You probably know that a marketplace business model is one where buyers can connect with sellers (and vice versa), with the marketplace charging a fee for helping to make the connection.
If you want to build a successful marketplace platform, there are a couple of questions that you need to consider.
In this article, we will take you through the questions you need to ask to validate your idea and get started with a marketplace startup.
1. What problems will your marketplace startup solve?
Your marketplace needs to solve a problem that your target audience has. For example, Uber was created because the founders were fed up with finding taxis in their hometown of San Francisco.
When determining what services and products your marketplace platform will solve, you need to ask the following questions:
- Who is my target audience?
- How large is my target audience?
- How will my marketplace solve their problem?
- What pain points does my target audience have?
- How will I promote my marketplace to these people?
- How will I encourage sellers to join my marketplace?
- Who will my competitors be?
Carrying out a SWOT analysis will help you identify your marketplace’s strengths and weaknesses, as well as those of your competitors.
2. Will you choose a vertical marketplace or a horizontal marketplace for your startup?
Will your marketplace startup focus on a specific need or focus on a wide range of products?
Vertical marketplaces startup
Vertical marketplaces focus on one particular niche.
Marketplaces like Uber, Just Eat and Etsy are good examples of vertical marketplaces as they focus on one key demographic or product/service.
The advantages of vertical marketplaces are that it is easier to focus your marketing strategy, and you can provide a higher-quality product or service.
The disadvantages are that there are fewer customers and potentially less money to be made. You will also have to have superior knowledge of the niche for it to prosper. For example, Etsy was created by a group of friends who wanted to sell the handmade goods they made online.
Horizontal marketplaces startup
Horizontal marketplaces sell a wide range of goods and services for a variety of different audiences. These are marketplaces where you can buy a pair of jeans, a soldering iron, hot sauce, and a new set of car tires in the same transaction!
Examples of horizontal marketplaces include Amazon, eBay, Alibaba, and Taobao.
The advantages of horizontal marketplaces are that you have bigger audiences to sell to and can make a larger profit. In the world’s top 50 marketplaces, 74% of them are horizontal ones.
The disadvantages are that there is a lot more competition, and it is harder to appeal to a specific target audience. You may also find that your customers are less loyal.
You will need to determine which type of marketplace is the right one for you. Generally, we recommend starting as a vertical marketplace. You can then scale up and begin selling a more comprehensive range of goods as you grow.
Amazon started this way. The marketplace startup originally sold books and then diversified into other products and services.
3. How will you build relationships with your customers?
It’s vital to foster and grow loyalty when you are developing your new marketplace, especially if you have chosen to go down the horizontal route. Here are some ways that you can start your marketplace on the right path:
- Create strong relationships with early adopters – if you keep them happy, they are more likely to recommend you to others
- Treat your sellers well – they are the ones that will bring income to your marketplace, so you want to ensure that they use you over your competitors
- Build your brand – you will want to present yourself as a voice of authority and prove you know your industry inside out
4. How will you build trust between buyers and sellers in your marketplace startup?
People may be reluctant to use a new marketplace startup as they may not trust it.
Buyers may not have confidence in the quality of the product or service provided. Sellers may worry that they will not get paid or that the marketplace will always take the buyer’s side in a dispute.
This means that you need to build trust not only in your platform but between sellers and buyers.
Here are some of the ways you can do this:
- Bring in ID verification and background checks for sellers. This will help prove that they are who they say they are and are qualified and competent to carry out a service. For example, Uber carries out a background check and asks to see a valid driving license. Fiverr makes copywriters pass a spelling and grammar test before they can start selling their services
- Introduce reviews and ratings. This lets buyers see what others think of the products or services that sellers provide
- Set out your rules right at the start. Explain what is expected of buyers and sellers and what will happen if they do not adhere to your terms of service. If you implement changes, communicate this to both parties so they are aware
- Offer customer support and make sure you respond to any questions quickly, fairly, and with empathy
- Introduce a secure payment system that both buyers and sellers can trust. You may want to consider an escrow feature. This is when you hold payment and only release it when the buyer has confirmed they have received the product or service
In summary: Are you ready to build your marketplace startup?
This means that you not only have to distinguish your marketplace from your competitors but nurture long-term relationships with buyers and sellers alike. This is a hard challenge, but ultimately a gratifying one.
Don’t forget about integrating analytics into your app, as it would be your ears and eyes in the app. Also, keep in mind that your startup would need to go through 5 stages of the life cycle and it requires a lot of patience, will, and a huge workload. But if you are not sure where you need to start from, check our startup library.
If you need help and support to build your brand new marketplace, You Are Launched is here to offer assistance.
We’ve been working with a range of lean startups since 2014, helping them to grow, develop and generate high levels of profit.
Contact us today to find out more about how we can start your marketplace off on the right path.