Growth

Your startup is probably a marketplace whether you like it or not

Alan Jones /

 

Most founders are surprised or think I’m confused when I describe their startup as a marketplace.

 

They are used to thinking of marketplaces as online retail, auctions and deals sites only, not their app which connects plumbers with customer or helps singles find a date.

 

But if or when you realise you actually have two different types of customer and growing your business means finding a way to grow the number of both types of customer and the frequency with which they interact, it’s time to face it: You are running a marketplace just as much as eBay is.

 

I’m no economist but I know hacking the growth of a marketplace is hard. The biggest challenge in growing a marketplace is making sure you have enough buyers and sellers looking to buy and sell the same thing.

 

A market depends upon introducing enough buyers to sellers with enough variety of product or service and price so that a transaction occurs.

 

You need to find the right ratio between buyers and sellers: Is it 1:3, 1:30 or 300:1? You also need to establish the right range of prices – too great and some sellers won’t get to make a sale, too narrow and some buyers won’t get to buy.

 

And you need to grow the numbers of buyers, sellers, products/services, prices and transactions as fast as you can to get enough data to learn these things, without running out of money or people.

 

Chances are you can’t afford to spend enough on people or marketing to grow everything at once.

 

The number one question marketplace founders ask us at BlueChilli is: “Do I focus on growing my buyers or my sellers?”

 

Usually, if you’re just getting started, you should find a way to reduce either the number of buyers, sellers or products to one.

 

For example, it’s very hard to build a marketplace like eBay. The vast variety of goods and services that can be sold on a platform like eBay would make it very hard for you to ensure that each seller is introduced to many buyers while also ensuring each buyer is introduced to many sellers.

 

But if your marketplace begins by selling only one product – like a single model of one mobile phone per day – it will be easier to find merchants to get on your platform – they either want to sell that model of mobile phone or they don’t – and to market to buyers – you are either looking to buy this particular model of mobile phone or you’re not.

 

In the dating space it’s impossible to just launch and suddenly have enough singles of every description for each single’s preferences. But what if you narrow your ‘seller’ type to one and make your startup focus only on, say, placing female startup software engineers in Melbourne with the best first dates they’ve ever had?

 

You need fewer ‘buyers’ (single people looking to date women in software engineering), and you’re even more likely to see a transaction if you also reduce your products to one (for example,  by making all dates a pair programming exercise in a Slack channel you host).

 

Rarely – but sometimes – this strategy is so successful, early buyers and sellers go right through the whole conversion funnel to referral and each woman on your platform recruits you, say, another three of their single engineering friends.

 

Congratulations, you are now Uber-ish (itself another marketplace startup) – you don’t need to sell more than one product, you can focus all your efforts on recruiting more ‘drivers’.

 

You don’t always have to limit yourself to literally only one of that variable. It’s usually possible to force the same experience by making the buyer feel like they have to buy or not-buy, one transaction at a time instead of viewing the whole marketplace of sellers at once.

 

Uber doesn’t show you a list of available drivers and make you pick one, AirBnB doesn’t let hosts see all the people searching for matching room listings, Once doesn’t show you tomorrow’s date recommendation until you’ve rejected today’s.

 

Are you sure your startup isn’t a marketplace?

 

If your startup is a multiplayer online game, it’s a marketplace. If it’s a crowdfunding platform, it’s a marketplace. If it’s a streaming music player, it’s a marketplace.

 

If it is, you need to make “reduce it to one” your new catchphrase.

 

Alan Jones is BlueChilli’s growth hacker. This piece was originally published on the BlueChilli blog.

 

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Alan Jones

Alan Jones is the founder of VC fund M8Ventures, and the entrepreneur-in-residence at QUT, KPMG, and BlueChilli.

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