This is an extension of my #FMB “Founders are Made, not Born: How Founders Become Learning Animals” series, based on my Stanford Masters of Education research. Part I, Part II, Part III, Part IV, Part V, Part VI, and Part VII. Extensions: Parts 7, 8, 9, 10, 11.

Whether we’re talking about developers, gig workers, content creators, trading supply, etc, there are better and worse ways to create supply side monopolies. From locking in network effects level stickiness all the way to the slippery mountain slope of incentivizing supply to retain, there are levels to developing a sticky supply side.

I used to think about this problem a lot as an operator at General Assembly. How do you encourage your supply side to stay loyal? If you’re too successful, competition comes and steals your supply. When I was an operator, even worse happened – my supply left and started their own competitive offering!

Even if competition isn’t able to steal all your supply, competition can become so fierce you find yourself in a price war. If that happens, you may end up selling a commodity.

So, you need to find a way to make your supply loyal.

From better to worse, my supply side lock-in framework is: 

1. source of truth/record for app ecosystem (google auth, app store)
2. data enrichment (unique content types) 
3. tangential supply side tools (developer workflow support tools) 
4. performance / execution (completion / success rate) 
5. exclusivity / legal requirement 
6. customer service / evangelize – be top of mind 
7. incentives

The first few examples are far better than the last few because they require far less energy and resources to sustain over time. Numbers 1-3 create sustaining advantages, initial fixed investments that build on themselves to become a central part of your competitive differentiation. They exhibit network effects because the more people that use the product, the better / stronger it becomes over time. They also are all examples of product-led differentiation versus operational and require extremely strong product management.

Number 5 works for some time, like patents and trademarks, but eventually they fade over time and generic drugs and cartoon IP become commonplace and difficult to defend.

Number 6 and 7 are a treadmill to be avoided at all costs. I often say, if you are a startup and your value proposition is a low cost strategy and undercutting the competition, you don’t really have a value proposition. Absent a tectonic technology shift (which would be the innovation and value prop), you are just willing to sell your product at a worse margin. All else equal, only incumbents should pursue a low cost strategy to defend their market. They have the balance sheet to do so.

If you enjoyed reading this and are like me, a total nerd when it comes to mental shifts and understanding founder psychology, don’t hesitate to reach out: mbent@lsvp.com