A head of biz dev at B2B finance marketplace startup called me today, and started off with:
“I’ve read your profile. We don’t have a pricing problem. Our pricing is good. We have a customer problem.”
First off, helluva way to jump in. Props.
Second, there’s a list of startup business models I’m inherently skeptical of. Two-sided marketplaces are right close to the top of that list.
My skepticism isn’t that they don’t exist or can’t work. Just that, out of the gate, it’s massively resource intensive to build sufficient volume on both sides of with enough people ready to transact to demonstrate it works.
I worked on a couple of these in the venture studio. One found lots of volume on the supply side but none on the demand side. The other never found enough volume on either side, but was able to execute one single transaction.
Lynn Breedlove founded Homobiles in 2011. A nonprofit providing safe rides to San Francisco’s LGBT community – drag queens, transgender riders, and the people taxis refused pick up. Donation-based. Breedlove drove. Then more people volunteered to drive. Not a marketplace. Neighbors serving neighbors.
Both the co-founder of Sidecar and a former Uber exec credit Homobiles as their inspiration for enabling regular drivers to provide rides in their regular cars. In 2013, after 4 different organizations had proven demand for the model, Travis Kalanick CEO of Uber, who had publicly stated that regular drivers in regular cars wouldn’t work, adopted it.
Homobiles wasn’t trying to build a two-sided marketplace. They were trying to get each other home safely.
The two-sided marketplace model came later. Much later.
Which leads me to my two-sided marketplace litmus test: Can any transacting party be on both sides of the transaction?
An Uber driver could be a Uber passenger. An eBay buyer could be an eBay seller.
If it doesn’t pass this test, it’s not a marketplace, it’s something else entirely. Thankfully that something probably simpler and easier to execute at founder-scale.
Back when two-sided marketplaces were super hot, I attended a Business Model Canvas workshop. Alex Osterwalder was demonstrating how to diagram a two-sided marketplace. His recommendation: one canvas, two highlighters, a different color for each side of the marketplace.
Double the customer segments, double the value props, more double the complexity. Same single page. Iterating on either side meant navigating around the other. Like two people in a trenchcoat. Even the example at the front of the room was difficult to follow.
It’s like the BMC itself was whispering “just pick a one side”.
Yesterday, I talked with two founders envisioning a two-sided marketplace for handyman work in apartment complexes.
Already, you can tell from that description, it’s not a two-sided marketplace. It’s a facilities maintenance service for multi-family housing more focused on getting the work done than it is with who does the work. Even better! Amazing.
The founders are general contractors, selling directly to property managers. No platform. No marketplace. Just learning who the best buyers are, quoting the work, booking the contract, assigning parts of the job to themselves and parts to their crew, and capturing the full margin on every job in the process.
This. Not because it’s elegant. Not because it’s scalable. Because it produces real demand information, real revenue, today. We don’t need to worry about volume or matching algorithms. Just customer sales.
Admittedly, this is what the head of biz dev at the top of the article meant by “a customer problem.” To their credit, they are shifting to a direct sales model.
I don’t know how many finance people they have access to. What I know is this biz dev person needs to sell 3,000 hours to pay for themselves fully-loaded. That’s two finance people fully-booked for a year. That’s not really a marketplace, that’s more like a small agency. And that might be even better.
My Easy 7-Step process for starting a two-sided marketplace business
- You’re not a marketplace.
- Pick the demand side, go acquire customers.
- Fulfill the demand yourself until you’re consistently overwhelmed.
- Use the overwhelm as the signal to bring on a friend to help fulfill the demand
- Repeat until you run out of friends.
- Now, build a system to scale beyond your friends.
- Then launch publicly.