This week, I attended The Marketplace Conference. Although this was the conference's third annual event "in" San Francisco, the current climate forced it online. Despite the departure from their typical Ferry Building venue, the Marketplace Conference team delivered with an absolutely exceptional online event full of talks from some of the marketplace industry's most prominent players. The speakers were only rivaled by the incredible ecosystem of marketplace founders, investors, and service providers that made up the attendees of the conference.
So without further ado, here are my six takeaways from The Marketplace Conference.
1. The better the segmentation, the better the business
Day two of the conference opened with a session from Jeff Chen, the former VP of Trust & Safety at Upwork speaking on the importance of segmentation. While he shared some incredible insights from his time at Upwork, I thought the Amazon example he shared illustrated the importance of segmenting in marketplaces best.
The need to segment applies to everything from segmenting which buyers are able to make purchases on your marketplace to which sellers are able to reach customers to the types of reviews you allow on your marketplace.
For example, Amazon sellers were only able to sell during the holiday 2019 season if they:
- Had sales prior to September 1
- Had shipped at least 25 seller-fulfilled orders
- Had a defect rate of less than 1%
- Amidst many other factors
This prevented new sellers from entering during this season, but quality was too important. More on segmentation below.
2. Don't be afraid to kick people off of your marketplace
This was one of the more controversial topics at the conference. Every speaker that mentioned the importance of removing detractors from your marketplace qualified their advice by noting just how difficult it was to actually put the advice into practice.
I thought Josh Breinlinger, Managing Director at Jackson Square Ventures, put it best when he said that, "The most important thing to remember is that by kicking people off, you're not going to be losing revenue. It's just going to shift to a better user."
3. 4.4 Stars is the New 1 Star
Many speakers also called attention to the ubiquity of star/numbered rating systems despite the distribution of ratings being so skewed, they're relegated nearly useless.
Ratings systems have reached a point where they provide very little signal to consumers of a product, service, or seller's quality. Rather than asking users to rate sellers or products on a numbered system, ask questions you would ask in real life:
"You just worked with Cara. Would you like to work with her again in the future?"
4. Evaluate marketplace businesses on the Rule of 40
The conference opened with a talk from Roger Lee of Battery Ventures & Daniel Hoffer of Autotech Ventures on The State of Marketplaces. In order to report on the state of marketplaces, we need a way to track marketplace performance, which is where the Rule of 40 comes in.
We're no longer at a time where it makes sense to prioritize growth at all costs. Efficient growth is what company's should strive for, and acts as one of the best signals for positive company performance. We can calculate efficient growth with the Rule of 40.
Year over Year Growth Percentage + EBITDA margin = Rule of 40
If your company is public, and has a Rule of 40 greater than 40, you can expect the stock to trade at an 8x multiple. The lower your Rule of 40, the lower your multiple.
5. B2B marketplaces are making a comeback
James Currier, Managing Partner at NFX closed the conference with a topic that's near and dear to our hearts at Airdev, and that's B2B marketplaces. He started by justifying why he believes B2B marketplaces are making a comeback before providing 26 tips on how to make B2B marketplaces work.
The Internet is finally at the start of a state of maturity. There are currently 3 billion internet users, up from the 200 million users it started at in the 1990s. Online purchasing has been normalized for consumers, who have become the employees at B2B companies. Meanwhile, B2B founders in their 40s are the first generation of founders to have grown up on digital. We have a reliable digital financial infrastructure, and the rise of IoT has meant we finally have the means to efficiently track and automate the tracking of goods and services at scale.
6. Tips to make B2B marketplaces work
Adopt a blue ocean approach when identifying a market to focus on. Don't digitize existing transactions, find transactions that aren't happening yet that you can facilitate anew with internet infrastructure.
Remember that the businesses your marketplace enables are reliant on you for things as extreme as their livelihood. The difference between a $39 pair of shoes and a $42 pair of shoes is nearly negligible to a consumer. But when you tweak margins for a business, you have the potential to break[font=Arial] them. Make sure they know you recognize that you're playing with their livelihoods. It should be reflected in every piece of messaging you put out, and every action you take. Build systems and language that recognize this.
B2B marketplaces can take up to five years to get off the ground. You're in this for the long run. These relationships matter, and spending 50% of your time nurturing these relationships - talking with customers, writing them birthday cards, and buying them dinner - may still be too low a percentage.
At AirDev, more than half of our 200+ projects to date have been marketplaces. The conference reaffirmed that marketplaces continue to represent a vibrant and ever-expanding community, and new trends continue to emerge despite its maturity. We are excited to support new marketplaces using our rapid no-code approach.