate Fund Return MultiplesVintage BenchmarkVintage YearPublic Market EquivalentThe J-CurveRealised Value, Unrealised Value…MOIC vs IRR
ivPrivate Equity
Private EquityBuyoutGrowth EquityPortfolio CompanyBoard Observer
vVenture Capital
Venture CapitalSeed RoundVenture Capital Fund, Angel,…Series ASeries BThe Cap Table
viPrivate Credit
The Private Credit StackDistressed DebtWorkoutSecurity PackagePIK InterestPreferred EquitySyndicated LoansSenior DebtDirect LendingLeverage Ratios in Private Credit
viiReal Assets
Real AssetsBrownfield InfrastructureGreenfield and Brownfield InfrastructurePrivate Real Estate FundsREIT vs InvIT vs…Infrastructure FundsOccupancyThe Real Asset Risk SpectrumReal-Asset Cash Flow vs…Leases in Real AssetsNet Operating Income
viiiHedge Funds
Hedge FundsGetting Out of a Hedge FundPrime BrokerRedemption WindowSide PocketTail Risk in AlternativesGlobal MacroManaged FuturesMarket NeutralRelative ValueShort SellingHow Long-Short Strategies WorkEvent-Driven StrategiesArbitrageExposure and Leverage
ixDue Diligence and Private Fund Reporting
Private Fund NAVThe Investor LetterDue DiligenceInvestment Due Diligence vs…Fund AuditValuation AgentValuation LagLook-Through ReportingHow Private-Fund Reporting Can…The Quarterly Report
xExits
Strategic and Financial BuyersExitNAV FinancingContinuation VehicleContinuation Vehicle vs Traditional…IPO as an Exit RouteSecondary TransactionsStrategic SaleStrategic Sale vs Secondary Sale vs IPO

The Value Network: Who a Business Depends On

A value network is the set of outside parties a business chose and pays: suppliers, contractors, distributors, the provider that moves its money. Two separate things decide how much any one of them matters. How much of the business's flow runs through that party, and how long replacing it would take. The two properties do not move together, and the second is the one readers skip.

The two properties come apart for a reason worth stating plainly. Size is measured by looking backwards at what was already paid, and a payment record is easy to pull. Replacement time is measured by imagining a stoppage that has not happened, and nobody keeps a report of it. So one of the two properties is sitting in an accounts system waiting to be sorted, and the other has to be gone out and asked about, supplier by supplier. Anjani Stationers Private Limited, an invented printer, and Setu Bazaar, an invented marketplace, carry the illustration below.

What is a value network?

The money going out comes first. Anjani Stationers makes printed stationery and files, and every month it pays a handful of outside parties. A mill sends it paper. A supplier sends ink and coating. A contractor moves the finished cartons. An engineering firm services the folding and gluing machine. A binding workshop takes the overflow when an order is too large for the floor. Anjani picked each of those parties, negotiated with each of them, and can stop paying any of them. Together those parties form the value network: the outside parties a business depends on in order to deliver the thing it sells.

Two words in that sentence do the work, and they are chosen and paid. A counterpartyAny outside party on the other side of an arrangement from the business under examination. The word is neutral: a buyer, a supplier, a lender and a service contractor are all counterparties. that a business selected, and pays, has a name, an invoice, a phone number and a contract termThe length of time an arrangement runs before it has to be renewed or renegotiated, and the notice either side must give to end it early.. A name, an invoice and a term are what make a value network mappable in a way an ecosystem never is. Every party in it leaves a trail in the accounts.

The ecosystem is the other picture. An ecosystem is everything around the business that shapes its options without being chosen or paid by it: the technical institute two streets away that turns out machine operators, the road that was widened last year, the stationery habits of the schools in the district, the other printers whose price lists customers quote back. Anjani did not select any of that and does not pay for it. Value moves through it anyway.

