Marketplaces are an interesting business to build because you are in actuality building two companies. One side is B2C, where you acquire customers as the demand side (either people or businesses). On the other side you have the B2B portion where you are building out the supply side to serve the demand side. It’s a double headed problem, so where do you start? I’m only a little bit into building out Credo, the marketplace that I founded, so I have a lot to learn but I’ve learned a lot in the last few months from observing how my marketplace is coming together.

Building a marketplace is a chicken or egg problem when thinking about growth. One of the people I’m learning from about building a marketplace (while drawing on my own experience on the B2C side of some of Zillow’s marketplaces) is Dan Martell, who founded and subsequently sold Dan tweeted recently that the way to build a marketplace is to “focus on demand and the supply side will come”. This seems to have been true for Clarity and is true for Zillow where they focus hard on user acquisition, because as Spencer likes to say, “Advertising follows audience.”

I see what Dan and Spencer mean by their statements and ultimately agree that without demand your marketplace will die. But as I build my company, I’m seeing that marketplaces actually go through a few different iterations for growth. I want to talk about what those iterations have been so far and some lessons learned. Hopefully some of them will be applicable to your own product.

Phase 1 – focus on both sides to see that a market exists

A successful marketplace is most vulnerable at the beginning. In a normal business, you solve only one side (assuming a B2B or B2C play) and let software (or yourself) solve the rest. You only have to validate one side. A marketplace is very different because you are setting out to solve problems for two very different yet complementary sides – both demand (aka people looking for something) and supply (aka the people providing something that demand is looking for).

At the very beginning, focus on your marketplace’s story and the problem you are solving for the demand side. Do everything you can to learn about them and their specific needs so that you build the right solution for them and learn how to merchandise the supply side of your business.

Phase 2 – focus on the supply side to initially seed the platform

Once you’ve identified a lot of the problems faced by the demand side of the business, focus on creating an initial group on the supply side. Especially if you are doing something like Credo or Clarity that depends on an actual person not just a service (like Cleanly, where someone random shows up to get your laundry), you need to have enough to supply to appear to be a sizable business that gives them enough choice. If you don’t have the supply, they’ll just go elsewhere. In a space where there are a few choices and competing marketplaces, they’ll shop across the bunch so what is setting your business apart?

As an example, Credo currently has about 50 consultants and agencies on the platform. They all charge $1000+ per month and have a minimum hourly rate of $100. I am purposefully making Credo a marketplace upstream from some of the larger marketplaces where you can get “digital marketing services” for $50 per month, because I do not believe those platforms ultimately provide value for businesses that are serious about growing.

Phase 3 – focus on demand generation

Now is the time to focus on filling up the suppliers with work and then onboarding new providers as the market shows a need.

Marketplaces are difficult because you must meet the needs of both the demand and supply sides. In my case, the demand side needs to be able to easily find and vet a service provider without any prior knowledge. That means different features that help them do their research and ultimately make their own decision about who to contact.

The supply side of my company has very different needs. I can generate leads for them all day long, but if they are not qualified then they’ll quickly stop responding to the leads and my revenue engine will dry up, and quickly. This is a different problem from supply, to be sure.

What I have found over the last four months as I have once again focused on generating demand and will increasingly concentrate on that over the coming months is that supply past initial can now be driven based off demand. I’ve received a number of leads over the last few months who I did not have anyone to recommend them to, but I was able to leverage my network and hustle to find them someone. While this is not longterm sustainable, this is another way that the supply side is also still growing as the demand side grows.

As I’ve said a few times, marketplaces are tricky. They are actually the one type of business that most people recommend that you don’t start because they are so complicated and tricky to balance. The best advice I’ve been able to give myself is to picture where the business needs to be then test a bunch of different growth levers by focusing hard on one then another until you identify what really drives growth in your own business.

Agree/disagree? Have feedback? Leave a comment or tweet me – @dohertyjf