As you grow your business, you’ll need to understand the value of your business to an investor. A lot has been written about this. But it boils down to two things: owning the transaction and being difficult to replace.

Own the transaction by providing value

If you provide only leads or a contact point or a directory, you provide limited value. You don’t save a significant amount of work for anyone involved.

When you own the transaction, you have taken over a significant part of the process and therefore do a significant part of the work.

It also means that you’ve overcome a threshold of trust both from the buyers and suppliers and have more room to grow there.

Once you own the transaction, it’s important to continue to build your product to ensure that it remains in everyone’s interest that you continue to own it. Your value should be compelling enough that your merchants are disincentivized to skip you and go to the buyers directly.

There are ways to ensure artificial lock-in, such as not sharing contact information. But the more compelling approach is to create value in the transaction so that your users willingly stay. If they do so, it signifies a greater likelihood that your business is solving a real pain point. This, in turn, improves your story and value with investors.

Supplybunny owned the transaction end-to-end. We created enough value so that even though suppliers could access customer contact information, it was in their interest to let us continue processing the transaction.

There are several reasons for this. First of all, we acted as a collections agency. They didn’t have to assign staff to chase unpaid invoices. They could accept orders from individuals or businesses that would not have passed their due diligence processes. They didn’t have to provide payment terms because we could do that. We also handled customer support.

At the same time, it also remained in the buyers’ interest because we provided a bulk price without a complicated registration process. We had a loyalty system. We provided customer service where we were the first point of contact and we were much more responsive.

All of this made us a valuable part of the transaction.

If you do not own the transaction, your users can easily replace you. In some cases, users replace tools by using instant messaging or email. This makes them of limited value as an investment.

Be difficult to replace

There are a few different aspects to establishing yourself in the supply chain and becoming difficult to replace.

Merchants

You can start by having the most merchants and the biggest catalog. On-boarding businesses can be very tricky. It takes a lot of effort and time. Getting an early lead there is very valuable.

If you are B2B establishing a working relationship is also a big help. If the merchants only need to fill up a form, they can do so with another company just as easily. Just look at any of the ride-sharing applications: many drivers registered for more than one simultaneously.

On the other hand, if you have a relationship where you actively work together, you become much more valuable.

If all you do is scrape content from other sites, it’s trivial for your competitors to do the same.

But the first-mover advantage here is a bit of a double-edged sword. If you are the first, you’ll have to be the one to educate. At the same time, though, you can be the one to set expectations that others might not be able to meet.

Not trivial feature set

You can also have the most compelling non-trivial feature-set. Non-trivial features are ones that take a significant effort to duplicate and often require operational processes to support them.

For instance, in Supplybunny, we have a purchasing process that includes quotation approval and price validity for an agreed-upon time. Even an established organization would have to spend significant resources to duplicate this. A small operation couldn’t without sacrificing progress on other things. And a very early stage startup wouldn’t be able to since it’d require engineering capabilities.

An application where users can order from restaurants for takeaway does not have this. Any number of existing delivery apps can add a “Take-away” toggle. They lose their USP very quickly.

It also means solving a problem that requires industry knowledge instead of something being an Excel replacement. For example, just collating invoices is not enough. But being able to collect many small amounts and present them in a format suitable for account is.

Artificial lock-in

You could also artificially lock in your customers. For instance, you could create proprietary formats that users cannot easily convert to others. While this makes you difficult to replace, it also creates ill-will, and once your customers get sick of you, they will find a way to leave.

Instead, being a meaningful part of the transaction is the better solution for your business.