Michael Porter's value chain, set out in Competitive Advantage in 1985, describes the sequence of activities that happen inside one firm's own walls, from goods coming in to the finished thing going out. A value network is the other half of that picture: the parties outside the walls that the firm chose and pays. C. B. Stabell and O. D. Fjeldstad, writing in the Strategic Management Journal in 1998, treated the network as one whole way of arranging value rather than a footnote to the chain, and that is the sense used here.

CHOSEN AND PAID SITS INSIDE. UNCHOSEN AND UNPAID SITS OUTSIDE. NEITHER CHOSEN NOR PAID BY THE FIRM A technical institute two streets away, a road widened last year, the price lists of other printers ANJANI STATIONERS invented for teaching Paper mill supplies the sheet Ink and coating supplies the finish Machine servicing keeps the line running Board and packaging supplies the carton Binding workshop takes the overflow Transport contractor moves the cartons A good or a service arriving A payment leaving, which is what makes the party choosable
Six counterparties that Anjani Stationers selected and pays sit inside the network, while the institute, the road and rival price lists sit outside it because nobody chose or paid them.

The same outside party can sit in either picture, and a contract moves it across. Take the technical institute. For years it trains operators, some of whom knock on Anjani's door looking for work, and Anjani takes the ones it likes. Nothing was agreed and nothing was paid, so the institute is part of the surroundings. Then Anjani signs an arrangement to sponsor six operators a year, pays a fee per head, and specifies which machines they must be trained on. Nothing about the institute changed. Anjani now chooses and pays, so the same building has moved inside the network and can be mapped like any supplier.

THE SAME INSTITUTE, BEFORE AND AFTER A CONTRACT IS SIGNED BEFORE: PART OF THE SURROUNDINGS The technical institute Chosen by Anjani No Paid by Anjani No Notice if it stops None AFTER: PART OF THE VALUE NETWORK The technical institute Chosen by Anjani Yes Paid by Anjani Yes, a fee per operator Notice if it stops Stated in writing Nothing about the institute changed. Anjani started choosing it and paying it, and that alone moved it across.
A contract is the only difference between the two panels, and it is enough to move the same institute from the surroundings into the value network.
Try it out

A road authority widens the highway past Anjani Stationers, and delivery times fall by half a day. Does the road authority belong in Anjani's value network?

Equity Research Bootcamp — Fin Maverick

What separates a dependency from an ordinary relationship?

Here is where a lot of mapping work goes wrong before it starts. Every party in the value network is a relationship. Only some of them are dependencies. Every dependency is a relationship, and most relationships are not dependencies. The difference is not size, not how long the arrangement has run, and not how friendly the last meeting was. The difference is what happens on the day that party stops.

Ask the question in its blunt form. If this counterparty told Anjani tomorrow morning that it was finished, how long before Anjani is producing normally again? If the answer is a few days of nuisance and some phone calls, that party is a relationship. If the answer is that a machine sits idle for months and orders go unmet, that party is a dependency. The test is the recovery, not the invoice.

Feel it at household scale. The same test works there. A household buys rice from a shop at the end of the lane, and has done for eleven years. The shop is a real relationship and the shopkeeper knows every member by name. If that shop shuts on Monday, the household buys rice from the next lane on Tuesday and the whole thing costs an hour of irritation. Now take the one bank account the salary is credited into. The bank is a colder relationship, nobody is on first name terms, and it may cost less in fees than the rice does in a week. But if that account is frozen on Monday, the rent, the school fee and the loan instalment all fail together, and getting a new arrangement running takes weeks of paperwork. The warm relationship is not the dependency and the cold one is.

Try it out

Which fact best shows whether an outside party is a dependency rather than an ordinary relationship?

Financial Literacy Bootcamp — Fin Maverick

How much of the business runs through this party?

The first of the two properties is called share of flow. Share of flow starts with a flow that matters, and asks what proportion of that flow passes through the counterparty in question. A party can be tiny in one flow and enormous in another, so three flows are worth measuring separately. The inputAnything bought in from outside that goes into what the business makes or sells: raw material, a bought in part, or a service such as transport or servicing. flow is what the business buys. The sales flow is what the business sells and through whom. The cash flow is the money itself, moving in and out.

