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.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef

Published

on

Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

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

Entrepreneurship

Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang

Published

on

Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

Continue Reading

Trending