A marketplace business is really about facilitating connections: between goods and buyers; between businesses; and between supply and demand. Much like how a perfectly functional lamp will not glow until brought into contact with electricity, the magic of business only happens when suppliers make a connection with buyers. A good marketplace is transparent, straightforward, and facilitates those connections and their transactions.
Generally, marketplace businesses do not own or control the supply side. For example, an airline selling flights aboard planes they own is not considered a marketplace; however, a travel portal displaying all available flights – from all airlines – is. It also happens to encourage competition and quality control without owning any supply. Because marketplaces make services easier to find, quicker to obtain, and have a degree of quality control built into them, they can offer a superior purchasing experience for their users and drive the market toward consumers’ best interests.
Building your own marketplace is a journey encompassing many adjectives - challenging, rewarding, exhausting, exhilarating - and of course, ongoing. With that in mind, I’d like to share some lessons I’ve learned building my own marketplace from scratch.
When starting out, online marketplaces are faced with what’s often called a “chicken-and-egg” problem: which comes first, supply or demand? When I began Virtual Gurus, supply naturally came first - I was the only VA! Today, we’re a community of over four hundred virtual assistants in Canada and the United States. How did we get here…?
At first, one of the most reliable strategies is to constrain your marketplace. When the founders of Rover — a marketplace that connects dog-parents with dog-walkers — were starting out, they stayed focused on Seattle: “[It] was the perfect market for us: very dog-friendly, early adopters, techy, working professionals who go on vacation and business trips. There is probably no more dog-friendly city in America. This helped figure out the product quickly.” They solved the chicken-and-egg problem by growing both sides simultaneously in a focused geographic area. Virtual Gurus did something similar when we started in Toronto — we focused on attracting local talent to match local business needs in a large urban market.
Your marketplace can also be constrained by category: focusing on a limited number of products or services in key fields you hope to infiltrate. Much like how Etsy’s first sellers could only put up vintage items, handmade items, or craft supplies, Virtual Gurus started by testing Toronto’s market need for social media management and general administration.
If you’ve started by filling the supply side, how do you know when you’re ready to invest on the demand side? When your supply growth is coming easily and people are signing up without much convincing; when your supply is underutilized; and when you’re confident pitching yourself on the specific niche your marketplace is serving. If the focus is on solving a specific problem for a defined niche, and you value quality over quantity at the beginning, it will be easier to generate happiness, word of mouth, and better early retention or repeat rate metrics.
According to one series of interviews with Marketplace businesses, close to 60% say that having a direct sales team was a crucial lever to their success: that means a team of people pounding the pavement, doing door-to-door sales; on the phone, cold calling; speaking in-person at conferences; and giving demos — real people connecting with real clients.
While hiring a team to sell a service that may not yet exist can be complex and operationally heavy, I agree that it’s critical when kickstarting a marketplace, especially from the early client’s perspective. Hand-holding your early members - convincing them to switch platforms or to debut your newborn platform; teaching them how to use it; and listening to feedback about how it could better serve their needs - creates an environment where your clients feel that you’re building the business together. It helps the earliest adopters of your idea to achieve success with it, and it’s in everyone’s interest to pack your platform with the type of demand you want to be serving. It also means many of your early adopters will be loyal to your platform going forward - many of our first clients are still with us all these years later. At this stage and every stage, trust and relationships with your clients are vital, and person-to-person conversations are how you start to build that trust.
In your marketplace’s infancy, your customer acquisition cost (or CAC) will be quite high. Your sales team is learning alongside your clients through the platform development; your tech team is evaluating their suggestions and needs against the product roadmap; and your payroll will likely exceed your profit for some time. CAC trends downward when you reach a certain market share and network effects begin to kick in — but don’t relax yet! Now the real work begins. Acquisition is the easy step; retention is the real challenge.
Many marketplaces are for single-purchase transactions on a case-by-case basis, meaning they need to constantly re-engage users to order through their platform. At Virtual Gurus we mainly provide businesses with an alternative to hiring full-time staff when it isn’t required (B2B), so we offer our services as a monthly subscription package. This gives us monthly recurring customers and predictable monthly revenues. It also provides more certainty for our VAs as they know they’ll be working with a client on a long-term basis.
Retention of those clients is therefore not only the most important piece of the puzzle but also the most challenging - it can feel like a moving target that requires constant adaptation to keep in scope. The nature of business means that a client’s needs may have changed since they were onboarded, so it’s necessary to have a team in place to respond to their needs as they evolve. The nature of the work they’re seeking may change: think of how quickly TikTok proficiency became a necessary skill in social media marketing, or how payments by e-transfer have risen to compete with credit cards on the bookkeeping side. Additionally, as your own platform evolves and improves, clients may need assistance learning and adopting new features.
