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 digital age, businesses are constantly evolving to meet the ever-changing needs and demands of consumers. One of the trends we have seen is the transition of software-as-a-service (SAAS) companies into marketplaces. SAAS refers to software that businesses access online and purchase via a subscription, such as Slack, Adobe, and Atlassian. On the other hand, marketplaces are platforms where sellers provide their services to attract additional buyers, and buyers come to find new suppliers.

So, what does it mean for a SAAS business to become a marketplace? Essentially, it means that these software sellers are trying to help businesses attract more buyers by aggregating them on their platform and aiding in the discovery of new suppliers. Marketplaces often process transactions and charge a commission or a lead generation fee to suppliers.

The idea of businesses transitioning into marketplaces is not new. We have seen examples of successful marketplaces like Zillow in the real estate industry. As SAAS has moved into more niche verticals, the opportunities for extension platforms have dried up. This has led companies to explore the potential of consumer marketplaces as a new growth lever.

However, there are several challenges that businesses face when making this transition. Let's explore them and see how they can be overcome.

1. Change the Incentive Structure:
   One of the key challenges is getting the founders and employees to shift their focus from the core business to the new marketplace initiative. It is more attractive and less risky to optimize the existing business rather than investing resources in a long-term, uncertain proposition. To solve this, founders have two tools at their disposal.

The first tool is to make the entire company's growth revolve around the new initiative. This means aligning everyone's goals and priorities towards the marketplace transition, as Ben Silbermann did at Pinterest. The second tool is to create a new team with separate goals and reporting lines, similar to what larger companies do when expanding into new product lines.

2. Change the Company Culture:
   Another challenge is changing the mindset and culture of the organization. Strong businesses usually build a culture that caters to the needs of their customers and their existing business model. When you introduce a new customer or a new business model, it can create conflicts and trade-offs. This cultural issue often requires new blood in the organization and careful recruitment of internal resources who are passionate about the opportunity and have a background in consumer product development. Leaders with consumer backgrounds can be brought in to lead teams and recruit more people with similar backgrounds.

3. Confirm Demand and Align with Business Models:
   A major reason why marketplace transitions fail is the lack of demand on the new marketplace platform. It is crucial to confirm that there is a demand side to the market and that the way you engage with them aligns with your customers' business models. Some SAAS customers generate revenue by selling something people want to buy and support financially, while others may only need to find a vendor once. Understanding the demand side is critical to the success of the transition.

4. Align with Successful Marketplaces:
   It is essential to ensure that the marketplace transition aligns with the characteristics of other successful marketplaces. Bill neglects to mention that marketplaces are typically built on under-utilized fixed assets. This means that businesses need to have a minimum scope on the demand side as well. Many businesses struggle to find a good answer to this, which can hinder the success of the transition. Additionally, most cross-side networks emerge with the supply side first, so it is crucial to consider this when planning the sequencing of the business model transition.

In conclusion, the transition from a SAAS business to a marketplace can be a challenging endeavor. However, by addressing the key requirements and challenges mentioned above, businesses can increase their chances of success. It is important to change the incentive structure, shepherd the right resources, confirm demand, and align with successful marketplaces. By doing so, businesses can expand their reach, attract more buyers, and tap into new growth opportunities.

Actionable Advice:

1. Prioritize the marketplace transition as a core growth initiative and align the entire company's goals and priorities towards it.
2. Recruit leaders and team members with consumer backgrounds to drive the marketplace transition and change the company culture.
3. Conduct thorough research to confirm demand on the marketplace platform and ensure alignment with your customers' business models.

Remember, the success of the transition depends on careful planning, strategic execution, and a deep understanding of the market dynamics.