How Boris saved my job and how Dan sometimes wants to pivot toooooo much :)

This is a lovely Guest post written by Boris Wertz. Boris Wertz is founder of Version One Ventures, a Vancouver-based early stage investment firm. He was previously COO of AbeBooks.com, which was acquired by Amazon in 2008. So he knows what he is talking about :) And he may well have just saved my job... 

It’s no secret that building a marketplace startup is hard - really hard. The model works extremely well at scale – for example, Ebay, AirBnB and Uber. However, getting to scale is another story as young two-sided marketplaces struggle with the chicken-and-egg problem. If there are buyers but few sellers, the buyers leave. Yet if there are no buyers, what will convince sellers to sign on?

We have had this same hurdle with JusTaxi - a Manchester based taxi fare comparison app - as without the operators the model cannot work - but without the customers the operators lose faith.

With this chicken-and-egg problem of supply and demand, no two-sided marketplace is built overnight. For example it took Wattpad, a community for readers and writers, three years to get to 300,000 uploads; then it only took another three years to reach 10 million. The crowdfunding platform Indiegogo was founded in 2007, but its break-out year didn’t come until four years later.

If you are building an online marketplace, how do you survive the tough times when you’re trying to get traction and build out your supplier and consumer communities? Here are five tips:

• Don’t be too quick to pivot

This is an interesting one - as myself as the business development manager - I have been screaming out for a good pivot probably from day one (for the record my day one - was day 342 of the business's so it makes a difference)

As Boris says "If you don’t see signs of traction after six to nine months with a SaaS or e-commerce startup, you probably should reassess your market or model." BUT... as he realised "this timetable is too accelerated for most marketplace businesses. Considering you need to establish both buyer and seller communities, you will need more time to prove out your business when building a two-sided marketplace.

As mentioned above, it can take three years for a marketplace to get going. Network effects really start kicking in when there are enough products on the site to encourage buyers to return to look for products in other categories, when sellers start listing more products, and the growth of sellers and buyers is quickly accelerating. However, until you get there, start-up founders: stay focused on the core, and investors: stay patient.

• Keep the burn as low as possible

Given the slower pace of a two-sided marketplace, you’ll need to give yourself enough time to build your business. This means adjusting your burn rate downwards in order to lengthen the runway as much as possible."

We have done this a little at Justaxi - but as the marketing and business development manager I really want our outgoing to be cut down the minimum - but can people really work together without an office? Boris doesn't answer this - probably more of a question for 37 Signals and rework - but he does say...

"While spending big at the beginning can help some businesses ramp up quickly or become the uncontested market leader, money cannot buy speed when it comes to building out a marketplace.

Take a close look at your burn. There’s no need for a big team or offices early on. Most marketplace businesses only need two functions early on: people building product and people building the buyer and seller communities.

• Tighten your focus

With limited resources to build a sustainable marketplace, you need to narrow the focus of your business efforts. In most cases, marketplace businesses need to build traction in smaller verticals before expanding their reach into bigger markets. Or in the case of geographical markets, a marketplace should nail one location before expanding into others.

Indiegogo first went after the indie film market before opening up their platform to other categories. Ebay started with Pez dispensers before becoming the world’s largest online marketplace. Expanding outward from the niche often happens organically as sellers start listing items in new categories.

For example, Etsy sellers began listing craft supplies and tools and this category has become one of Etsy’s largest today. If growth outside the niche doesn’t sprout organically, you can help speed up the process by focusing on seller acquisition campaigns targeted for strategic categories and more prominent merchandising of new categories to consumers.

However, be advised that category expansion doesn’t always work as planned. When I was COO at AbeBooks, a marketplace for used, rare and out-of-print books, we thought we could expand our site into new books. Despite a strong selection at competitive prices, the new books category never lived up to expectations, as most of our buyers stayed with their existing retailers (mainly Amazon).

• Focus on your most passionate users

Great marketplaces are built from the niche to the masses. You need to cement the experience for your early adopters/niche users before you can begin to appeal to a broader audience. By engaging your passionate users and catering to their needs, you increase the likelihood that they will tell their friends about the experience and your marketplace can spread outward.

AbeBooks catered to the seller community through seller-only forums, a seller advisory board, frequent 1:1 conversations with top sellers, and seller meet-ups throughout the country. Etsy has done a fantastic job of involving their buyers in the marketplace, creating a true social commerce platform. With tools to curate sellers and products, and opportunities to connect with other buyers and sellers, Etsy has turned into one of the strongest communities out there and is creating passionate users every day.

• Believe in your vision

It can be difficult to keep telling your story day in and day out without any external validation from the industry. Indiegogo co-founder Slava Rubin was often ridiculed when he presented his vision of a crowdfunding platform in the early days.

The market’s pervasive thinking back then was “Why would anybody fund someone else’s ideas?”

When trying to create a new marketplace or market category, you’ve got to believe in your idea even when no one else does. However, having faith doesn’t mean turning a blind eye to market reactions. You should continually look for small signals that you’re on the right track.

These include: increased word of mouth from your early adopters, increased repeat usage from buyers, increased listings from sellers, and positive user feedback.

Final thoughts


Building out both sides of the marketplace simultaneously can seem exponentially harder than a one-sided transactional model. However, once you reach scale, things truly start clicking and an established marketplace is hard to unseat due to the strong network effects at play.

 If you can give your business a long enough runway to build out both sides, there are plenty of market niches ripe for the next Uber, Kickstarter or AirBnB. Which is great news - as Uber are one of our competitors in this niche we have found as Manchester's taxi fare comparison app.