Share of flow is easy, and the ease is exactly why everybody starts here and many people stop here. The numbers are already sitting in the ledger. Sorting the outside payments by size and expressing each as a proportion of the total produces a ranked list in an afternoon. Here is Anjani's. Anjani reports revenue of Rs 2,70,00,000/- and earnings before interest and tax (EBIT) of Rs 41,50,000/-, and none of the shares below is a proportion of either of those figures. The shares are proportions of what Anjani pays out to the six parties named, and they total one hundred by construction.

CounterpartyShare of outside paymentsKnown alternatives
Paper mill46.0 per cent9
Ink and coating supplier17.0 per cent6
Transport contractor14.0 per cent12
Board and packaging supplier12.0 per cent5
Binding workshop7.0 per cent3
Machine servicing contractor4.0 per cent1
Total100.0 per cent

Read that table the way most people read it and the paper mill is the headline. The mill takes 46.0 per cent of everything Anjani pays outside. The next two add up to 31.0 per cent between them, 17.0 and 14.0, so the mill is larger than both together. The mill is the largest relationship Anjani has by a wide margin, and there is nothing wrong with saying so. Share of flow is half the picture, so stopping there is the mistake. On its own the share cannot show what would happen if any of these parties walked away.

One warning about the word concentrationHow much of a total sits with a small number of parties. Concentrated sales mean most of the revenue comes from very few buyers, whatever the total., which gets used loosely here. A high share of flow through one party is concentration, and concentration is a real thing to notice. But it describes the shape of the list, not the consequence of a stoppage, and those are separate questions.

Try it out

The two properties that decide how severe a dependency is are share of flow and one other. Which?

How fast could this party be replaced?

The second property is replaceability, and it is the one that does the work. Replaceability asks a single question with a number for an answer: starting from the morning this counterparty stops, how many weeks until the business is running normally on somebody else. Three things go into that number. How many alternatives exist at all. The lead timeThe gap between placing an order or starting an arrangement and actually receiving the thing. A twelve week lead time means twelve weeks of waiting after the decision has been made. before a new party can actually start. And the switching costEverything that has to be spent or redone in order to move from one party to another: retooling, retraining, re-testing, re-certifying, and the work that goes into a new arrangement. of retooling, retraining and re-testing once it does.

Run those three questions over Anjani's six. The paper mill is enormous and utterly replaceable: nine mills within reach make the same weight and finish, quotes come back in a day, and the first delivery lands in about two weeks. The transport contractor is even easier, with twelve options and a week to switch. The machine servicing contractor is the opposite in every respect. The servicing contractor is the only firm within reach certified on that folding and gluing machine, spares come from the machine maker on a long lead, and an engineer has to be trained on that specific model before touching it. If the contractor stops, Anjani is looking at roughly twenty six weeks, or half a year.

CounterpartyShare of outside paymentsReplacement timeKnown alternatives
Paper mill46.0 per cent2 weeks9
Ink and coating supplier17.0 per cent4 weeks6
Transport contractor14.0 per cent1 week12
Board and packaging supplier12.0 per cent3 weeks5
Binding workshop7.0 per cent6 weeks3
Machine servicing contractor4.0 per cent26 weeks1
Total100.0 per cent

A small supplier with no substitute is a larger dependency than a large one with ten substitutes. The servicing contractor takes 4.0 per cent of Anjani's outside payments, which is 11.5 times less than the paper mill's 46.0 per cent. 26 weeks against 2 weeks is a ratio of thirteen, so the contractor also takes 13 times as long to replace. The two ratios point in opposite directions, and only one of them describes what happens when the phone call comes.

Share of flow and replacement time are independent properties. Knowing one reveals nothing about the other. They are not two ways of measuring the same thing and they are not a cross-check on each other. A party can be large and instantly replaceable, small and impossible to replace, large and impossible, or small and easy. All four combinations occur, and any of them can turn up in a business under examination. A list ranked by size is therefore not a ranking of dependencies. The list ranks one property, presented as though it settled both.

