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How To Successfully Grow A Marketplace

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Here are some important aspects of building a marketplace.

Key takeaways

  • Track marketplace health metrics
  • Focus on creating trust between buyers and sellers
  • Balance liquidity as you scale
  • Leverage buyers and sellers to scale fast
  • Try to raise standards for even happier customers

Understanding the health of your marketplace

As with any other digital business you should pay careful attention to buyer metrics like cost per acquisition (CPA), lifetime value (LTV), retention and your conversion funnels.

In addition to these, there are a number of marketplace specific metrics that you should pay close attention to.

Liquidity – this is the most important metric for your business. It varies slightly by the type of marketplace but the number should reflect “The percentage of the marketplace that is transacting over a given time period”. For example for AirBnB this might be “proportion of rooms that are booked each night”. Ideally you should be able to break this data down so you can see revenues and transactions for each buyer and seller as a % of the total.

Gross merchandise volume (GMV) – All marketplaces track this value as a lot of marketplace valuations are based on this number. This is the total value of goods or services sold over the platform in a given time period. I usually report this on a monthly basis.

Take % – Although this won’t change very often it is important for a number of reasons. A higher percentage take (especially on the first transaction) means you can scale faster being able to spend more to acquire customers. Be careful though not to make this too high as increasing your take may incentivise buyers and sellers to transact outside of the platform. We have typically seen take % between 10-30% for companies we have backed.

Building trust

Trust is crucial to any marketplace and it is best to develop this through a number of different initiatives.

Great design. Make sure your site is well designed, has a strong consistent brand and is easy to use. This should be obvious, but I still see too many companies not giving enough attention to design.

Appear Here's great design and brand helped build trust quicklyReviews. Most marketplaces incorporate reviews and ratings for a good reason. They allow buyers (and sometimes sellers) to make choices on who to trust based on previous experiences whilst also encouraging good behaviour. Make sure to allow sellers to respond to bad reviews and don’t allow historically bad reviews to negatively affect a seller if their behaviour has improved.

For example, Lexoo’s review system provides its lawyers a few weeks to respond to reviews before they get published. Lawyers are also reviewed across different dimensions to really help customers understand the lawyer’s expertise for their own context.

Help sellers look professional.

The more professional the seller comes across, the more likely the buyer will purchase from them. You might want to consider creating “how to guides”  to help sellers present themselves well. Well known marketplaces like Airbnb provide professional photographers and Appear Here and Onefinestay takes this one step further by writing product descriptions themselves to ensure even greater quality.

Controlled communication. Consider providing tools that let customers talk to each other over the platform. This builds up trust with the parties while keeping them within the platform. However, you may want to block personal details being shared to stop transactions happening outside of the platform.

Balancing buyers and sellers as you scale

Growing a marketplace startup means you have to scale while you keeping your buyers and sellers happy. This makes it harder than other types of startups and can often be a dampener to early growth. For example you might have a scaleable way to acquire buyers but if you can’t scale sellers at the same time the marketplace will not take off. While you are still focussing on your initial pocket of liquidity you should run lots of experiments in order to identify the right liquidity tactics for your business. Once you have a good understanding of how you build liquidity you can start thinking about expanding outside of your initial niche.

In our experience, you will often find that buyers or sellers are already operating in an adjacent location or sector and are requesting you to expand. This makes it easier to seed the expansion as you already have built in trust, demand and supply. If you don’t have this then think about expanding into an area where you can envisage getting some efficiencies with the initial niche. This will provide you more insight and let you build a more robust model for the business at scale.

Some marketplaces grow faster than others

Some types of marketplaces can grow a lot quicker through leveraging their buyers and sellers. You should always be thinking about how you can use your customers to help you grow faster.

For example, Kickstarter is a marketplace that leverages their user’s networks really effectively. Firstly, every campaigner on Kickstarter will promote their campaign to their social network to find backers for their campaign. Backers are also incentivised to do the same so that the campaign reaches it goals. This acquires a huge number of new people to Kickstarter without paid acquisition. In addition, companies like Kickstarter, Airbnb and eBay are all examples of marketplaces where buyers can become sellers and therefore exhibit better unit economics.

Another way to leverage your sellers is to allow them create content on your platform to help promote themselves. This content is then indexed by search engines and drives new buyers to the platform with no additional cost.

Avoiding disintermediation

Disintermediation is a big risk in a marketplace business and you need to make sure you reduce this to a minimum otherwise it can really affect long term success.

To put it simply, buyers and sellers are less likely to disintermediate if they believe the value they get from staying on the platform is greater than going outside. So the only way to stop this happening is to either take a smaller amount from each transaction or to provide more value. I would advise you to focus on adding value in the first instance.

Below are some examples of ways to avoid disintermediation:

Take the payment. Important for many reasons and disintermediation is just one of them. Lots of people find it awkward handing over money by hand and prefer paying online. By taking the payment through your platform you can remove this area of friction and also guarantee that you will get paid immediately and helping with cash flow.

