5 Healthy Traits of a Local, People Marketplace
What you need to be successful and scale
Angela, from Version One Ventures, and I were talking about various marketplace startups and she posed the question: “can people marketplaces actually scale?” I thought “well, of course they can”, because I’m running one now, but I didn’t realize exactly why off the top of my head. I do now! After countless conversations with Angela and other marketplace founders and investors, these are the five healthy traits of a local, people marketplace that can be successful and scale.
First, a few quick definitions. A marketplace is where two parties come together to buy and sell goods or services. A people marketplace is where the provider is offering a service in the form of their time, not a physical product. A local, people marketplace is a people marketplace where the two people actually have to meet in person to deliver the service. For example: house cleaning, massage, dog sitting and personal styling.
1. Stay Involved in the Payment Flow
For some businesses like Instacart (groceries delivered to your door), and Lyft (taxis whenever you want them) they’re adding value by being in the middle of the transaction. It’s easier for the user to pre-pay and have a credit card on file than to worry about having cash on hand. And for the service provider, it makes the whole experience feel more like a favor from your friend rather than a transaction which can often make things feel more awkward than they have to be. However, when it’s easier or more normal to pay off the platform, as with paying a babysitter that you found through UrbanSitter (since you usually have $40 cash in your wallet) or paying the plumber that you found on Thumbtack (because you only know the cost after he fixes your toilet), then it doesn’t make any sense for the marketplace to try to create more friction by getting in between the customer and the service provider. Because of this, Thumbtack and UrbanSitter had to find other ways to make money, that don’t involve taking a cut of the transaction through their platform. Thumbtack charges the provider to get the contact info of each lead and UrbanSitter charges the user for each babysitter they want to be introduced to.
2. The Service is Needed on a Regular Basis. Not Necessarily Often, But Regularly.
Homejoy (cheaper and easier home cleaning services) is successful because their customers need a clean home on a regular basis. Their revenue is based on the price times the number of bookings per customer, but that’s not directly related to whether they can scale or not. Some people get their homes cleaned every two weeks and some monthly, whereas some prefer a deep cleaning every six months. But the success of the marketplace — will it be able to exist as a marketplace and not just a lead generation service — has to do with the customer understanding that they need the service on a regular basis. Swan (manicures and pedicures at your home) understands this too. Since a manicure wears off after a couple weeks, the customer knows that it’s time to book again and if you allow recurring bookings, then the customer doesn’t even have to think about the transaction each time. It just happens and both parties are happy. This is the case for curated marketplaces, like the ones mentioned above, where the consumer trusts the brand to supply them with a qualified service provider. To the consumer it feels like they are hiring a cleaning service or a pedicure service and not a specific person off a marketplace.
3. Provide More Value than Just Connecting the Two Parties
If your marketplace just connects the customer to the provider then you have to offer more tools for both parties to keep them on your platform, otherwise you’re a lead gen company and not a sustainable marketplace. Good examples of this are Share Some Style (affordable personal stylists sent to your home) and DogVacay (dog sitters). At Share Some Style, we add value to both parties so neither one has an incentive to go around us. We give our customers a private photo style board so that they can continue to communicate with their personal stylist after they’ve met up in person for their first session. We’ve also built a sophisticated, yet easy to use CRM for the stylists to manage their clients that prompts them when it’s time to reach out again and say hi. DogVacay gives insurance to their hosts, so that the host has no incentive to take the relationship off the platform. And the guests feel more comfortable knowing that insurance will cover anything that happens at the host’s home too.
4. Have Little to No Leakage
Some marketplaces like Postmates (bike couriers) and Shyp (easier and cheaper shipping services) don’t need to worry about leakage because it doesn’t really matter to the customer who runs your errand or ships your packages, so there really is no incentive to go around the marketplace. However with marketplaces like Airbnb (vacation rentals) you might be tempted to go around the marketplace if you end up loving your host and want to stay there again. But because you don’t spend too much time with the actual provider, that risk is minimized. And if you think the marketplace is taking too much of a cut from the transaction, then you are more likely to want to do your new friend a favor and go off the platform for future bookings. Another way to have no leakage is to kick the service providers off who go around the platform. It’s important for the service providers to understand these rules when they are signing up for the marketplace.
5. Become “The” Place To Go For That Service — Curate and Vet the Service Providers
Kitchit (professionally trained personal chefs) does this very well. You can trust the brand and not really have to worry about whether the chef coming to your home is qualified to cook for a party of 12 because the marketplace has already vetted their expertise for you. They don’t just let anyone become a chef on their site. You need to meet certain criteria. The same is true for Unwind.Me (on demand massages at your home). They make sure everyone on their platform has the same qualifications, creating a standard of quality which sets the customer at ease. Having a curated and vetted service is a more delightful experience than scanning Yelp profiles or Google results. Another best practice is to create a feedback system so that consumers can review your service providers and ones that get bad reviews should be removed from the platform.
These five traits help to mitigate the riskiest part of a local, people marketplace, which is not having repeat business on the platform. To measure the health of a local, people marketplace, track the number of people who come back for a second, third, or 50th interaction. Vanity metrics like number of providers or customers on the platform won’t help your business model. Follow these five must-haves and you’ll have a successful marketplace business.
Special thanks to Angela at Version One Ventures, Josh at Sigma West, Stephanie at Kleiner Perkins, and Andrea at UrbanSitter for reviewing drafts of this post.
I’d love to hear your thoughts in the comments.
