Connect with us

Entrepreneurship

How To Successfully Grow A Marketplace

Published

on

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.

___________________________________

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.

Entrepreneurship

Science is the Next Big Thing in Startups

Published

on

From pharmaceuticals to petrochemical processes: Newcomer companies and investors and investors alike are setting their sights on science. How the start-up scene moves beyond the mobile apps bubble…

For the last two years Silicon Valley analysts and venture capitalists are anticipating the burst of yet another bubble. This time, under the risk are the mobile start-ups which constitute the biggest share of the market. Out of 50 companies listed in Forbes’ “the hottest startup of 2015” (by valuation) only six companies are based on innovations in other-than-mobile area, one company provide cleaning services, while the rest are diverse mobile apps.

Meanwhile many products listed can be barely called innovative. A significant proportion of the listed start-ups are texting apps, apps for people search (starting from business partners to life partners) or delivery services. While those services can definitely facilitate one’s life, in general they differ from their predecessors by only a narrower audience.

Many venture investors expect stagnation if not decrease on the markets, which is why they start to transfer their capitals from start-ups offering customers software to start-ups offering specific solutions for existing businesses. Such companies are expected to demonstrate more stability in the near future.

The Market for Mobile Apps Might be Saturated

Back in 2012 a talented entrepreneur could walk into a venture capitalist’s office, say his startup was a mobile-first solution for pretty much any problem (payments! photos! blogging!), and walk out with a good-size seed investment. “That pitch was enough to get going,” says Roelof Botha, a partner with VC firm Sequoia Capital. “It’s not enough anymore.”

“I think investors are bored with investing in another messaging app. And our idea is crazy enough that it might just work. ”, has declared in 2014 Nadir Bagaveyev a founder of a start-up using 3-D printers to make rocket engines. By 2016 the company attracted investors funding sufficient to launch its first rocket.

Pharma and Biotech Start-Ups in High Demand

Currently the most successful science-based start-ups are the companies offering innovative solutions in the field of pharmaceuticals and biotechnologies. It’s noteworthy that despite the previous revelations and even judicial proceedings the list of the most expensive start-ups still includes Theranos, blood analyzing laboratory, whose story did not descend from the main pages of the global leading media from 2014.

It first amazed the audience with its fantastic take-off and then with its collapse. One of the crucial parts of the success story of this start-up is its fundamental difference from the majority of the services produced in the Silicon Valley. Unlike the others, it was not a story of yet another beautiful gadget for communication or mobile app, but the story of the scientific idea which intended to conquer the world.

The great success stories in other scientific areas are now happening on occasional basis. However certain facts allow to predict that the situation is to change soon. One of such factors is growing interest among the big corporations to attract innovative solutions from outside to develop their businesses.

Given the accelerating pace of scientific and technological development of the world, the activities of internal R & D departments are often turn to be insufficient to ensure stable development of innovative business. Outsourcing of the R&D may become the efficient mechanism to stimulate the growth of the company. And high-tech start-up can certainly benefit from it.

Start-Up Technology for the Petro-Business

In December, 2016 world leading companies in the field of gas processing, petrochemicals and chemicals announced their intentions to enforce their R&D capacities by attracting start-ups. 3M, AkzoNobel, BASF, The Dow Chemical Company, DuPont, Henkel, Honeywell UOP, LG Chem, Linde, Sibur, Solvay and Technip together created a global stage for startups and investors.

“The petrochemicals industry can and must rely on the potential of open innovations to facilitate further inventions and implementation of new solutions in all major application areas, from construction and medicine to packaging and 3D printing. Thanks to the participation of international partners, IQ-CHem is now the largest global project within the industry which attracts innovative solutions and provides for their implementation into practice,” said Vasily Nomokonov, Executive Director of Sibur, a company which coordinates the project.

Positive Experience in Chemicals and Beyond

Some of the listed companies have already gained positive experience in working with start-ups which may have driven them to elaborate a systemic approach to attract innovative companies.

At the beginning of 2016, SIBUR and RRT Global start-up reached an agreement to build a pilot plant for isomerization based on RRT Global technologies in Sibur’s Industrial Park SIBUR “Tolyattisintez”. According to Oleg Giyazov, co-founder and CEO of RRT Global cooperation with a large corporation bring significant advantages to his company.

“By cooperation with Sibur we get a huge industrial experience that enables us to develop technologies and solutions better fitted to the market demand. This advantage is often not given due attention, but we, on the contrary, see significant opportunities in it. Currently, RRT Global cooperates with several companies around the world” he said.

Another petrochemical leader BASF enjoys successful cooperation with Genomatica start-up. In 2013 BASF started the production of 1,4-butanediol based on renewable feedstock (renewable BDO) using Genomatica’s patented process and in 2015 the license was expanded to the Asian market.

Unlike traditional forms of cooperation between a start-up and a venture capitalist, a cooperation between start-up and a relevant corporation allows to minimize the risks associated with investing in a potentially promising idea where the key word is “potential” (but not “guaranteed”). While delivering services in the same field as the start-up the corporation gets an opportunity to more effectively and accurately estimate the market value of an innovative idea and to support its implementation.

Structural Changes Ahead: Outlines of A Coming Market

In the short term prospective, possibly in 2017, the global start-up market will face structural changes – both in terms of start-ups professional orientation and of funding mechanism. In the future science-based start-ups will dominate the market and will change our lives at a deeper level than the way of sending a text message or searching the restaurant for an evening meal. To be more concise this is already happening in the pharmaceutical industry, and the other scientific areas are to follow.