SIZE ON ONE AXIS, REPLACEMENT TIME ON THE OTHER Anjani Stationers, six counterparties. Proportions and lead times are illustrative. SMALL SHARE, SLOW LARGE SHARE, SLOW No counterparty of Anjani sits in this quadrant SMALL SHARE, QUICK LARGE SHARE, QUICK 0 10 20 30 40 50 SHARE OF ANJANI'S OUTSIDE PAYMENTS, PER CENT 1 2 4 8 16 32 REPLACEMENT TIME, WEEKS, DOUBLING SCALE Paper mill 46.0 per cent, 2 weeks Ink and coating Transport Board and packaging Binding Machine servicing 4.0 per cent, 26 weeks
The smallest counterparty sits alone at the top of the replacement axis, which is the reading a list sorted by payment size can never produce.
Try it out

If a counterparty takes 46.0 per cent of a firm's outside payments, what does that show about how long it would take to replace?

Investment Banking Analyst Bootcamp — Fin Maverick Bond Pricing and Yield Mechanics — free micro-course from Fin Maverick

Why is the largest supplier not always the biggest dependency?

Because the two rankings are built from two different columns, and there is no rule forcing them to agree. Sort Anjani's six by share of outside payments and the order runs paper mill, ink and coating, transport, board and packaging, binding, machine servicing. Sort exactly the same six by replacement time and the order runs machine servicing, binding, ink and coating, board and packaging, paper mill, transport. Five of the six positions change. The party at the top of the first list falls to fifth on the second, and the party at the bottom of the first list rises to first.

Only one party holds still. The board and packaging supplier sits fourth on both. An illustration showing nothing but disagreement would teach a rule that does not hold, so the match is worth pointing at. The two rankings are not opposites and they are not required to differ. The two rankings are simply built from different information, so sometimes a party lands in the same place on both and sometimes it does not. Assuming they agree is the one move that is never safe.

Setu Bazaar shows the same finding in a sharper form, and its shape is different enough to be worth walking through. Setu Bazaar is a marketplace where buyers and sellers meet. Goods worth Rs 5,00,00,00,000/- pass across it in a year, its gross merchandise valueEverything buyers spent across a marketplace over a year, added up. Gross merchandise value is not the marketplace's own earnings, and on a platform the two are usually far apart.. Setu keeps 4.00 per cent of that total as its own revenue, or Rs 20,00,00,000/-. The flow across the marketplace is therefore 25 times the marketplace's own revenue.

Setu Bazaar counterpartyShare of outside paymentsReplacement time
Logistics, the other three22.0 per cent2 weeks
Cloud and hosting provider21.0 per cent16 weeks
Marketing and listing agencies20.0 per cent5 weeks
Logistics, the largest of four16.0 per cent3 weeks
Customer support contractor12.0 per cent4 weeks
Payment provider9.0 per cent12 weeks
Total100.0 per cent

The payment provider is sixth of six on what Setu pays it, and second of six on how long it would take to replace. But there is a third column that does not fit in the table, and it is the one that matters most. Every rupee of the Rs 5,00,00,00,000/- that crosses Setu Bazaar in a year passes through that one payment provider, so a party taking 9.0 per cent of the outside payments carries 100.0 per cent of the flow. The smallest invoice and the largest dependency are the same row. Share of flow and replaceability agree for once, and both disagree with the payment record.

THE SMALLEST INVOICE CARRYING THE WHOLE OF THE FLOW BUYERS ONE PAYMENT PROVIDER WHERE IT LANDS Rs 5,00,00,00,000/- of goods value a year from 50,000 buyers 100.0 per cent of it Rs 4,80,00,00,000/- to the sellers what buyers spent, less what Setu keeps 96.00 per cent of the flow Rs 20,00,00,000/- kept by Setu a take of 4.00 per cent of what passes through WHAT THE PAYMENT RECORD SHOWS INSTEAD The same provider takes 9.0 per cent of what Setu Bazaar pays outside parties, which places it sixth of six on the payment record and first on the share of flow that actually passes through it.
Setu Bazaar pays its payment provider less than any other counterparty while sending every rupee of its Rs 5,00,00,00,000/- of annual flow through it.
Try it out

Anjani's paper mill is 46.0 per cent of outside payments and takes 2 weeks to replace. The machine servicing contractor is 4.0 per cent and takes 26 weeks. On the evidence given, which is the larger dependency?