Help when things go wrong. Buyer and sellers are transacting without knowing each other. As a marketplace you can provide lots of value in giving security to the transactions. This might be through offering an insurance policy for when things go wrong and delivering amazing customer service.

Reward good behaviour. As long as sellers are making money on the platform then they will stick around. You might want to consider reinforcing this behaviour by rewarding sellers with better promotion.

Increase their productivity. You can add immense value to sellers by providing them tools that help them run their business more productively. For example, Appear Here handle payments, provide legal documents, facilitate communication, offer concierge services and have landlord dashboards as value add services to keep landlords transacting through them.

Raising standards

A good marketplace works hard to ensure that buyers get a good consistent service from the sellers. Depending on the marketplace, this might be deliveries arriving on time or goods delivered as they were described. Marketplaces like Uber have had to build this in from day one. Other marketplaces might want to introduce this once they have enough scale so that they can start to encourage good behaviour in return for greater revenue potential.

Airbnb does this nicely with their Superhost programme. Those hosts that respond quickly and keep getting great reviews will be treated favourably by the company.

A final thought

Remember, that each marketplace is unique and a tactic that worked for one company may not be the right one for yours, so try to work from first principles of really understanding your customers and getting your business fundamentals right.

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About the Author

This article was written by Dharmesh Raithata of the Path Forward. The Path Forward was developed by Forward Partners, a VC platform that invests in the best ideas and brilliant people. Forward Partners devised The Path Forward to help their founders validate their ideas, build a product, achieve traction, hire a team and raise follow on funding all in the space of 12 months. The Path Forward is a fantastic startup framework for you to utilise as an early stage founder or operator. The framework clearly defines startup creation as being comprised of three steps. The first step of this framework involves understanding customer’s needs. Dharmesh is Product Partner at Forward Partners and helps founders the’ve backed go from ideas to a great products and businesses. He has a passion for User Research, Lean UX and using data to inform decision making. Dharmesh has a background in artificial intelligence and has been doing product for over 12 years in his own or other high profile startups. see more.

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Denise Mossis Kipnis, Founder & Principal of ChangeFlow Consulting

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Denise Mossis Kipnis’ curiosity in people and the world, lead her to set up ChangeFlow Consulting.

What’s your story?
I’m driven by curiosity. Having been the only one in a room who looks like me for most of my life, I developed a curiosity about who stays, who leaves and who thrives in minority/majority situations including when and how connection and collaboration happen. I was a systems thinker long before I knew what that was, always asking why and so what; and seeing the pieces, the whole, and the places in between. So helping people and organisations move through the complexity of transformation feels natural to me.

What excites you most about your industry?
I see change and inclusion as two sides of the same thing; I don’t practice one without the other. Some people see change as death, as loss, as exhausting. And it can be. But I see in the work I do as an opportunity for something new or hidden to emerge. When an organisation understands that it is first a group of people, who themselves represent and belong to groups of people, and it begins to tackle what it would mean to understand and learn from all that talent, all that diversity, to have them all working for and not against the organisation, to truly unleash all that their people have to offer; that’s magic.

What’s your connection to Asia?
Change and inclusion are personal values as well as professional strengths. For me, living and working outside of the States was a bold experiment to see whether any of the stuff I’d learned about change and inclusion would work outside of the US. My husband and I targeted Asia specifically: it would be the greatest contrast, culturally speaking, for me; and a unique career springboard for him.

Favourite city in Asia for business and why?
Although I’ve practiced in other cities, I am biased towards Singapore. In some ways it’s what Los Angeles is to the rest of the United States, a microcosm of sorts. The regional/global nature of it means that so many different nationalities and cultures are represented. As a result of this mix, you never know what you might get. In some situations, cultural dynamics are obvious, sometimes subdued. The variability is compelling.

What’s the best piece of advice you ever received?
“Never ask anyone to do anything you wouldn’t do yourself.” Michael Rouan.

Who inspires you?
Often it’s a “what” not a “who.” I can get inspiration from a passage in a book or a situation in a movie, as well as a turn of a phrase or watching people interact. I often make the biggest connections between the various threads I’m working on when I’m sitting in someone else’s event.

What have you just learnt recently that blew you away?
I’m honestly not blown away by much. Instead, I’m struck how circular things can be: ideas often come back around with a slightly different twist and I watch the way it shakes things loose for people. I recently sat through a workshop on Self as Instrument, and despite being thoroughly versed already, I learned something. In preparing for a panel on design thinking, I unearthed a new language to describe things.