_________________________________________________

About the Author

This article was written by Dominik Stephan of Process Worldwide. See more.

Continue Reading

Callum Connects

Norman Tien, Founder of Neuromath and Early Math Matters

Published

on

From a young age, Norman Tien, found his passion helping students as a math tutor and went on to translate that into a successful business.

What’s your story?
From the age of 14, I knew I would be in business for myself and started designing my company logo.

Growing up in a poor family, I worked part time while I was in school. That’s when I started tutoring and realised I had a gift to help students “see” mathematics. I delivered good results, and my students started to love math as well.

A turning point was when I was down with dengue fever and I realised I had to grow my business to the next level. I started a learning centre and that was the beginning of Neuromath. The initial years were tough as costs went up while my personal income took a dive. I almost gave up, but I pushed through.

Today, we have 3 specialty math enrichment centres managed and delivered by my dedicated team of teachers.

What excites you most about your industry?
“How to win” has always influenced how I position myself in the industry. I researched the psychology of learning, why some students are so naturally good at math, while others struggled. I managed to find the connection, and have always sought out niches to position myself so I can win.

In the beginning, I fused academic delivery with psychology to differentiate my services. Now I have a good team of teachers fully equipped with a psychological skillset.

In the next evolution of our business, we will incorporate technology into education in order to customise each student’s learning experience based on his or her needs.

What’s your connection to Asia?
I was born and educated in Singapore. One key driver why I started a business was, as a youth, I witnessed how my dad struggled daily as a taxi driver trying to make ends meet.

That said, I am very blessed to be in Singapore and to be given the right education. I see this as a very important factor to my success today.

Favourite city in Asia for business and why?
Singapore – well, for one, most of my businesses are here. Singapore is convenient for business and is very well governed. There are rules and systems that make the entire entrepreneurial journey more secure here. One big plus is the location: Singapore is a hub that allows us to connect to the world.

What’s the best piece of advice you ever received?
船到桥头自然直 –
There is a Chinese saying that when a boat goes near the pier, it will automatically align itself (with the current). It means we don’t have to worry too much, that things will take care of themselves.

A mentor once challenged me: “But who can guarantee you can even reach the pier?”

It is such a highly competitive world we are in, who can guarantee success? This is the ONE question that has been etched in my mind for decades. The Chinese saying always comes to mind when I am positioning, designing and strategizing for my business.

Who inspires you?
Mr. Lee Kuan Yew – The fact that he started ruling the country just like a startup. With limited resources, he was able to find a strong positioning to differentiate his country from the rest of the of Asia. With hardwork and proper planning, he transformed Singapore from a fishing village to a prominent financial hub in Asia.

Because Mr. Lee Kuan Yew positioned Singapore so well, government owned companies, such as Singapore Airlines, have emerged as the best in the world.

His story inspires me, spurs me to understand that success is not by chance but by design – every little step, all the strategies are all planned out. Not at all by chance.

What have you just learnt recently that blew you away?
My business coach, Marshall Thurber, shared with me the power of the “Trim Tab” – a small part of the rudder system in a ship. This Trim Tab, despite its small size, is able to influence the entire ship’s direction by turning it.

This metaphor helped me see that a man can influence the entire world if the right effort is applied. We are now living in an entirely new world, the way we commute with an app on the phone – that’s the power of the Trim Tab at work.

If you had your time again, what would you do differently?
I would embark on the same journey but I would seek a mentor at a very early age.

I have been through many hard knocks along the way, and I definitely could have shortened the learning curve if I had a mentor to advise me on the many aspects of entrepreneurship.

How do you unwind?
Driving down long highways helps me unwind, that’s when I let my mind relax and wander.

I love long distance driving and riding. My wife gave me a Harley Davidson Tourer for my 50th birthday and we intend to embark on riding holidays together in Asia.

Favourite Asian destination for relaxation? Why?
Hong Kong – I love the fast pace and the vibrance of the city. I love the cars there and it’s a very unique and exciting experience for me. And of course, I love the food there too!

Everyone in business should read this book:
One Minute Millionaire – this book highlights the mindset of an individual that is the key determinant for success in whatever we embark on. As long as we know we have a very strong reason why we need to do it, we can do it!

Shameless plug for your business:
I am the CEO and Founder of 2 Math enrichment brands:
Neuromath is a Specialist Math Learning Centre that helps students from Primary 1 to Junior College, empowering them with strategies, skills and a strong desire to learn and problem solve. We use technology to train students to avoid careless mistakes reclaiming 30 marks or more in Math exams and achieve their full potential in math.
www.neuromath.com.sg

Early Math Matters is a premier Mathematics and Cognitive Development enrichment centre for preschool children aged 3-6 years old. Through purposeful play and our renowned EMM approach, we help learners build a strong foundation for problem solving at an early age, and instil in them a passion & love for math that will stay with them for life.
www.earlymathmatters.com

We are actively seeking passionate teachers, entrepreneurs and investors who are keen to grow the education business with us.

How can people connect with you?
I speak regularly at workshops for schools, parents and platforms demonstrating the use of technology for peak performance in education.

Do contact me at
www.NormanTien.com

Alternatively, you can connect with me:
www.NormanTien.com/facebook
www.NormanTien.com/linkedin

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

Continue Reading

Trending