How to Kickstart and Scale a Marketplace Business

Phase 1: Crack the chicken-and-egg problem

• Part 1: Constrain the marketplace
• Part 2: Decide which side of the marketplace to concentrate on
• Part 3: Drive initial supply
• Part 4: Drive initial demand

Phase 2: Scale your marketplace

• Part 1: Determine if you are supply or demand constrained
• Part 2: Scale growth levers
• Part 3: Maintain quality
• Part 4: What would you have done differently if you did it again 

Phase 3: Evolve your marketplace 

• Part 1: Move to a managed marketplace
• Part 2: Add new business lines 

What is a marketplace business?

A marketplace business is one that 

• (1) connects demand
• with (2) supply, and 
• (3) leads to a financial transaction.
• Do not generally own any supply, provide products or services directly, or handle the money being exchanged.

Examples of classic marketplace businesses: Airbnb, Uber, Lyft, Alibaba, eBay

Examples of non-marketplace businesses: Delta Airlines (they own all of the inventory), YouTube (no financial transaction), Slack (no supply).

Why are marketplaces great businesses?

• Network effects: The more users you get, the more useful/cheap your product becomes, the more users you get (e.g. Lyft/Uber vs. taxis)
• Barriers to entry: Once they have a strong network effect, it becomes increasingly difficult to enter or replicate the marketplace (e.g. Airbnb vs. hotels)
• Efficiency (e.g. Airbnb vs. hotels), Scalability (e.g. Rover vs. dog hotels), Flexibility due to no inventory (e.g. Uber Black -> Uber X)

Content source: Rachitsky. L (2019) How to Kickstart and Scale a Marketplace Business – Phase 1: 🐣 Crack the Chicken-and-Egg Problem (Part 1/4). Available at: https://www.lennyrachitsky.com/p/how-to-kickstart-and-scale-a-marketplace?fbclid=IwAR3MYP03WysSGC-DC0PNj-iHDXjM3srCpFPt-EmQcxadNcyt7amiJwFvPBg [Accessed on Apr 22, 2020]