It is no secret that building an online marketplace is not easy. The model works perfectly well at scale. However, getting to scale is the real game that gets challenging. If there are buyers but few sellers, the buyers leave. If there are no buyers, what will you convince sellers to sign on?
If you are building an online marketplace, how do you survive the tough times when you’re trying to get traction and build out your merchant and customer base? The best way to solve the chicken and egg problem is by launching an online store and attracting traffic. In other words, you need to create a marketplace where sellers are waiting for the buyers to arrive and purchase their goods.
1. Build your audience
Most of the popular ones started off with one side of the audience first. For example:
- The founders of Etsy initially ran a forum focused on craft makers – Arts & Crafts Forum. They had a pre-existing audience they could use to kickstart the marketplace.
- eBay started off by using public message boards to list items for sale to potential buyers. There were no options for secure purchases between individuals at the time.
If you don’t have an audience right now, it might be wise to either buy or partner with one or two small niche forums. Or perhaps sell your own products so customers keep coming even if you’re the only seller initially.
Instead of building something from scratch use a pre-made solution like Yelo. Focusing on adding value, building products your customers can use and growing your user base is much more important for marketplace success.
2. Specialize in unique inventory
This was how Etsy started. It created a strong brand identity and a community along with it. If they buy into your idea or vision, they adopt it as part of their lifestyle.
Indiegogo first went after the indie film market before opening up their platform to other categories. eBay started with Pez dispensers before becoming the world’s largest online marketplace. Expanding outward from the niche often happens organically as sellers start listing items in new categories.
If growth outside the niche doesn’t sprout organically, you can help speed up the process by focusing on seller acquisition campaigns targeted for strategic categories and more prominent merchandising of new categories to consumers.
3. Keep the spends as low as possible
While spending big at the beginning can help some businesses ramp up quickly or become the market leader, money cannot buy speed when it comes to building out a marketplace. Given the slower pace of a marketplace, you’ll need to give yourself enough time to build your business. This means adjusting your burn rate downwards in order to lengthen the runway as much as possible.
Take a close look at your spends. There’s no need for a big team or offices early on. Most marketplace businesses only need people building the buyer and seller communities. You can focus on building your business and discover ready platforms to launch your online marketplace.
4. Signal long term commitment to a process
With limited resources to build a sustainable marketplace, you need to narrow the focus of your business efforts. In most cases, marketplace businesses need to build traction in smaller verticals before expanding their reach into bigger markets. Or in the case of geographical markets, a marketplace should nail one location before expanding into others.
- Etsy’s own suppliers used the platform to discover other hobbyists and to purchase goods from them. Some sellers would even bring along their loyal customers.
- Airbnb and Etsy are examples of strong communities with a large overlap between buyers and sellers. The community built around your marketplace can prove to be the most powerful factor for success.
5. Focus on your existing users
Great marketplaces are built from the niche to the masses. You need to smoothen the experience for your early users before you can begin to appeal to a broader audience.
Your early users will encounter issues, some minor and some major. If you can address and resolve them, the early users will be pleased with your platform. The next time they need a similar service, they will definitely think about using your website.
By engaging your passionate users and catering to their needs, you increase the likelihood that they recommend it to a friend and your marketplace can spread outward.
When trying to create a new marketplace or market category, you’ve got to believe in your idea even when no one else does. You should continually look for small signals that you’re on the right track. These include increased word of mouth from your early adopters, increased repeat usage from buyers, increased listings from sellers, and positive user feedback.
Building marketplace can seem much harder than online storefronts. However, once you reach scale, a marketplace model is highly successful due to the strong supplier-buyer network effect that comes into place. If you can give your marketplace a long enough play way to build out both customers and merchants, there are plenty of market niches waiting for the Airbnbs and the Ubers.