One of the first problems that you will have to solve when building an online marketplace is solving the classic chicken and egg problem. Do you build supply or generate demand? You need to learn how to get customers with little supply and how to get supply with only a few customers. Providers like owners, hosts, or sellers normally have a much larger incentive when it comes to joining a marketplace because they are able to generate a source of revenue when they join.
As a result, it makes the most sense to immediately start to build supply. Your main prerogative should be signing up providers so they can list or post their supply. When supplying your marketplace, it’s important to be clear about your value propositions. You need to make sure your providers clearly understand the value that they will gain by joining your marketplace.
If your buyers or renters land on your marketplace and don’t find anything you’ve immediately lost a potential customer. They won’t revisit your marketplace because they will not have found any value and it will be extremely difficult to build a network effect if you can’t garner a loyal customer base. Supply is crucial for laying the framework for future success.
Supply Creates a Network Effect
Creating a network effect is all about being innovative and useful. You have to disrupt the industry you’re attempting to penetrate with cutting-edge technology while providing valuable solutions that prove to be beneficial to your customers.
The solution you should be providing is supply. Not only that, but users should be able to easily access your supply and complete a seamless transaction. When you begin to solve users’ problems and fulfil their needs you will slowly start to build a network effect.
Building Supply Takes Grit
You have to put the work in in the early days of building a startup, you can’t sit back and wait for the supply to come to you organically because it won’t happen. You have to be proactive and go out and get it.
There is proactive and reactive (organic) supply. In the early days of building Ruckify (the world’s largest online peer-to-peer rental marketplace) we did everything manually. We would physically go to people’s homes and take pictures of the items they were looking to rent and then add them to the platform for them. We were physically going out and getting supply and uploading it to our platform for the suppliers.
We learned from this process and were then able to create our first posting process which was a bit difficult to navigate and fairly long. We were then able to use our design thinking process to make iterations and cut our posting process down from around 10 steps to 4 which meant our suppliers were able to upload supply quickly and efficiently.
Start with a Single City
With most marketplaces, building out your supply density geographically is a solid strategy. You can start out small by working your way up in one single city. As soon as you’ve grown and proven to be successful within one market you can take what you’ve learned and move to the next. Building out your supply city by city will give you the opportunity to dominate niche markets before you set your sights on larger goals.
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