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Supplier Extensions Part 1: Merchant Side Offerings

AUTHORS:

Dave Yuan

Founder and General Partner, Tidemark

Bob Solomon

Former SVP/ GM of Supplier Network and Financial Services, Ariba

Credit: Columbia Tristar

Extending through the value chain is the frontier. It has only been successfully executed by a select few, but we believe it is the long-term future of vertical software. Pushing beyond being a simple tool to being a multi-stakeholder platform is the way a Vertical SaaS Vendor (“VSV”) can go from being a good company to a once-in-a-generation organization. 

And with the supplier is the best place to try it.

Extending to the supplier is a classic “follow the money” play where you benefit from your merchant’s buying power. At Ariba (case study coming soon), they used to say that “it’s always good to follow the golden rule: she with the gold rules!” There’s also an opportunity for the VSV to reduce friction, add value to the transaction, and sell to the supplier stakeholders – which are mostly businesses, as opposed to individuals. 

Supplier extensions can be lucrative for a VSV, with take rates from 0.5% to 3% of GMV. For those VSVs who successfully build a two-sided marketplace model, rewards are even greater, with a typical take rate of 3-15% on large GMVs. While still not commonplace, there are more examples of VSV extensions to two-sided marketplaces than in consumer or employee: Ariba (e-procurement), where my co-author Bob Solomon ran Supplier Enablement; GHX (healthcare); Avetta (supplier credentialing), where I am an investor and on the board through my prior firm; AvidXchange (AP Automation); and ACV Auctions (wholesale auto auctions). These companies derive revenue from both sides of a B2B transaction and have made their customers and shareholders quite happy. 

As a special treat, I am joined in this essay by Bob Solomon, a longtime SaaS executive and friend, whose mind I deeply admire. We’ve written a two part essay. In Part 1, we will apply our extension framework to the supplier opportunity. We’ll walk through the merchant side steps required to extend to the supplier, including:

  • How to find the correct single player offerings to merchants that set up success (solve the merchant’s key job-to-be-done with the supplier, and connect the merchant to a supplier’s control point). Included in this discussion will be procure-to-pay, accounts payable automation,  supplier credentialing, product safety and verification, and collaborative project management.
  • How to look for merchant side network effects with multi player offerings. We’ll discuss benchmarking, industry analytics, and GPOs.

In Part 2, we’ll walk through building out a footprint with suppliers:

  • How to build a supplier wedge offering.
  • When to pounce on the opportunity to build a two-sided network.

Click here to read Part 1, registration and approval will be required.

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Supplier Extensions Pt 1
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This chapter is part of:

Extend through the Value Chain

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