Launching a marketplace always seems like a bright idea when no one else has done it before, but there can often be a whole host of reasons why that’s the case. Let’s assume for a moment that your bright idea is as good as you think it is, what do you do next?
It’s a constantly changing field with companies going to the wall, rising from the ashes, and making the news with groundbreaking IPOs every single day. The secret is to break it down, and keep things simple. Every startup needs to answer these 4 simple questions if it’s going to move in the right direction.
Where’s the growth coming from?
Perhaps you have a marketplace in which every new listing or service has the potential to benefit a global audience. This is an example of a global network effect, and it’s what you would expect from travel marketplaces such as Airbnb or Expedia.
The opposite of this is the local approach to creating networks in which multiple parallel systems spring up that are still part of the same larger marketplace. Deliveroo and UberEats are good examples. If you live in NYC you don’t really care if someone in Paris can’t get the same service as you can — your local network is still delivering what you need. Figuring out which category a marketplace falls into will be crucial for establishing meaningful growth projections.
Do you really understand your supply?
You could have a supply chain in which each supplier is offering the same type of products that are largely the same, or you could have a chain in which everything is unique. The first is easy to replicate but easier to scale, and the second is hard to replicate but harder to scale. A financial marketplace would need to match clients to reputable lenders, and to do so in a way that doesn’t price the client out of the market. With each client having a specific set of individual needs, this would require flexibility and adaptability on the part of the marketplace.
How do you solve the sellers vs buyers mindset?
If we continue with the financial marketplace example, the sellers are the lenders, and the buyers are the clients looking to borrow. Clearly you can’t have a marketplace without both, so where does the balance lie?
For a truly disruptive event in the world of lending to occur it’s going to be necessary for a new class of lenders to give easy access to credit to a large number of people who may not have had access to it through conventional setups. Typically lenders will cover themselves against risk with exorbitant interest rates, and that’s precisely the term in the equation that will need to change to establish trust with the consumer. The question is then whether to focus on the dollar amount, or the frequency of transactions.
Airbnb or Uber?
You would opt for high-dollar, high-frequency if you could, but unfortunately that’s just not on the table. Airbnb focus on the dollar amounts, whilst Uber prioritize the frequency of their lower-value transactions. You should really push the frequency side of things as hard as possible whilst you get things up and running. It’s what will give the brand exposure to the largest audience, and it’s what will create the liquidity needed to expand and be competitive.
Final Thoughts
Tech ventures are alive and well, and the recent Uber IPO shows the world is still enthralled with online marketplaces. The real takeaway point here is that you can be as sophisticated with the tech side of things as you like, but if you don’t have some basic grounding in the way marketplaces function, the revolution in the lending world will have to wait for someone else to come along.