4 steps to validate your marketplace idea

The following article focuses on the importance of validating your marketplace idea and enlists a few steps to validate your marketplace idea.

Why do 90% of startups fail?

Industry experts attribute the failure to a lot of varied reasons. One of the major factors is a lack of validation of the marketplace idea. Validation of ideas is vital to all businesses alike; an online marketplace is no different. But it is easier said than done. Everybody thinks their idea is genius. Let’s call it The Entrepreneur Syndrome. So how do you overcome the hurdle? Let’s take a quick walk through some questions which would help you understand the steps to validate your marketplace idea.

1) Is Your Online Marketplace Solving A Problem?

This is the first of the steps to validate your marketplace idea; probably the only question that you need to keep asking yourself. Unless you are solving a problem, it makes no sense in going ahead on the journey of creating an online marketplace. A lot of online marketplaces (about 40% ) close down in the first six months of operation because they did not solve any problem. In some cases, there was no problem to be solved.

Steps To Validate Marketplace Idea

To get an honest answer to this question:

1) List down all your assumptions about the problem. Every Single One.

2) Interview a few people, the more, the better, if they are facing a similar issue.

3) Ask them how are they tackling the issue at the moment.

4) Look online if there are any existing solutions in your target market.

If not, check if your solution solves every issue. And if there exists, check if your solution offers any additional value.

Do Not Reinvent The Wheel

2) Is There A Market For The Online Marketplace?

Before launching any product, you must analyse if there is a market for your solution. A key metric is to calculate the total addressable market (TAM). In simple words, it is the total revenue you will make if all the users of your product in your target market would use your product. The more niche your marketplace, the smaller the TAM. Once you have the TAM, it becomes easier to qualify your marketplace idea.

Since a marketplace is a two-sided market, you have to look at both sets of consumers. If there is a market for only one of them, the marketplace is bound to fail. One way to find out if there exists a market is talking to people. Interviewing your potential customers will help you understand if there is a market for your solution.

Rob Infantino, the CEO of OpenBay, a marketplace for the discovery of local services, said “After formulating the idea for this online marketplace, I got out of the building and spoke to potential users of the service. The idea needed validation by real users. Since I was planning to build a two-sided marketplace, I had to speak to vehicle owners and automotive service providers, both of whom consistently offered valuable feedback about their challenges, their needs and what they’d want to see. “

Creating A Market For Your Product Is Like Creating A Car For The Wheel.

3) Are People Looking For Solutions?

Often in the entrepreneurial zeal, we forget to analyze if people are looking for solutions. There might be an existing problem in your market, but unless people feel it is causing enough inconvenience to look for solutions, it will never work out.

One way of understanding if people are looking for solutions is looking for search engine searches in your target market. Search Engines like Google offer platforms to analyze search queries. Once you have a comprehensive list of users looking for solutions, you can ascertain that there will be a demand for your marketplace. Another way, a more traditional approach, is to interview people.

Alex Brola, the co-founder of CheckMaid.com, that runs an online on-demand cleaning service, said ” We actually validated [the idea] without having any cleaners to do the cleanings. We threw up a site, a booking form, a phone number, and ran some ads through Google and Bing, and saw what the conversion rate would be had we actually had cleaners.”

Nobody Pays For A Great Idea, People Pay For Solutions

4) Would People Pay For The Online Marketplace Solution?

One of the last steps to validate is to actually understand if people will pay for the online marketplace. Most people, especially friends and family, think every idea is great. But ask them if they would pay for the solution and most would say No. The online marketplace would only make business sense if you have a set of customers adding transactional value to it. To understand different revenue models in a marketplace, read a related article.

Mike Matousek, Founder of Flashnotes.com, that offers a marketplace for study guides and class notes said “I started creating these detailed study guides for our exams and sold my final exam guides for $10 a piece. Not only did they sell, but I was also literally hunted down on campus by more and more of my classmates — easily making over $1,000. After this initial interest, I knew I was onto something and had my friends test out the idea of selling study material in their own classes.”

These were just four questions, the answers to which would help you understand the steps to validate your marketplace idea. The list may not be exhaustive but paints a pretty broad picture of the process of validating your marketplace idea. There are many other viewpoints on the same topic which would help you in validating your marketplace idea. Here is one of them.

There are many reasons besides the lack of validation that fail marketplaces. Here is an article by 500 highlighting some of the major ones.

If there is something that I have missed, please do leave a comment.

I hope the article helps you in starting the validation process. If you still can’t figure out where to begin, reach us at Yelo and understand what validation process would best suit your business. Our team is behind the successful implementation of 100+ brilliant marketplace ideas all around the world.