How to Kickstart and Scale a Marketplace Business – Part 4: Cracking the Chicken-and-Egg Problem 🐣 - Growing Initial Demand (plus a Bonus!)

How to Kickstart and Scale a Marketplace Business – Part 4: Cracking the Chicken-and-Egg Problem 🐣 - Growing Initial Demand (plus a Bonus!)

In the world of marketplace businesses, one of the biggest challenges is cracking the chicken-and-egg problem. This problem refers to the challenge of balancing the supply and demand sides of the marketplace, where neither side wants to participate without the other. So how do you overcome this hurdle and drive initial demand? Let's explore some strategies and insights from successful marketplace businesses.

• 1. Word of Mouth: The Power of Referrals

One of the most fascinating learnings from this phase of the research was how impactful word-of-mouth was for early growth of most of today's biggest marketplace businesses. In fact, it was the most important growth channel for over half of the companies. Referrals can be thought of as an engineered word of mouth. By making it easier for people to refer others to your product or service, you can create a viral loop that fuels demand.

• 2. Supply Driving Demand: A Surprising Growth Lever

The second most common growth lever was the marketplaces' supply directly driving its demand. This means that by focusing on growing the supply side of your marketplace, you can create a self-sustaining ecosystem that attracts more buyers. By ensuring that your supply is easily accessible and underutilized, you can drive initial demand and pave the way for future growth.

• 3. SEO: An Early Demand Growth Driver

Search engine optimization (SEO) played a vital role in the early demand growth of over 40% of marketplaces. By optimizing your website or platform for search engines, you can increase your visibility and attract organic traffic. This strategy can be especially effective if you have a niche marketplace or if you offer unique products or services that people are actively searching for.

• 4. Performance Marketing: Leveraging Ads for Growth

Performance marketing, specifically through platforms like Google, Facebook, and Twitter, was instrumental for about a third of marketplaces. By running targeted ads, you can reach a wider audience and drive traffic to your marketplace. However, it's important to think outside the box and find creative ways to leverage these ads. For example, instead of using Twitter ads for follows or retweets, design them to onboard people onto your platform.

• 5. PR: Creating Controversial Products and Sharing Data

Public relations (PR) can be a powerful tool for generating initial demand. By creating controversial products or sharing valuable data and statistics, you can generate buzz and attract attention from potential customers. This strategy worked for many successful marketplace businesses, helping them gain traction and establish themselves as industry leaders.

• 6. Loops: Creating Self-Sustaining Ecosystems

Creating loops within your marketplace can be a game-changer for driving initial demand. For example, Etsy found early success by creating a loop where sellers who were making handmade items bought the supplies from other sellers within the marketplace. This self-sustaining ecosystem fueled buyer growth and created network effects that accelerated overall marketplace growth.

• 7. Direct Sales: Getting in the Trenches

Sometimes, you need to get your hands dirty and directly engage with potential customers. Direct sales can be an effective way to drive initial demand, especially in the early stages of your marketplace. By personally reaching out to individuals and showcasing the value of your platform, you can build trust and convert them into active users.

• 8. Events: Creating Memorable Experiences

Events can be a powerful tool for kickstarting growth in a marketplace. By organizing events or partnering with existing events, you can create memorable experiences that attract both buyers and sellers. Airbnb, Lyft, and Uber leveraged this strategy successfully, using events to showcase their platforms and generate buzz within local communities.

• 9. Mobile: Embracing the Mobile Revolution

Moving to mobile early-on was an important growth lever for companies like Zillow and Thumbtack. As more and more people rely on their smartphones for everyday tasks, having a mobile presence can significantly boost your marketplace's visibility and accessibility. Consider developing a mobile app or optimizing your website for mobile to tap into this growing market.

As you explore these growth levers, it's important to remember that not every strategy will work for every marketplace business. It's essential to test and iterate, learning from both successes and failures. Additionally, don't be afraid to do things that don't scale in the early stages of your marketplace. Sometimes, you need to go the extra mile and personalize the onboarding process to attract and retain customers.

In conclusion, driving initial demand is a critical step in kickstarting and scaling a marketplace business. By leveraging strategies such as word of mouth, supply driving demand, SEO, performance marketing, PR, loops, direct sales, events, partnerships, and mobile optimization, you can attract both buyers and sellers to your platform. Remember to test and iterate, and don't be afraid to do things that don't scale in the early stages. With the right approach and a bit of perseverance, you can overcome the chicken-and-egg problem and build a thriving marketplace business.