In a Two-sided Marketplace, Build a Hen House
“You’ll need a lot of sellers and a lot of buyers!” says anyone giving advice to a startup working on a two-sided marketplace.
You’ve got a chicken vs. egg problem. In other words, which side do you focus on first? The question seems reasonable enough. But I think it’s far too narrow to be helpful.
My advice to startups building two-sided marketplaces is to rise above the chicken and egg question, and to simply build a hen house. In other words, create an asset that is so useful to one side of the market that users on that side can derive value from the tool no matter how big the other side of the market currently is.
One key to early success in building a marketplace is to create an initial value proposition that’s independent of network effect.
One example of this approach is Screwpulp, an early-stage ebook publishing marketplace that connects readers to authors they would otherwise never have discovered. They have a lot of powerful features, like demand-based pricing and built-in social proof for otherwise unknown authors. And for Screwpulp to be wildly successful, they need a lot of books along with even more readers to buy those books.
But while they’re ramping up both sides of the market, they’ve built an incredibly useful toolset for authors. Authors can upload their book in a number of file types and have them converted on the fly to all the standard formats. They’re also given a page that houses bio information along with all the books they’ve published on the Screwpulp platform.
If Screwpulp had zero readers in their community, authors would still find utility and value in the tools they provide.
They’ve built a hen house for authors.
The author value prop, independent of network effect, provides a hook for author acquisition in the near term. You can measure and optimize that.
As they continue to build readership, their tools become increasingly valuable to authors, as Screwpulp becomes both the platform as well as the distribution channel. They’re coming for the tools and staying for the community.
By creating utility for one side of the equation, growth within that group has ignited the flywheel of acquisition for both sides of the market. In this way they’ve transcended a theoretical discussion about chickens and eggs, and have optimized for building something useful. They’ve built a hen house.