Being a marketplace means you’re facilitating and nurturing a relationship between the supply and demand. In our case, we are the liaison and bridge between VAs and clients, and the heart of our business is maintaining that relationship. We built a client success team that could respond dynamically, compassionately, and efficiently to both client and VA needs. Once acquisition is no longer your biggest hurdle, the emphasis you place on customer service is what will define the path of your scale.
Many marketplaces operate smoothly by hosting their B2B connections through a third-party platform such as a payment gateway; this creates massive opportunities to easily scale in the early days but ownership of client data and communication can be limited depending on who owns the client data. Our flagship innovation is our Talentplace–the technology platform that matches our clients with the VAs that meet their specific needs. Understanding when customers are happy and when they’re most likely to get frustrated - that key retention stuff again - is a challenge we’re currently working to address with machine learning. Our aim is to have Machine Learning increase our efficiency, customer satisfaction, and product quality, all the while elevating the type of work our team performs and decreasing any unconscious bias that may play into human error.
Predictive modelling is a method that uses historical data to anticipate changes coming down the pipe for your business. Machine Learning can seem intimidating - remember you don’t have to figure it out all by yourself! We are working to bring some of the province’s brightest minds to our clients’ problems - some they may not yet know they have. Operating with a strong understanding of the technology your business uses allows for better efficiency, robust workflows, and opportunities for innovation - all of which better position your competitive edge.
All this without mentioning the challenges of remote work - that persistent animal of “these trying times”. March 2020 was a wake-up call for businesses everywhere: your operations must have remote capabilities to protect against future trying times that may grind them to a halt once again. We all learned that the widely held preconceived notions of a remote team – that workers were untrustworthy and wouldn’t focus; that household duties would be prioritized over workplace tasks; that naps and soap operas would fill people’s days…you’ve heard them all – were based on little to no data and were a hangover from early industrial society. We all learned that remote teams can and do work. Hiring a technology guru early and working with them every step of the way is a lesson that can’t be overemphasized.
When you’ve moved through your chicken-and-egg phase and you’re roosting comfortably in your niche, it’s time to disrupt things again and ask the next question… what about growth? The obvious options are to expand your clientbase or your service offerings. For many marketplaces this means setting your sights on bigger fish: clients upmarket.
A move upmarket typically makes for less competition, simply because most companies tend to start out targeting small customers. Larger businesses looking for a solution have fewer options to choose from because there are fewer companies that have reached the size necessary to suit their needs. However, moving upmarket is its own challenge: selling to “elephant” customers requires (much) longer sales cycles, active account management, and a team of robust salesfolks - but the lifetime return for each client is (much) higher.
The number one challenge is that your business is now in a position where it must evolve from its origins. To serve a larger customer base with different expectations of sales and customer support, more people involved in each deal, and potentially different product or service requirements, many companies will undergo a cultural shift from a product-led business to a sales-driven business. This evolution can take years to get right. If you’ve built a team around you that you trust to execute your vision, to communicate effectively with each other, and to handle the growing pains together, then you can feel confident that moving upmarket will be a challenging but ultimately rewarding part of your journey.
“The foundation for forming a community,”, says Julia Wadehn, founder of PaulCamper, “is a unifying purpose. Understanding the common things that unite your users draws them closer together and closer to your business.” In recent years, many businesses have leveraged building a community around their users as part of their business strategy. A strong, active community of users (on both supply and demand sides) can help with building word-of-mouth, scaling customer support, and boosting employee satisfaction and engagement, as well as adding value to your growth and long-term retention.
It can be all too easy to prioritize more tangible, short-term goals when you’re starting out. But the earlier you lean into the long-haul of community-building, the more quickly you will see its rewards and the more robust it will remain in times of uncertainty or fast growth. At first, building a community looks like being dedicated to your customers, having direct contact with them, and listening to their needs: in essence, a larger investment of time than money.
But it’s more than just moderating a Facebook fan page. Having followers who are interested in the content you post is quite distinct from having people that are actively engaged with your marketplace. We like to think of our VA community as a village: full of diverse and effervescent people with common interests and goals. Users that have been engaged in the platform and community for a long time often take on ambassador roles, sharing their collective knowledge and lessening the leadership challenge of moderation. Seeing VAs and customers find purpose around the work you believe in is often a very powerful feeling.
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