How To Know If You're Supply or Demand Constrained 🤹‍♂️ - Phase 2 of Kickstarting and Scaling a Marketplace Business


Hatched by Glasp

Aug 30, 2023

4 min read


How To Know If You're Supply or Demand Constrained 🤹‍♂️ - Phase 2 of Kickstarting and Scaling a Marketplace Business

Substackとパーソナルメディア帝国|Off Topic - オフトピック|note

At some point, if enough pieces fall in place and the flywheel starts to whirl, you’ll begin to realize that maybe, just maybe, you’ve got a real working marketplace on your hands. Around this time, you will also begin to find that your early tactics and assumptions become increasingly less effective. Before we dive in — how do you know when it’s time to “scale”? It’s rarely a binary decision, but few signals to look for: You believe that you have PMF. A simple heuristic is that retention and growth are healthy in your early geo/category. You have a strong hypothesis for how to launch a new market or category. There is a strong competitive threat and you need to respond.

Determining whether you are supply or demand constrained is an important step in the process of scaling a marketplace business. But what does it even mean to be supply or demand constrained? Essentially, it means that your biggest constraint to driving additional transactions is either a lack of supply or a lack of demand.

For example, companies like Airbnb Homes and Uber drivers were initially supply-constrained. They had a lack of available homes or drivers to meet the demand of their users. On the other hand, companies like Rover and TaskRabbit were demand-constrained. They had a lack of customers or dog owners seeking their services.

Interestingly, about 40% of the companies surveyed started off as supply-constrained and remained so throughout their history. This shows that the challenge of finding enough supply to meet demand is a common hurdle for marketplace businesses.

In order to determine whether you are supply or demand constrained, you can use different metrics. Initially, some companies used occupancy rate as a measure. If the occupancy rate was above a certain percentage, it indicated that the market was supply constrained. However, this metric alone may not provide a complete picture. Companies started looking at occupancy rate versus bookings rate, and when there was a downward inflection point, they knew at what occupancy rate the market was supply constrained.

Now, let's shift gears and talk about Substack, a platform that is often compared to traditional blogging and RSS services. The main difference is that Substack allows creators to distribute their content directly to their readers, without being controlled by news aggregators. This is a significant shift from the past, where popular RSS services like Google Reader shut down in 2013, causing many bloggers and news media outlets to lose a significant portion of their readership.

The rise of Substack and other similar platforms is a result of the increasing importance of direct interaction and relationship-building between creators and their fans or users. This shift is driven by the fact that individuals now have more power and influence, blurring the lines between traditional celebrities and influencers who thrive in the online and younger generation's world.

In today's landscape, individuals have the opportunity to build their own personal media empires, leveraging various tools and platforms to connect directly with their audience. Substack, with its focus on personal newsletters and subscription-based content, is just one example of how creators can take control of their content distribution and monetization.

So, what can we learn from these two seemingly unrelated topics? The common thread is the power of supply and demand dynamics. Whether you're running a marketplace business or building a personal media empire, understanding whether you're supply or demand constrained is key to making informed decisions and scaling effectively.

Here are three actionable pieces of advice to consider:

  • 1. Analyze your retention and growth metrics: If your early user retention and growth are healthy in a specific geographic area or category, it's a good indication that you may be ready to scale. This is a signal that you have achieved product-market fit and can start focusing on expanding either the supply or demand side of your marketplace.
  • 2. Identify competitive threats: If you're facing strong competition in your market, it's essential to assess whether you are supply or demand constrained. Understanding the dynamics of your market and the availability of resources will help you develop a strategy to respond effectively to the competition.
  • 3. Continuously monitor and adjust your metrics: As mentioned earlier, determining whether you're supply or demand constrained is not a one-time assessment. Regularly monitor your occupancy rate, bookings rate, or other relevant metrics to identify inflection points that indicate changes in supply or demand constraints. This will enable you to make data-driven decisions and optimize your marketplace's operations.

In conclusion, knowing whether your marketplace business is supply or demand constrained is crucial for scaling effectively. By understanding the dynamics of your market and consistently monitoring your metrics, you can make informed decisions to address constraints and drive growth. Similarly, in the world of personal media empires, platforms like Substack empower creators to take control of their content distribution and build direct relationships with their audience. The common theme is the importance of supply and demand dynamics in driving success in both business models. So, whether you're running a marketplace or building a personal brand, understanding these dynamics will be key to your long-term success.

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