If you’ve been an avid user of GrubHub or Lyft, then the idea of a two-sided marketplace shouldn’t be foreign to you. For starters, this type of digital entrepreneurial space lets two parties—consumers and producers—interact with each other through an intermediary platform. Per se, the platform doesn’t own any of the producers’ assets and only takes a cut of how much they earn.
For enterprise leaders who’ve never explored this venture, a two-sided marketplace can be a daunting project to take on. That being said, it’s also one of the most money-making startups to invest in. Companies like Airbnb, eBay, Craigslist, and Uber are all superb examples of the business model.
Ultimately, how efficient and well-built your network is dictates the success of your two-sided marketplace.
Here are five pointers to remember when establishing a powerful two-sided marketplace
Go for an industry you’re familiar with
Your industry expertise will help minimize the risk of failure. Like many things in business, entering a commercial sector you know little to nothing about is treading on flimsy ground. By penetrating a territory you’re fully accustomed to, you carry a better understanding of what needs and desires your target market may prioritize. This deep domain awareness helps make you a better storyteller and founder in the face of investors.
Take Transix, for example, a freight brokerage that connects carriers and shippers. Because business brainchild, Drew McElroy, was deeply involved in their family’s trucking business, he knew precisely what the roadblocks were in that specific department. As a result, the solutions he advocated for felt more authentic to investors, despite several Uber-for-trucking startup pitches.
Establish the producer-consumer relationship
Understanding the nuts and bolts of your business’ core interaction is integral to building a profitable startup. Referred to as the set of actions producers and consumers must accomplish to trade value, a core transaction is what sets your idea apart from the competition. Business leaders and startup founders need to know how transactions will look like on their platform to scale their marketplace accurately and capture the right audience type.
On eBay, sellers post their items on the site, and customers buy them. On the other hand, Uber partners with drivers who help ride-seekers get from one place to another. Meanwhile, Airbnb taps homeowners who make their spaces available for rent.
To come up with a punctual exchange, break down your core transition into 2 Bs and 2 Cs: build, bridge, consume, and compensate.
A producer builds a product or initiates a service in the marketplace to bridge a problem and a solution for a customer. Once a producer and consumer are paired, and a transaction is completed, the producer is compensated for their service or rendered item.
All this mentioned, only when a customer pays the producer is the core transaction finished. Establish the producer-consumer relationship first, and everything else should be easier to map out.
Solve the chicken-and-egg riddle
The chicken-and-egg riddle may seem like a taxing task to solve when building a two-sided marketplace, but it really shouldn’t be. Although an excellent question to ponder on would be which party you should gather first, note that both producers and consumers are integral to the platform. An imbalance in both parties will negatively impact the other.
Traditionally, founders often pool the producers first before commercially marketing to consumers. But times have changed, and the internet has allowed entrepreneurs to simultaneously reach out and gather both parties. Still, solving the chicken-and-egg riddle calls for considering user sequencing, monetary subsidies, and product features.
Prioritize liquidity
Once you get the riddle out of the way, make sure that your platform is liquid. That’s to say that your digital offering has to be efficient in matching producers and consumers. At this rate, it would be fair to say that a marketplace sans liquidity offers no real product because, in this context, the capacity for users to transact on your app is the product itself. Meaning, your primary goal as the founder is to offer a space for both parties.
When users have difficulty accessing your platform or connecting to a producer, consider your product a product with a lot of room for improvement. To guarantee liquidity in your two-sided marketplace, keep studying your service’s product and market fit.
How vast is the market your producers can reach out to, and how urgent is this need?
Act on feedback
Similar to any business venture, listening to feedback is essential for growth. Everything can make sense in your head, and things may seem like they’ve fallen into place, but until you respect what both parties have to say, your two-sided marketplace isn’t going to last very long. From speed to user interface and design to accessibility, learn to digest what people have to say about your software healthily.
Adjust when necessary, and optimize when needed.
Do you have a two-sided marketplace startup you’d like to discuss? Call us, and let’s make it happen!