If you had your time again, what would you do differently?
You’ve caught me at a good time. I’m sitting in appreciation and gratitude for all my experiences, because I wouldn’t be who I was today if all that has happened, didn’t. And yet one thing comes to mind: It wasn’t until I redesigned my website two years ago (shout out to Brew Creative!) that I realised I hadn’t made explicit agreements with my past clients as to what I could share publicly about our engagement, or whether I could use their logos in my promotional materials. In my business, confidentiality is so important, and yet I need to be able to talk about the work as reputation and experience leads to the next success, and so on. It turned out a lot of the contacts I had known had left the organisations where the work was done, so they couldn’t help at that point. So the practice I’m carrying forward is to get those agreements up front, and to make sure my relationships in client systems are broad as well as deep.

How do you unwind?
Science fiction, puzzles, wine.

Favourite Asian destination for relaxation? Why?
Home. I don’t travel to relax, I travel to learn and explore.

Everyone in business should read this book:
Built to Change, by Ed Lawler and Chris Worley. To my knowledge, it’s the first pivot from advising organisations away from stability and toward dynamism, from strategic planning to strategizing as an action verb; to blow up the traditions and rigidity that impede organisations from developing change capability.

Shameless plug for your business:
We’re taught that there are two kinds of people: those who see forests, and those who see trees. There is a third type, my type, and we see the ecosystem. Worms, climate, birds, the spaces in between. This is the perspective organisations need to be successful in solving complex problems and thriving in change.
ChangeFlow uniquely blends four disciplines (two of which are multi-disciplinary in themselves): organisation development, culture and inclusion, change management and project management.

How can people connect with you?
Facebook: https://www.facebook.com/ChangeFlowConsulting/
LinkedIn: https://www.linkedin.com/in/dmorriskipnis/
LinkedIn Company page: https://www.linkedin.com/company/4862954/
Email: [email protected]
Website: http://www.changeflowconsulting.com

Twitter handle?
@ChangeFlow

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Agnes Yee, Legal & Compliance Recruiter of Space Executive

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Agnes Yee started Space Executive in Singapore, which is a hub for businesses in some of the world’s fastest growing economies.

What’s your story?
After graduation, I joined a design media company as a Business Development Executive, during the era when ‘reading a magazine online’ was unheard of. I believe that laid the foundation for being unfazed by rejections.

I fell into recruitment pre-GFC and rode the highs and lows in the early years. A decade later, I decided to set up my own recruitment company, partly because I could. I’m acutely aware of the face that being an Asian female in Singapore is sometimes a privilege, and that many women in the world are living a very different existence.
Thereafter, we joined Space Executive as part of a merger. I am currently the Partner of Space Executive, a recruitment company focused specialist disciplines, including Legal, Finance, Digital, Sales and Marketing and Change. We also run Space Ventures, a venture capital business, which invests in seed and pre-series A businesses.

What excites you most about your industry?
On a daily basis, we’re influencing how one spends a third of their day. It is interesting how the Internet has transformed the industry, and I’m excited to see how we can harness technology to bring us to the next phase of this business.

The VC is an extension of applying our skills and experience in reading people. We very much invest in the people as much as the idea. Being a native Singaporean, it’s been exhilarating watching Southeast Asia becoming a hotbed of ideas; and young entrepreneurs simply daring to dream.

What’s your connection to Asia?
I’m a born and bred Singaporean. I love that I speak both English and Mandarin, grew up playing with Indian friends and eating Malay food.

Favourite city in Asia for business and why?
Singapore for the low barriers of entry to set up a business, but has to be China (and Hong Kong) for their hunger and constant innovation.

What’s the best piece of advice you ever received?
青春不要留白 which translates to ‘Don’t waste your youth.’

Who inspires you?
Anyone who has gone against the grain.

What have you just learnt recently that blew you away?
It wasn’t recent but reading the article on https://waitbutwhy.com/2015/12/the-tail-end.html never fails to blow my mind how little time we have left. Charting our lives in weeks, and realising I only have enough time left to enjoy 60 Christmas turkeys, read 300 books (all if I’m lucky); and mostly, I’m left with the last 5% of the time that I spend in-person with my parents.

If you had your time again, what would you do differently?
I’m cognisant that every decision I made in life has brought me to where I am today, and I wouldn’t change one thing. But I’d really like to have had more time to travel.

How do you unwind?
Exercise and wine.

Favourite Asian destination for relaxation? Why?
Trekking any mountain in Asia. It brings us back to the most basic. To overcome elements of nature and our own mind.

Everyone in business should read this book:
Start with Why, Simon Sinek

Shameless plug for your business:
Space Executive started in Singapore, a hub for businesses in some of the world’s fastest growing economies. We assist organisations in accessing a targeted and specialised, and often times transient talent pool.

Out of Singapore, we have recruited across 14 countries; and have embarked on our global expansion plans with offices in Hong Kong and London this year, and US, Japan and Europe in the following years.

Space Ventures provides funding, management and financial guidance to young businesses with original ideas. We have invested in peer to peer lending platforms, credit scoring, social media education, and other start-ups spanning diverse industries. We are always interested in hearing more about new ideas.

How can people connect with you?
https://www.linkedin.com/in/agnesyee/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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