The Secret to Scaling an Online Marketplace
Fake it till you make it.
Embrace The Hustle
Most successful marketplace operators hustle like crazy to solve their double-sided distribution problem — the classic chicken and egg issue. These marketplace operators painstakingly turn the crank by hand until there is a critical mass of users on their platform and the flywheel begins to spin itself. Through my work at Balanced, I’ve seen that almost all marketplace operators are willing to embrace the sheer hustle required to get a marketplace off the ground, but the most successful ones also employ a smart tactic for cracking the chicken and egg problem: They steal eggs.
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The number one rule of growing a nascent marketplace is to constrain dimensions. There are just too many problems to solve them all at once, so you need to focus. Location-based platforms, for example, should pick a single city to launch in before moving on to others. Service marketplaces should focus on a single vertical before becoming a horizontal platform. Regardless of exactly how you constrain your dimensions, the maxim holds true that limiting scope to a few dimensions will increase your chances of gaining adoption in those dimensions. The most successful dimension-constraint strategy I’ve seen so far is to simply focus your user acquisition efforts on one side of the marketplace before focusing on the other. Go steal eggs and don’t worry about them turning into chickens for now.
Jeff Jordan, former CEO of OpenTable and president of PayPal, believes that most traditional e-commerce companies are demand-constrained, but marketplaces like Airbnb are actually supply-constrained. Think about it: there is no shortage of guests (demand) in NYC looking for sub-$300/night lodging, but 4 years ago there were few hosts (supply) willing to let strangers into their homes unattended. Regardless of on which side you find your marketplace constrained, you must provide something Marco Zappacosta, CEO of Thumbtack, calls “network-agnostic value”, which is the value one side of a network experiences, despite the other side being absent. Thumbtack provided network-agnostic value in its early days by giving local service professionals an online profile to advertise their contact information and service rates long before Thumbtack had any customers to send their way. Visually found that providing designers with tools to showcase and distribute their work was enough to attract and keep their supply side engaged before they had any buyers looking for design services. The idea is to get as many sellers as possible, so when you begin employing standard user acquisition techniques (e.g. SEO, SEM), your buyers are walking into a fully-stocked marketplace.
Some marketplaces actually do follow the classic e-commerce distribution model and are demand-constrained. In my experience, it’s more difficult to provide network-agnostic value to buyers than to sellers, because the value most buyers need to consistently engage with your platform is inventory — they actually want to buy something. In the case of a demand-constrained marketplace, however, my advice is to “fake it until you make it.” Since you don’t yet have any sellers on your marketplace, you’ll have to make your buyers think you do. Udemy, for example, found courses legally available under a Creative Commons license and listed them on their site for early users to consume (note: Udemy is actually a supply-constrained marketplace). The chicken-stealing tactic is also useful for periods of sporadic growth when you suddenly find yourself with more demand than your supply side can satisfy.
I know this advice sounds simple — scale one side before scaling the other — but I’ve seen enough marketplaces go through the same trajectory to understand that the temptation to ramp up both sides at once is real and, in some cases, might even be the right thing to do. I don’t pretend to know what’s best for every marketplace, I just know what I’ve seen work most consistently. Regardless of how you decide to scale your marketplace, remember it takes patience, hustle and a deep understanding of the specific problem you’re trying to solve. No different than any other startup, you just have to do it twice. 🙃
*this post was originally posted in October 2013 on collaborativeconsumption.com*