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

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

In today's business landscape, companies are constantly looking for new growth opportunities and ways to expand their reach. One trend that has emerged is the transition from a software-as-a-service (SAAS) business model to a marketplace model. But how feasible is this transition, and what factors should founders consider before making the leap?

When we talk about SAAS companies becoming marketplaces, we are essentially referring to software sellers trying to attract more buyers by aggregating them on their platform and aiding in the discovery of their services. Marketplaces, on the other hand, are businesses where sellers provide their services on a platform to attract additional buyers.

One common point between SAAS and marketplaces is that they both require a strong customer base. SAAS companies have built a customer base by providing software solutions to businesses, while marketplaces rely on attracting buyers to their platform. By combining these two models, companies can leverage their existing customer base to attract more buyers and facilitate transactions.

However, there are several challenges that founders must address when transitioning from a SAAS to a marketplace model. One of the first challenges is changing the incentive structure for the company. Founders must ensure that a significant percentage of the company's resources are dedicated to the new initiative, rather than focusing solely on the core SAAS business.

To solve this problem, founders have two tools at their disposal. They can either make the entire company's growth revolve around the new initiative, as Pinterest's Ben Silbermann did, or create a new team with separate goals and reporting lines, similar to larger companies expanding into new product lines. This ensures that resources are allocated effectively and the transition receives the attention it deserves.

Another challenge is changing the company culture to accommodate the new business model. SAAS companies often have a deep understanding of their customers and cater to their needs. When transitioning to a marketplace model, employees must learn to care about a second customer and potentially trade off the needs of the two sides. This cultural shift often requires new blood in the organization, with leaders and employees who have a background in consumer product development.

Furthermore, founders need to confirm that there is a demand side to the market they are entering. Many marketplace transitions fail because there isn't actually a demand for the services being added. SAAS customers may generate revenue through support rather than selling something people actively seek out. Additionally, marketplace opportunities may only involve finding a vendor once on the demand side, limiting the potential for growth.

Finding the right balance between the characteristics of successful marketplaces and the existing SAAS business is crucial. Successful marketplaces are often built on under-utilized fixed assets, and founders must ensure that their transition aligns with these characteristics. Hitting the minimum scope for both the supply and demand sides is essential for a successful transition.

Despite the challenges, the transition from a SAAS to a marketplace model can offer significant benefits. By combining SAAS, marketplaces, and networks, companies can create a more vibrant and competitive ecosystem of products and services. This can lead to increased demand for tokens, which are used to access the services provided by the network.

In conclusion, the sequencing of business models from SAAS to marketplace is a complex process that requires careful planning and consideration. Founders must address challenges such as changing the incentive structure, shifting the company culture, and confirming the demand side of the market. By taking these factors into account and aligning their transition with successful marketplace characteristics, companies can unlock new growth opportunities and create a more dynamic business ecosystem.

Actionable Advice:

1. Allocate a significant portion of company resources to the marketplace transition and ensure that growth revolves around the new initiative.
2. Recruit leaders and employees with a consumer product development background to drive the cultural shift required for the new business model.
3. Conduct thorough market research to confirm that there is a demand for the services being added and ensure that the transition aligns with successful marketplace characteristics.