Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

In the ever-evolving landscape of business models, the transition from a Software as a Service (SAAS) company to a marketplace has become a topic of interest. SAAS refers to software that businesses access online and purchase via a subscription, such as Slack, Adobe, and Atlassian. On the other hand, a marketplace is a platform where sellers provide their services to attract buyers, who come to the marketplace to seek out these services and find new suppliers. Marketplaces typically process transactions and charge a commission or lead generation fee.

When we discuss businesses attempting to become marketplaces, it usually involves sellers of software trying to help businesses attract more buyers by aggregating them on their platform and aiding in their discovery of new suppliers. This shift towards marketplaces is often driven by the desire for vertical integration, as seen in the case of Zillow.

However, SAAS companies continue to thrive in the public markets. This raises the question of why these companies would consider becoming marketplaces. One possible reason is that as SAAS expands into niche verticals, the opportunities for extension platforms diminish. As a result, companies explore consumer marketplaces as a potential growth lever.

To successfully transition from a SAAS business to a marketplace, founders need to consider several key factors. These include changing the incentive structure, shepherding the right resources, and confirming the demand side of the market.

Firstly, founders must change the incentive structure for the entire company or a significant percentage of it. It is natural for businesses to prioritize optimizing their core operations rather than investing resources in a risky proposition that may drive long-term growth. To overcome this, founders can either make the company's growth revolve around the new initiative or create a separate team with distinct goals and reporting lines.

Secondly, founders must shepherd the right resources that are most likely to embrace the business model transition and change the company culture. This cultural shift often requires recruiting individuals with a passion for the opportunity and a background in consumer product development. Leaders with consumer backgrounds can be brought in to lead teams focused on the transition, and they can further recruit like-minded individuals.

Additionally, founders need to confirm the presence of a demand side in the market and ensure that the engagement aligns with both their business model and their customers' needs. Failed marketplace transitions often occur when there is no actual demand for the theoretical marketplace being added. It is crucial to understand whether the SAAS customers make revenue from selling something people want to buy and find more, or if the marketplace opportunity is merely a one-time vendor discovery.

Furthermore, founders should ensure that the opportunity aligns with the characteristics of successful marketplaces. Marketplaces are typically built on under-utilized fixed assets, and the transition should consider hitting the minimum scope for both the supply and demand sides. Many businesses struggle to find a viable answer to this challenge.

In conclusion, the transition from a SAAS business to a marketplace is a complex undertaking that requires careful consideration of various factors. By changing the incentive structure, shepherding the right resources, and confirming the demand side, founders can increase their chances of success. However, it is essential to remember that the path to success is often a maze, and founders must navigate it by learning from history, drawing analogies, developing theories, and gaining direct experience. By avoiding the wrong paths, founders can save valuable time and resources and increase their chances of reaching the treasure at the end of the maze.