Want to start a marketplace startup? Better buckle up as it's not going to be easy!
A Marketplace business is the interpreter of supply and demand. In easier words, it can be defined as something which connect buyers with sellers, takers with providers or those who demands with those who supplies.
These type of businesses which includes giants like Amazon, AirBNB, Uber, Etsy to name a few are almost always huge in terms of network, profit, net worth and several other such factors. They are also one of the hottest types among the investors and venture capitalists and a lot of them are looking to invest more and more here.
Though this all sounds highly intriguing, the only thing which nobody wants to hear is that building a Marketplace business is as hard as anything. There are a lot of struggles founders have to face while starting one and even when there business is stable.
It includes a lot more complications which are not easy to solve and often comes out as the cause of company's failure. Some difficulties which marketplace businesses face almost everyday are:
- Lack of supply
- Lack of demand
- Poor supplying of the user's demands
- Getting user's trust betrayed
- Getting supplier's trust betrayed
- Platform leakage
- Chicken-Egg problem
The founders have to maintain a system which would prevent them from getting defeated by any of the difficulties mentioned above. There are certain well-proven strategies one can follow to tackle all these hardships.
First of all you have to start with a niche portion (like Amazon used to sell only books when it started) and in a small area so that you can scale easily and effectively.
As said by Marco Zappacosta, CEO of Thumbtack, one should first focus on either supply or demand side. He preferred focusing on supply side first for building an infrastructure which would be handy when demands start pouring in. According to him, building such a infrastructure is again really tough and requires certain offers or features which would lure the suppliers to come on-board without giving it a second thought. These features differs in different types of marketplaces and you have to come up with your own based on the type you are working.
After getting supply side on-board, you have to start worrying about the demand side and according to Marco, the best way for promoting a marketplace in it's early days is by word of mouth. As you have to start small initially, you don't need a big marketing budget and you should not go that big in the start because you'll not be able to provide good service to the user.
Another problem you are going to face is the 'platform leakage'. Platform leakage is what happens when a buyer and seller agree to circumvent the marketplace and continue transacting outside the platform. The transaction still happens, but the marketplace loses a revenue stream. It is one of the worst thing that can happen to a marketplace and have no fixed solution. Engaging users in the app, providing ratings and points on successful tasks to both users and suppliers, providing payment as well as order management tools to both users and suppliers, providing overall excellent service to users and excellent business to suppliers are a few strategies which have been tried by the marketplace giants.
Must reads for learning some great lessons by marketplace giants and genius minds:
- The Story of Amazon.com
- Contagious: How to Build Word of Mouth in the Digital Age
- The Lean Startup: How Constant Innovation Creates Radically Successful Businesses
- Hooked: How to Build Habit-Forming Products
- The Airbnb Story: How three guys disrupted an industry, made billionsof dollars ... and plenty of enemies
- The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
- Hacking Growth: How Today's Fastest-Growing Companies Drive Breakout Success
So, as you can see, it is really a hard nut to crack but once you have cracked it successfully, you are a big business with millions if not billions in revenue.
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Till then, STAY HUNGRY. STAY FOOLISH.