4 Ways to Get the Marketplace Flywheel Moving from Scratch

By: Charles Costa | May 3, 2018 | Marketplaces

While e-commerce as a whole has been taking off over the past few years, traditional retailers have been struggling with declining margins and a lack of ability to differentiate themselves from the competition.

Marketplaces, on the other hand have been surging in popularity for a variety of reasons. Most notably, they deliver higher margins and lower overhead since the marketplace operator isn’t burdened with housing inventory or managing service providers.

That being said, there are a variety of entrepreneurs who are building out their own marketplaces. If you’re one of them, below are 4 tips you can follow to get the marketplace flywheel moving early on.

1. Appeal to one niche or group

The first step to getting adoption for your marketplace is to focus on a small niche or segment of individuals and build out from there. Etsy for example focused on catering to individuals interested in crafting. You can also take a city by city approach to scaling – a technique commonly used by delivery businesses. Although it’s tempting to start with a broad focus, as that results in a larger pool of potential users, rapid scaling prevents you from pinpointing areas for improvement.

Remember, when you’re trying to break into a larger market without name recognition, it’s hard to get users to trust your brand. By focusing on a narrow vertical, you can cater to the needs of that specific community, therefore helping you build clout, and build a reputation around other positive qualities.

While starting small might not be as exciting as taking on industry giants, even the most successful businesses today started small. Just take a look at Amazon, which started as a bookstore before branching into other verticals. There’s also eBay which focused on Beanie Babies before becoming the industry giant they are today.

2. Subsidize the supply side, to attract sellers

This isn’t an option for everyone, but if you have the budget, subsidizing one side of your marketplace is an effective way to seed the property. It’s a simple yet effective technique because in the business world, money talks.

When they were first starting out, the founders of Uber paid drivers to be on standby in order to provide supply for riders. As Uber gained popularity, the company eventually got to a point where they could charge drivers a commission for fares generated through the platform.

ClassPass is another marketplace startup which gained traction by subsidizing the supply side of their business. By going to fitness studios in various cities and paying for exclusive deals, they were able to secure slots for classes at affordable rates for their customers.

3. Build a tool for suppliers

Adding value to end users is the key to success for virtually every business. With that in mind, a great way to draw in users for your audience is to develop tools to help them drive more revenue. Restorando is a marketplace that developed a reservation system which not only connects diners to venues, but also includes tools for restaurant owners to help reduce cancellations.

On a similar note, while on the topic of supply oriented solutions, Patreon is a solution that is primarily focused on helping creatives generate extra income from their goods and services. While the service primarily provides payment tools, they also have a community section where consumers can connect with creators.

The main benefit of this approach is that by adding value to sellers, they’re less likely to go to competing solutions. Additionally, the sellers are doing free promotion for your business by locking consumers into using your product.

4. Fake it until you make it

Last but not least, although it sounds ethically questionable, faking activity on your marketplace is an effective way to spark curiosity and lure users into your property. Although this tactic is commonly associated with the controversial tactic of creating fake profiles of women on dating sites to attract men, there are more benign uses of this technique.

Reddit for example had employees create fake profiles through which engaging posts were shared. This effectively seeded the community and drew in early adopters.

The Path to Success

As you scale, there are going to be certain demographics, audience segments, price points, and general user behavior that help your marketplace more than others. While there’s no one right way to scale your marketplace from scratch, it’s important that when you find something that works, you double down on it.

Even with the previously mentioned tactics, building and growing a successful marketplace takes time. In order to be successful, you need to have a long term vision and believe in your idea even when no one else does.
That being said, you can’t build your business while being oblivious to the market. If you’re not finding signals that you’re on the right track, such as increased word of mouth from early adopters, increased repeat usage, and positive user feedback, then you’ll want to re-evaluate your property.

 

To learn more about how the marketplace business model can help improve your profitability, check out The Kahuna Blog. Simply click the button below!

 

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Author: Charles Costa

Charles Costa is a content marketing manager who specializes in helping companies grow, one word at a time. Prior to Kahuna, Charles worked with brands such as Airbnb, Iron Mountain, and IBM on their content marketing efforts.

Charles' work has been featured in the Huffington Post, and he also was a contributor to the developer publication, Sitepoint.

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