How to kickstart a marketplace

The 1 Line Description

4 Strategies for overcoming the chicken and egg problem.

When to use it

In the very early days of building your marketplace.

Key Ideas

Marketplace businesses can be hugely profitable as they allow you to scale very quickly and can often run on pretty good margins with a low cost to additional growth. But, they are pretty tricky to get going as there is the obvious chicken and egg problem.

If you’re just being a platform that connects users to service providers, you have the problem that you’re ultimately not in control of the value that you add to your customers. It’s generally better to focus on demand (people who will pay) rather than supply as they’re harder to find and if you have people willing to pay it’s normally easier to find suppliers or to supply the service yourself initially — but thats not true for every situation.

There is certainly no “one size fits all” but there are some standard approaches to consider. Here are the 4 main ways to kickstart a marketplace business depending on your situation:

  1. Throw money at it
    If you happen to have a large pile of cash, are willing to make a gamble, and are 99% certain that your model will work — then this becomes an option. This is generally a pretty bad idea as the odds of this not working and you losing all of your money is pretty high. There is only an incredibly small percentage of startups where this works as there are always unknown unknowns so if you’re not certain that it’s for you, then it’s not.
    An example of this would be Uber that tries to flood every new market they enter into with free trials and marketing to kickstart it.
  2. Focus on a niche
    It’s a lot easier to find early customers when you’re super focussed. Segment your possible market down into a few niche’s where you can then pick the one that will be easiest for you to build traction in initially. This will allow you to penetrate that market and get users or suppliers much easier as you hyper target just a small percentage of your Total Addressable Market. An example of this is Amazon that initially only focussed on books.
  3. Be one side of the marketplace
    Some people call this faking it, but it’s really you being the service provider that is doing the work to create the demand. When you’ve got more leads than you can fulfil, then you pass them on to another supplier and kickstart the supply side of the marketplace.
    An example of this was Homejoy, where the founders cleaned the first 50 houses themselves.
  4. Deliver adjacent value to one side
    This requires you to look at what value you can provide to one side of the marketplace without needing the other. What service could you provide as a stand alone business model that you can build a user base with, before pivoting to your primary marketplace model and bring on the other side. While this can feel like a distraction, it often helps you learn a lot more about your customers in a smaller less risky way so that you can be sure to get the marketplace just right when you launch it.
    An example of this is Reserve that started with restaurant management software before opening up a booking platform for patrons.

Every marketplace business will be slightly different and the strategy that worked for someone else might not work for you. But this list should give you a starting point to find a way to kickstart your business to get the inertia going.