top of page

Kickstarting and scaling a marketplace business 101

Marketplace businesses have been taking the world by storm, and many successful startups have been built around this model. These businesses are unique in that they bring together buyers and sellers in a way that is mutually beneficial for both parties. Essentially, a marketplace connects demand with supply and facilitates the financial transaction between the two parties.

Defining Marketplace Business

A marketplace business is an online platform that serves as an intermediary between buyers and sellers. These businesses create a space where buyers can find what they need and sellers can sell their products or services. In essence, marketplaces provide a platform for supply and demand to connect and transact.

Benefits of Marketplace Business

One of the main advantages of a marketplace business is the network effect. As more buyers and sellers join the platform, the marketplace becomes more valuable for everyone. This is because the more buyers there are, the more likely sellers are to join the platform, and vice versa. This network effect leads to a self-reinforcing cycle that can result in explosive growth for the marketplace.

Marketplace businesses also benefit from low overhead costs, as they do not typically own or manufacture any of the products they sell. This means that they do not have to worry about managing inventory or manufacturing costs, which can be a significant expense for traditional businesses.

Examples of Successful Marketplace Businesses

There are many successful marketplace businesses that have achieved significant success in recent years. Some of the most notable examples include:

Airbnb: This platform connects travelers with people who have extra space in their homes, allowing them to rent out their homes to travelers.

Uber: This ride-sharing platform connects drivers with people who need rides, allowing them to share rides and reduce transportation costs.

Etsy: This marketplace connects buyers with sellers of handmade and vintage goods.

TaskRabbit: This platform connects people who need help with tasks (like moving or cleaning) with people who are willing to do those tasks for a fee.

How to Successfully Launch and Scale Your Marketplace Business

Phase 1: Overcoming the Chicken-and-Egg Problem 🐣

Creating a successful marketplace business requires connecting two groups of users - supply and demand - and facilitating transactions between them. However, getting started can be a real challenge, as you need both sides to commit in order for the marketplace to function. This is known as the "chicken-and-egg problem" and it's one of the biggest obstacles to launching a marketplace business. Without supply, there's no demand, and without demand, there's no supply.

So how can you overcome this problem and get your marketplace off the ground? The key is to focus on one side of the marketplace first and create enough value for them to attract the other side.

Here are some strategies that successful marketplaces have used to overcome the chicken-and-egg problem and launch their businesses:

Focus on a Niche Market: By targeting a specific group of users, you can create a critical mass of supply and demand more easily. For example, Airbnb initially targeted attendees of a design conference in San Francisco to get its first hosts and guests.

Create a Minimum Viable Marketplace: Instead of launching a full-fledged marketplace, start with a smaller MVP (minimum viable product) that solves a specific problem for one side of the marketplace. This can help you validate demand and build momentum. For example, Thumbtack started by offering services only in the San Francisco Bay Area and focused on matching customers with home service providers.

Leverage Existing Networks: Find ways to tap into existing networks to recruit users for one side of the marketplace. For example, Uber initially targeted its service to wealthy tech workers in San Francisco who were already familiar with the convenience of on-demand services.

Use Incentives: Offer incentives to early users to encourage them to invite others to the platform. For example, Airbnb gave early hosts $1,000 in professional photography to make their listings more attractive to potential guests.

By focusing on one side of the marketplace and creating enough value for early adopters, you can overcome the chicken-and-egg problem and build momentum for your marketplace business.

Bonus tip:

In my personal experience of starting a marketplace business, I found that going guerilla and physically going to where your users are can make a big impact. Despite the vast array of online tools available, it's important not to forget about the power of in-person interaction. For B2B marketplaces, such as those targeting beauty service providers or car dealerships, you can generally find them in particular locations, such as industry conferences or trade shows. By physically showcasing your platform to potential users, you not only get to connect with them directly, but also receive immediate feedback on your product. So don't overlook the power of real-world connections in building your marketplace business. As a bonus tip, consider attending industry-specific events to build relationships and gain valuable insights that can help your business thrive. Don't forget to subscribe to our newsletter to stay tuned for the next blog in this series!

Final thoughts

In conclusion, cracking the chicken-and-egg problem is crucial to launching and scaling a successful marketplace business. By focusing on one side of the marketplace and creating enough value for early adopters, you can overcome this obstacle and build momentum for your platform. Stay tuned for the next blog post in this series where we will discuss how to attract and retain supply and demand for your marketplace. Don't want to miss out? Subscribe to our newsletter to get notified when the next blog of the series is released.

bottom of page