Ratio Analysis That Says Something teaches you to choose ratios that answer a question rather than fill a template.

How is a dependency map actually built?

The procedure is short and it is deliberately in this order. First, list every outside party the business pays, taking the list from the payment records rather than from anybody's memory. Memory drops the small ones, and the small ones are the point. Second, put the share of flow beside each. The ledger already knows it. Third, put a replacement time beside each, in weeks. The ledger does not know that one, and it has to be asked about party by party. Fourth, and this is where most maps go wrong, sort by the third column rather than the second.

The map is read along the replacement axis first. A spending report is read the exact opposite way. A spending report is sorted by size because its job is to show where the money went, and that is a reasonable job for it to have. A dependency map has a different job. Its job is to show what would stop, and the column that answers that question is replacement time. Sorting a dependency map by size produces a spending report with a different title on it.

One practical note on the third step, the step people skip. A replacement time is an estimate and it will be wrong in the second decimal place. The second decimal place does not matter. The order of magnitude is what matters: a week, a month, or half a year. Getting six counterparties roughly ordered on that scale is worth far more than getting one of them precisely right, and it can be done in a morning of phone calls.

FOUR STEPS, AND THE ORDER OF THE LAST TWO IS THE POINT STEP ONE List every outside party the business pays STEP TWO Mark the share of flow against each STEP THREE Mark the replacement time in weeks STEP FOUR Sort by the third column, not the second The accounts can answer this side Only the counterparties can answer this side Step four is drawn in lime because it is the step that gets skipped, and skipping it turns the map back into a spending report. A replacement time only has to be right to the nearest order of magnitude: a week, a month, or half a year.
Steps one and two come out of the payment records, while step three has to be asked for, and step four decides whether the result is a map or a report.
Try it out

A table has been built with every counterparty, its share of flow and its replacement time. Which column should it be sorted on to read it as a dependency map?

Play with it

Rank the same six parties two ways at once

The panel opens on Anjani's six counterparties at the proportions and lead times used above, so the picture that appears first is the worked example. A party can be selected, its replacement time dragged, and its share of flow nudged up or down. A share of flow is a proportion of one thing, so the shares of the other five move to keep the total at exactly 100.0 per cent. Both rankings redraw together. A red line means a party sits in a different position on the two rankings, and a green line means it sits in the same position on both. Every line turns green only when the two rankings agree at every position.

Counterparty:
1 weekreplacement time now 2 weeks52 weeks
Share of flow for the party chosen above:
Start again from:
Leads on share of flow
Paper mill
46.0 per cent of outside payments
Leads on replacement time
Machine servicing
26 weeks to be running normally again
Positions that differ
5 of 6
between the two rankings
Shares add to
100.0 per cent
a proportion of one thing
TWO RANKINGS OF THE SAME SIX COUNTERPARTIES RANKED BY SHARE OF FLOW RANKED BY REPLACEMENT TIME 1 Paper mill 46.0 per cent Machine servicing 26 weeks 1 2 Ink and coating 17.0 per cent Binding 6 weeks 2 3 Transport 14.0 per cent Ink and coating 4 weeks 3 4 Board and packaging 12.0 per cent Board and packaging 3 weeks 4 5 Binding 7.0 per cent Paper mill 2 weeks 5 6 Machine servicing 4.0 per cent Transport 1 week 6 This party sits in a different position on the two rankings This party sits in the same position on both THE TWO RANKINGS DISAGREE
At the opening setting the two rankings disagree in 5 of the 6 positions. The paper mill leads on share of flow at 46.0 per cent, while the machine servicing contractor leads on replacement time at 26 weeks, so the party with the largest invoice is not the party that would stop the most.
Educational illustration.

What does a dependency map not show?

