Compared to other types of startups, marketplaces have some unique considerations and challenges. Finding the right ways to address these can separate successful marketplaces from ones that don’t get off the ground or fizzle out.
Generating enough revenue
Because the marketplace is just facilitating transactions and not producing goods or services directly, you need to find ways to tax enough of the value you create to cover the costs of running the company. You also need to give both sides enough value to have them stay on the platform for the transaction and not seek to circumvent this cost. There are different types of business models which we will go into later, but a determining factor for building a sustainable marketplace will be ensuring that you can find a way to charge for the services your platform provides.
Finding liquidity is another major consideration, and one of the most critical aspects of a marketplace. Liquidity can be thought of as the ease in which buyers and sellers can find the right counterpart in the marketplace. Put differently, liquidity is the likelihood that a seller is able to find a buyer, or that a buyer is able to find the product or service they’re looking for. Without it, a marketplace isn’t valuable to both sides and has a much lower chance of success. Many different types of marketplaces begin by trying to create a small early pocket of liquidity to validate their idea and platform. This could be starting in one geographic location or with one type of product.
Cracking the chicken-and-egg problem
Finally, when looking at how to start an online marketplace, it must solve the chicken-and-egg problem when launching: how do you get enough supply to attract buyers? How do you attract sellers without buyers? Inevitably, you will need to convince one side to commit before the other. Successful marketplaces have approached this problem in various ways, and finding creative ways to get the flywheel going will be one of the biggest early hurdles of starting a new marketplace.