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

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

In the world of technology and business, companies are constantly evolving and exploring new opportunities to grow and expand. One interesting trend that has emerged in recent years is the transition from a Software-as-a-Service (SAAS) business model to a marketplace model. But what exactly does this mean and how can a SAAS company successfully make this transition?

Before we delve into the details, let's first understand what SAAS and marketplace models are. SAAS refers to software that businesses access online and purchase via a subscription. Some popular examples of SAAS companies include Slack, Adobe, and Atlassian. On the other hand, a marketplace is a platform where sellers, often businesses, provide their services to attract additional buyers. Buyers come to these marketplaces to seek out services and find new suppliers. The marketplace typically processes the transactions and charges a commission or lead generation fee.

So, when we talk about businesses trying to become marketplaces, we are referring to SAAS companies trying to aggregate buyers on their platform and aid in the discovery of these buyers finding the businesses that the company currently serves. This transition is often driven by the desire to attract more buyers and solve a more critical problem for customers.

One common characteristic of marketplaces is vertical integration over time. Take Zillow, for example. It started as a SAAS company providing real estate listings and eventually evolved into a marketplace where buyers and sellers could connect. As SAAS has moved into more niche verticals, the opportunities for extension platforms have dried up, leading companies to explore consumer marketplaces as a potential growth lever.

However, transitioning from a SAAS business to a marketplace is not an easy task. Founders face several challenges and must make significant changes to their company's structure and culture. Here are three actionable pieces of advice for founders considering this transition:

1. Change the incentive structure for the company: Founders often face the challenge of employees optimizing for short-term gains in the core business instead of focusing on the long-term growth potential of the marketplace. To overcome this, founders can either make the entire company's growth revolve around the new initiative or create a separate team with separate goals and reporting lines. This ensures that resources are allocated appropriately and the transition receives the attention it deserves.

2. Shepherd the right resources and change the company culture: Shifting the focus from a SAAS business to a marketplace requires employees to care about a second customer and potentially trade off the needs of the core business. To address this cultural issue, founders should bring in leaders with consumer product development backgrounds and recruit new employees who are passionate about the marketplace opportunity. This infusion of new blood can help align the company with the new business model.

3. Confirm there is a demand side to the market: One of the major reasons marketplace transitions fail is the lack of a demand side for the theoretical marketplace. SAAS customers may not have a product or service that people actively seek out, or the marketplace opportunity may only involve finding a vendor once on the demand side. It is crucial for founders to ensure that there is a strong demand side and that the engagement aligns with the customers' business models.

While the transition from a SAAS business to a marketplace presents its own set of challenges, it can also bring significant benefits. Marketplaces provide opportunities for increased growth and scalability, allowing businesses to attract more buyers and expand their reach. By carefully considering the requirements and taking appropriate actions, founders can successfully navigate this transition and unlock new avenues for success.

In conclusion, the sequencing of business models, specifically the transition from a SAAS business to a marketplace, is an intriguing and potentially rewarding endeavor. By addressing key challenges, such as changing the incentive structure, shepherding the right resources, and confirming the demand side of the market, founders can position their companies for success. Ultimately, the decision to embark on this journey requires careful consideration and strategic planning, but the potential rewards make it a path worth exploring.