Quite a lot, and being clear about the gaps is what stops the map being misused. The map does not show whether the dependency will ever bite. A single certified servicing contractor can run for fifteen years without missing a visit, and the map that flagged it would have been flagging a risk that never arrived. A map is a statement about exposure, not about what is going to happen. A map of dependency is not a forecast of disruption, and reading it as one turns a useful list into a prediction nobody made.

The map does not show what a stoppage would cost either. Twenty six weeks of a machine standing idle converts into lost orders, penalty clauses and possibly a customer who does not come back, and none of that is on the map. Working out what an interruption would cost, and deciding what to do about it, is the subject of Strategic and Business Risk.

And it does not show what a counterparty could extract because of the position it sits in. Extraction is a real and separate question, and it has a name: bargaining power. Whether Anjani's sole servicing contractor can push its rates up, and whether the field it operates in lets it, is the subject of Industry Structure and Sector Behaviour and is answered there. The dependency map stops one step earlier, at describing who depends on whom. How the goods actually move once the parties are chosen, including what to hold in stock against a lead time, belongs to Operating Model and Supply Chain.

India

When does an Indian business have to say out loud who it leans on?

A dependency is a private fact until an accounting standard makes it a public one. Two places in Indian reporting turn a counterparty into a named disclosure. Ind AS 108 on operating segmentsThe separate parts of a business that its own management looks at and takes decisions about, reported separately so an outsider can see them too. asks a reporting entity to say when it leans heavily on a small number of buyers. Ind AS 24 asks it to set out dealings with parties it is connected to. The Ind AS 24 test is different again: connection, not size. Neither standard was written to measure how fast a counterparty could be replaced, so neither yields a replacement time. The trigger points, the wording and the exemptions all sit inside the standards themselves and get amended without warning anybody. The text in force on any given day is the one carried by the Ministry of Corporate Affairs and the Institute of Chartered Accountants of India.

Try it out

A dependency map shows that one counterparty would take 26 weeks to replace. What has the map shown?

Financial Analyst Program Bootcamp — Fin Maverick Value at Risk and What It Hides — free micro-course from Fin Maverick

Which single party, if it stopped tomorrow, would stop the most?

Practitioners actually ask that question, and it is worth noticing how little it resembles a spending question. The question names no amount. It sets a date. And it asks about consequence rather than size. Put it to a business owner cold and the first name out of their mouth is usually the largest invoice. The largest invoice is the party an owner thinks about most. Ask them to sit with it for two minutes and the name very often changes.

A lender uses it before extending a working capital line. A borrower whose production can be halted for half a year by one small contractor has a repayment profile that the profit and loss statement does not show. An analyst uses it when a margin looks stable and wants to know what could break the stability. An investor looking at a business uses it to ask what has to keep going for the model to work at all. And a household uses the same question without calling it anything: which one arrangement, if it failed on Monday, would take the longest to put right. In every one of those cases the answer is very often not the party with the largest invoice, and the mismatch is exactly why the question has to be asked separately.

THE REPORT THAT GETS READ, AND THE ROW IT BURIES OUTSIDE PAYMENTS, LARGEST FIRST Paper mill 46.0 per cent Ink and coating supplier 17.0 per cent Transport contractor 14.0 per cent Board and packaging supplier 12.0 per cent Binding workshop 7.0 per cent Machine servicing contractor 4.0 per cent the last row, and the smallest number in the report WHAT THE SORT HIDES Stop the paper mill and Anjani buys sheet from one of nine other mills inside 2 weeks. Stop the servicing contractor and the folding and gluing machine stands still for 26 weeks. The report is sorted on the one column that cannot show this. The proportions and lead times shown are illustrative.
The party that would idle Anjani's machine for twenty six weeks is the last row of the report a manager reads every month.
Try it out

An analyst ranks a manufacturer's dependencies by how much it spends with each party. What has the analyst actually ranked?

The mistake: ranking dependencies by spend

Careful people make this mistake, and that is what makes it worth naming. Somebody sits down to work out what a business depends on, opens the payment records, sorts by size, takes the top three and calls that the dependency list. Every step of that is reasonable except the last one. The result is a ranking of relationships by size, labelled a ranking of dependencies.

