Marketplace Fundamentals

"“The ultimate success of your marketplace will depend on your ability to create meaningfully more happiness in the average transaction than any substitute, not how many transactions you accumulate.”"

"Every marketplace started off by concentrating on just a single city or category (except Thumbtack, for better or worse)."

"The marketplace model allows you to offer the unbeatable combination of (1) variety and (2) trust, and when a startup can deliver these reliably and on-demand, they win."

"In every marketplace I’ve come across, it always comes down to money on the supply side. That being said, there is an interesting nuance in the value prop depending on whether your supply consists of businesses (e.g. DoorDash, Faire, Thumbtack) or people (e.g. Airbnb, Rover, GOAT)."

"On top of all the challenges that all startups need to overcome to build durable businesses (e.g. finding product-market fit, unit economics, beating the competition, etc.), marketplaces have to find PMF twice (for their supply and their demand), kickstart an impossibly hard flywheel, while at the same time beating out every much-simpler-to-operate non-marketplace alternative (e.g. Airbnb vs. hotels, Uber vs. taxis)."

"As a result, we also began publishing full text reviews and photos of the dishes that were being reviewed to help customers avoid the paradox of choice and make well-informed decisions more quickly, which has had a positive impact on acquisition and retention."

"We found that prior to Good Dog, people were attempting to make judgment calls based on their own intuition, which left them feeling unsure and uncomfortable. Our team is prepared and trained to make those judgment calls, which means potential owners feel safer on the platform and the breeders, shelters and rescues feel proud to support our community and mission."

"Everyone's always looking for the hack - what's the channel that will unlock something big? But every time we looked for a reason we weren't growing, it always came back to the basics –– selection, delivery quality, pricing. That's it. Always come back to first principles."

"We selected our initial markets where there would likely be demand, e.g. Chicago in the winter. A high household income, fewer households with cars, and frequently inclement weather — typically means people want delivery."

"A marketplace business is one that (1) connects demand (i.e. people who want a thing) with (2) supply (i.e. people who have that thing), and (3) leads to a financial transaction. These businesses do not generally own any supply, do not provide products or services directly, and (eventually) handle the money being exchanged."

"Once you’ve decided how to constrain your marketplace (geo or category), you then need to decide which side of the marketplace to put most of your resources behind — growing supply (e.g. dog walkers) or growing demand (e.g. dog owners). My second major learning from this research is that the vast majority of successful marketplaces focused almost all of their resources on growing supply early-on."

"Realizing we weren't a marketplace was the best thing that happened to us. It allowed us to take ‘Discovery’ (find a creator to pledge) off our roadmap, because we realized this would misalign us with creators as those creators got big. It allowed us to focus on building an apps and developer platform (analogous to Wordpress/Salesforce/Shopify/Segment etc.) instead."

"We’d first focus on our network of vets that my co-founders or colleagues may know in that city and then rely immediately upon word of mouth and referrals, getting them to start talking to others in the beginning."

"We learned that to get the initial supply activated, we actually need to have some solid high-quality hospital shifts (demand) listed first to attract vet interest. So even before we recruit the supply, we get some demand drumming (setting strong messaging/expectations to hospitals that they may not see a lot of vet requests in the beginning)."

"As you scale and attract a more mainstream audience, preserving the level of service that keeps customers coming back becomes increasingly difficult, but also increasingly critical. You’re forced to move beyond your eager early adopters, deal with issues you never anticipated, and develop rules and processes on the fly."

"The single most common strategy to maintain quality in their marketplace, utilized by about two-thirds of the companies I spoke with, was to define (and share) clear standards for the minimum level of service. They then incentivize good behavior, and penalize bad behavior."

"For every new listing we brought onboard, we went through a 12-point checklist (e.g. number of pictures, length of title, etc), so that every listing that went live had a minimum standard and was immediately bookable for guests. After listing the spaces, local teams helped to educate the hosts at every single touchpoint."

"Search results were the lever that we used to control everything in the business. That was the product. The reason Rover pulled ahead of competition is that we had a much better understanding of marketplace dynamics."

"We found that high quality supply drove repeat usage. For example, we prioritized sitters who have done multiple transactions with the same owner. My advice is to figure out what the germane signals are for your transaction, and do everything you can to get more of that."

"At Airbnb we take reviews and ratings very seriously. In the early days, reviews were a great tool to vet supply (hosts and their listings) and demand (guests) on the growing marketplace. By encouraging people to give reviews we fostered the Airbnb ecosystem and accelerated the growth."

"In most cases you’ll be supply constrained from the start (you need something to sell after all), thus most of the solutions focus on growing supply."

"Whether for credit cards, multiplayer games, or business collaboration software, the “atomic network” is the smallest network needed that can stand on its own. It needs to have enough density and stability to break through early anti-network effects, and ultimately grow on its own."

"The prime directive of a marketplace is to generate liquidity where none existed before. The founding insight for most great marketplace businesses is principally a ‘liquidity hack.’ Uber hacked liquidity by paying drivers to circle key neighborhoods even with no passengers. Airbnb hacked liquidity by paying for professional pictures of homes to give guests a better sense of quality."

"At TaskRabbit, we scaled before we had product market fit. We should have focused on fill rate — the percentage of tasks posted that were complete. It was well under 100%, and people who didn’t get matched never came back."

"Structured the data around the supply — in the early days it was event title, date, location, and then a free form field for event description. This made it very difficult to understand the supply inventory which is essential when trying to match with demand."

"No matter how clever your marketplace model, you’re in trouble if there isn’t a big hungry market looking for what you’re selling."