Launch Strategies: How to Launch a Marketplace Platform

Creating a successful marketplace company is not just building a great platform to serve both sides - you have to find ways to attract and grow your users on both sides. There are several strategies around this that can help ensure you know how to launch a marketplace successfully. 

Identify your pocket of liquidity

As mentioned earlier, liquidity in a marketplace is the ease in which buyers and sellers can find their counterpart in the marketplace. Ensuring that each side can find what they want when they come to your platform will be an important part of getting early user traction. Having a few scattered listings that don’t give buyers what they want will make it difficult to convince buyers to come back to your site or to attract sellers to list more products. Instead, when starting you should choose one side to invest in first, and narrow your focus to a specific area or niche. Generally, this means you’ll want to start with attracting a small early group of sellers and use these initial listings to have a very targeted buyer acquisition strategy that is centered around this initial group of sellers.

Cracking the chicken-and-egg problem

As previously mentioned, getting a marketplace off the ground is one of the largest challenges. You need both sides to get the flywheel going, but how do you get buyers without sellers listing their products or services? And how do you convince sellers to list when you have no buyers? 

The first thing you’ll want to do is constrain the marketplace. One day you can tackle everything, but to start, you should think small. You can constrain things by geography and focus on only one city or town to start, or by category and focus on just one type of product or service. If your marketplace is location dependent, i.e., it requires buyers and sellers to be in the same place, then constraining by geography is a good plan. Dog-walking app Rover initially limited their services to only Seattle, which had a perfect combination of dog-friendly early tech adopters, allowing them to iterate quickly on the product before expanding to other locations. If you are selling any sort of product that can be shipped or online service, then choosing one specific category makes sense. Eventbrite, for example, initially focused on just tech mixers and conferences for their events platform since that was what their early users were most interested in. 

Next, you’ll want to focus on one side of the marketplace. You should think about which side is harder to obtain, and focus on that one first. Most often, this is focusing on sellers because attracting buyers is easier once you have products or services to show. Airbnb, Etsy, and Uber all focused on getting sellers or providers before going after buyers. In some cases, if there is an abundance of sellers that are looking for buyers, like in the case of Thumbtack with service providers or Rover with dog owners, you may want to look at building demand first since that will be the harder side to acquire. 

Once you know which side to focus on, you’ll want to seed the initial supply. You can find ways to start building the supply even before you have a platform built. This is a time where you may have to hit the pavement and go out and sell your idea to locals in your area, or online through niche groups or communities. Direct sales were a key early driver for companies like Airbnb, OpenTable, and even Etsy. To capture the information, you could have sellers enter their product or service into a Google Form or manually document their information for them. To convince them to sign up, you may even want to incentivize early sellers if you have the resources and give them a discounted service fee for signing up before the full-launch. Whatever tactics you choose, you’ll want to have a healthy amount of supply before launching to the world. 

And last, you’ll want to seed initial demand. Once you have some supply, you’ll want to make sure you can find buyers for that supply. Even if you don’t yet have a platform built, you can create a simple landing page or form asking people to sign up for a waitlist to get notified when you go live. This can also be a great way to get validation for your idea and test out different marketing copy. You can highlight your initial supply and use those as hooks to start getting early buyers, and offer discounts or incentives for early adoption as a pre-launch benefit.

Chicken-and-Egg Steps Key takeaways
Constrain the marketplace
  • Start small
  • Focus on geography or specific product or service
Focus on one side
  • Choose the harder side (usually supply)
Seed initial supply
  • Try tactics like direct sales or incentives to recruit sellers
  • Build your supply before you have a full platform
Seed initial demand
  • Create waitlist to build early demand
  • Showcase some of your early supply and offer incentives

Test and validate before building

It can be tempting to dive straight into building a platform when you have a good idea for a new marketplace. However, doing some initial validation can save you time and energy in the long run, and possibly uncover some new angles or ideas you hadn’t thought of. It’s common to modify and evolve your ideas as you hear from different users and see how your startup grows. 

An easy way to both get some good feedback and to start building your initial buyer or seller list is to do user interviews focused on understanding problems for your initial target customers. You should first focus on uncovering the pain points your potential users have and then get their candid thoughts on whether or not your proposed solution could lessen those pains. 

It’s also okay to start with a few core features and handle some things manually as you’re starting. For example, the first version of Airbnb didn’t even have payments; it simply allowed guests to connect with hosts and the transaction was handled offline. But what that first version did was quickly validate the concept and provide the founders with a lot of learning, which they were able to use in order to eventually build what Airbnb is today.

Some marketplaces concepts can also be tested with completely manual solutions before even starting to build out your product. For example, you could build a simple entry form for sellers to add their products or services to a spreadsheet or online list and you could send that list to buyers and track if you make connections or if people find it valuable. This will allow you to start building relationships with early users in your niche and get feedback on what features would be the most important to build into your product. Having these relationships can also be helpful to build initial hype and brand and secure your early superfans who will help propel your startup after you launch. 

Marketplace metrics to consider

All businesses will track some sort of metrics to make sure they are performing well and to spot any bottlenecks or areas to improve. Different types of marketplaces may emphasize different metrics to focus on, but there are some key metrics that are helpful to track in most marketplaces. 

Basic site and user metrics

With any application, you’ll want to track number of users visiting your site, where they are coming from, how long they are engaging on your platform. If you can segment out buyers and sellers, it’s helpful to track the ratio of these two user groups. Different marketplaces will have different optimal ratios depending on how many buyers a single seller can serve.

Match rate

Match rate, also known as utilization rate or success rate, refers to the rate at which buyers find sellers and vice versa. This is critical as it demonstrates how well your marketplace is connecting both sides for a transaction. One way to do this is to track the unsuccessful matches and look at how often someone comes to your platform and leaves without purchasing or engaging.

Customer acquisition cost (CAC)

Early on, you may be spending a lot on customer acquisition since you are establishing a presence and introducing a new brand. Long term, you’ll want the CAC to be lower than the value each customer brings to the platform so that your platform makes money. Tracking this number can also be helpful to see which acquisition channels are working and which are too expensive.

Concentration or fragmentation

If either side of your marketplace is too concentrated, meaning there is a small percentage or either buyers or sellers dominating the transactions, this can leave your platform open to disintermediation. Top sellers could decide to leave your platform and take most of your revenue away. You’ll want to keep track of the percent of revenue the top X sellers or buyers account for and work towards spreading it out as much as you can.

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