On Anjani's six the cost is exact and easy to state. Sorted by spend, the top three are the paper mill, the ink and coating supplier and the transport contractor, and those three can be replaced in 2 weeks, 4 weeks and 1 week. The machine servicing contractor would idle the machine for 26 weeks. It is last on the spend list and gets no attention at all. Five of the six positions move when the same six parties are sorted by replacement time instead.

The fix is one sentence and it is worth memorising. Spend measures the relationship. Replacement time measures the dependency. Only replacement time answers what happens on the day a counterparty stops, so only replacement time belongs at the top of a dependency map.

THE SAME SIX PARTIES, SORTED TWO WAYS SORTED BY SPEND what the relationship is worth SORTED BY REPLACEMENT TIME what the dependency is 1. Paper mill 46.0 per cent 2. Ink and coating supplier 17.0 per cent 3. Transport contractor 14.0 per cent 4. Board and packaging 12.0 per cent 5. Binding workshop 7.0 per cent 6. Machine servicing 4.0 per cent 1. Machine servicing 26 weeks 2. Binding workshop 6 weeks 3. Ink and coating supplier 4 weeks 4. Board and packaging 3 weeks 5. Paper mill 2 weeks 6. Transport contractor 1 week Five of the six parties change position between the two lists Only the board and packaging supplier holds fourth place on both, so the two are not opposites either
Five of the six parties change position between a spend ranking and a replacement ranking, and the one that holds still shows the two are not simply opposites.
How goods actually move once the counterparties have been picked, including what to hold in stock against a long lead time, is the subject of Operating Model and Supply Chain. What a counterparty in a strong position can extract, and why a particular field permits it, is bargaining power and is the subject of Industry Structure and Sector Behaviour. What an interruption would cost and what to do about it belongs to Strategic and Business Risk. The unpaid and unchosen surroundings are treated under the business ecosystem, and the shape of a marketplace with buyers on one side and sellers on the other is treated under platform businesses.
Value at Risk and What It Hides teaches you to compute value at risk three ways, interpret the figure, and say precisely what it refuses to describe.

Where these ideas come from

Whose ideaThe work it appears inWhere to read itRead on
C. B. Stabell and O. D. FjeldstadConfiguring Value for Competitive Advantage: On Chains, Shops and Networks, Strategic Management Journal, 1998, which sets a network out as one of three ways of arranging valuessrn.com carries author copies20 August 2026
Michael E. PorterCompetitive Advantage, 1985, which describes the chain of activities running inside a single firmthe book itself20 August 2026
Clayton M. ChristensenThe Innovator's Dilemma, 1997, where the phrase value network is used for the setting a business sells intothe book itself20 August 2026
A. Osterwalder and Y. PigneurBusiness Model Generation, 2010, whose key partners block asks the same questionthe book itself20 August 2026
Ministry of Corporate AffairsInd AS 108, Operating Segments, on saying when a small number of buyers carries a large part of what a business sellsmca.gov.in20 August 2026
Institute of Chartered Accountants of IndiaInd AS 24, Related Party Disclosures, on dealings with connected partiesicai.org20 August 2026

Anjani Stationers Private Limited and Setu Bazaar are invented.
Educational material. Not advice on any investment, tax, budget or market position.

← PreviousNext →
Fin Maverick Micro CoursesExplore Micro Courses
Fin Maverick BootcampsExplore Bootcamps
Fin Maverick

Finance education that ends in a job, not a certificate that gathers dust. Built for young India.

LEARN
CalculatorsFrameworksComparisonsCareersShowdown
RESOURCES
All CoursesMicro CoursesBootcampsInternships
COMPANY
AboutJob openingPartnership
LEGAL
Privacy PolicyTerms & ConditionsContent LicenseReturn & Refund Policy
© 2026 FIN MAVERICK / BUILT FOR INDIA.DO FINANCE, DO NOT JUST READ ABOUT IT.