A few days ago we co-hosted one of our monthly Idea Dinners with Stripe, for New York marketplace startup founders to share ideas from their work.
The discussion went deep, and we wanted to distill some of the most interesting nuggets of wisdom the attendees shared, for other founders who might benefit, specifically around:
- Seeding the marketplace
- Communicating the brand and assuring quality
- Marketplace economics and take rate
- Using analytics
- Same side network effects
- Novel tactical advice
On Seeding the Marketplace: On this topic, founders discussed tactics for on-boarding the sides, as well as thoughts about talent strategy to match their operations.
- Create a give that is automated and free, to create stickiness. One founder discussed how she created a talent-focused marketplace created a process in which the talent would go through a qualifying questionnaire. Her company would then send a 7-page report to that applicant, with a full rundown on their skills and feedback from it
- Onboard the folks who won’t disappear. Multiple founders focused on the side of the marketplace that would stay around longer. For ride-hailing apps, that might mean the driver who was less inconvenienced by the time needed to build up the marketplace. Who will be more patient? Start with them.
- Talent Strategy — should one try to build a team to support both sides of the marketplace? It depends on the similarity of the sides. How different is the sale process to supply and demand? Is it a solution sale for one, and online for the other? One should also consider the persona and skill set required to the people to successfully sell for it. The conclusion? It is rare to find someone who has both experiences. And for the talent reporting to each team, while collaboration happened, it seemed more common among founders to allocate them specifically to one side or the other, for accountability.
On Presenting the Brand and Quality Assurance: We discussed whether to call a marketplace a marketplace, and how to communicate the brand quality with assurance.
- It seems decreasingly necessary to call a marketplace a marketplace. For investors it is helpful to mention, but not required. On the user side, marketplace startups are taking more and more active roles and control in the interactions (curation, quality assurance, payments, etc.), such that the startups are becoming more providers of brand experiences that happen to have the supply.
- Freelancers is being less used in the marketplace descriptions by these founders. The Fiverr’s of the world diluted the brand value of freelancers.
- Quality control? Let the community show the bar. When supply is being conflated with brand (e.g. Lyft drivers are seen as Lyft, compared eBay sellers back in the day) this becomes more important than ever. One founder advocated for letting the community serve as arbiters of truth — let them show expectations of what amazing work looks like. This is especially true in the less commoditized marketplaces.
- Filtering participants at signup versus having a strong feedback loop for improvement. Founders leaned more towards the feedback loop, because they didn’t want to too strongly bottleneck supply, as well as because at scale, that would be necessary anyways for ongoing QA.
- Reviews and feedback when the marketplace is early. Founders agreed that it is important to share insights and feedback, but not to have official ratings (stars and such) until the experience is more refined. One early rating either way could drastically alter accuracy of a provider quality.
- Own the CX team. The founders were unanimous — it is the first source for recourse, and nothing to be taken lightly.
- Talk about the vetting process in your marketing as a selling point on quality. Share the interview process, success rate of provider applicants, and assurances you take in the process. If it is strong, it can be a great selling point.
On the Economics and Take Rate: Founders discussed marketplace economics, including how to find the right take rate, whether to change it, and how to communicate it to the marketplace.
- No founders at the dinner had offered their service for free. At most, some had offered strong discounts to early users. One had an amazing idea that we share in the last section of the article.
- Most of the founders moved the take rate at some point. As the experience improves, and network effects build, the value of the marketplace increases, and they moved the price to match.
- You can have a sliding scale for take rate. One founder discussed that they had their take rate move down with the amount of value a provider. 25% for their providers through a certain number of sessions per month, 20% after that threshold, and decreasing the more they did.
- Tell your providers how the take rate helps them. If founders charged a seemingly high take rate, they communicated to their providers the percentage of the take that was used to market the brand more and improve the experience. They would communicate how the money was helping the overall business for these suppliers, and founder generally positive responses.
- Communicate when prices change, but don’t ignore switching costs. The founders hated the price they were paying for HubSpot and AWS, but there was no way they were going to switch at this point. If your marketplace is so valuable that they won’t switch, that is not something to be forgotten when you plan a price strategy.
- Pricing will signal who should be using the marketplace. Since there is a strong price-to-quality assumption from users, many founders with elevated brands used pricing to attain more fitting customers. One even had a minimum number of sessions that users could buy for their tutoring marketplace, which translated into much stronger membership.
On Analytics and Monetization:
- Most founders saw data and analytics as a stickiness play, rather than as an alternate revenue source to sell to a third party. Giving people in the marketplace more data to keep them around, or letting them pay a premium to get it (a la LinkedIn Premium) was the more common play.
- Use it for credibility: Multiple founders saw sharing insights from the data as helpful for acquisition, credibility, and PR.
On Same Side Network Effects:
- Value in membership. A handful of founders gave a discount for same-side referrals. Another founder had built a Slack group for the wellness providers in her marketplace to communicate with each other.
On Novel Tactics: In addition to the sliding take rate scale above, we heard one other great tactic on how to get early customers to pay, but low enough to buy in.
- Ask for a case study. In the early stages, one founder decided that instead of giving their offering to businesses for free, they discounted it severely with the following ask: “We will give it to you at a 95% discount, if you let us do a case study with you.” They did not dilute the value of their offering, but rather exchange money for strategic value with this early customer.
These were among the insights we heard shared at this Idea Dinner.
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