There’re a lot of marketplace businesses being started out there - I probably see 2 a week these days. Given the interest in the space I thought I’d share some high level thoughts on building marketplaces.
- Start small, grow big - There’s often a temptation to go big or go home. In marketplace businesses, this temptation can be deadly. You’ll find that most successful marketplaces start small, either in an individual city or region, and grow from there. By rolling out this way the business can test supplier/consumer acquisition strategies, perfect models and get a loyal group of early adopters who feel close to the product. By going national you lose the benefit of all that learning and possibly queer the market on a mass scale.
- Accelerate quickly once the model works - Once you’ve cracked the code to supplier/consumer acquisition on a small scale, aggressively roll the model out to more locations. Odds are that marketplace dynamics observed in the small-scale roll-out will be very similar in other cities and regions. Leverage your learnings from point one above to replicate the success across the country.
- Cater to your customers - The community comes first and foremost in any successful marketplace. These businesses give their loyal customers (both on the supply and demand side) tons of love from free perks to significant discounts. This positive brand image helps juice the viral loop because the “surprised and delighted” customers are likely to share their experiences with others and recruit them to the platform.
- Get suppliers in the marketplace who use it as their primary source of income - Successful, large marketplaces are built on the backs of participants who use the platform to make a living. They’re the ones who drive transactions through the system, bring in new users and sustainably use the service - ultimately driving revenue for the business. This is true for the successful, transactional marketplaces that I can think of, from Airbnb to Etsy to Ebay. It’s the good old 80/20 rule in action.
- Create stories - The only thing the press loves more than nicely packaged funding announcements are nicely packaged user stories. Highlighting success stories from power users on a marketplace can be a great way to generate mainstream press. Kickstarter has done a great job at this.
