Online marketplace building mistakes you need to avoid

Learn from others — not the hard way

ROOBYKON SOFTWARE
Aug 28, 2019 · 14 min read

Thirty years ago, the idea of earning from trade without even having your own products or services was hard to imagine. But as time has passed and technologies have changed, doing just this has become a leading online business opportunity. Multi-vendor marketplaces like Airbnb, Etsy, and eBay act as mediators between sellers and buyers, earning billions of dollars in the process and inspiring an endless lineup of aspiring entrepreneurs to try to carve out a piece of the e-commerce pie for themselves. Some will fly high — while others will fall hard, never making it to their dream.

The idea of building a marketplace can seem compelling — and financially promising. But contrary to popular belief, it’s a proposition with significant dangers, requiring sizable investment. Of course, there’s never any reward without risk, but to maximize your chances of success you need to carefully weigh all key factors before launching your startup. Never rely on bells and whistles to see you through: the promise of big profits blinds too many new founders to the harsh realities of business, leading them to make the same classic marketplace building mistakes, with disastrous consequences in lost time, money, and reputation.

That’s why in this article we’re going to take a detailed look at the most common errors committed by new marketplace founders, helping you avoid the most common pitfalls, and thus enabling you to focus on the things that will help you to build a successful business. So: do you want to find out the hard way what not to do, or learn from others’ mistakes? The choice is yours!

Mistake №1: Inadequate marketing research

A lazy, ‘it’ll be fine’ attitude to marketing research is the quickest way to lay waste to your business. If you plan to build a profitable online marketplace or online store, this is an area in which you cannot afford to be anything less than fully focused.

Contrary to popular misconception, marketing is a process that starts long before a product is created. Sure, a major part of it is about the promotion of your product — but by the time you get there, you’re already in the middle stage. What comes before is actually a much bigger job: you must determine your target audience, find out their requirements, then begin developing your product before taking early versions of it back to sample consumers.

Mistake №2: Unclear objectives leading to poor planning

Like any business, your startup needs a clear understanding of its reason for existence — something which will become the foundation of its future market entry and presence strategies. Ask yourself why you’re going to choose a particular online marketplace type — and what results you want to achieve with this business model.

Sure, you might be able to set up a ‘fly-by-night’ operation without really understanding your long-term objectives (or even your short-term ones). But if you’re really after creating a solid basis for long-term development and scalability, it’s no-go.

Your objectives should be as detailed as possible, and you should know them intimately — as if they’re a puzzle you’ve already put together, and now are taking it apart again. ‘Marketplace creation’ is an objective of sorts, but in itself it’s too vague, and doesn’t give you a picture of what should be done to achieve it.

Don’t be afraid to break things down into small tasks, and those small tasks into even smaller ones. This will provide you with a workable plan of action, and lead to successful results.

For example:

To create an online marketplace you need to:

  • Analyze your market and the competitors it contains
  • Identify new niches or those with relatively low competition
  • Use research to choose the right direction and avoid a poor niche choice

Choose a marketplace type

(B2B, B2C, C2C, P2P) and determine your product’s potential competitive advantages within that category

  • Gather and process all required data
  • Assign people who will be responsible for putting the plan into action
  • Set development deadlines
  • Divide your plan into sections
  • Write down each section
  • Engage experts and advisors to analyze the document you’ve created
  • Realistically assess your own financial resources
  • Find potential investors
  • Send your business plan and project brief to potential investors
  • Hold meetings
  • Determine your working model (seeking out a specialized company, hiring your own team, working with freelancers)
  • Write down your search criteria
  • Make a list of platforms/companies
  • Hold meetings with companies, interview candidates

These, of course, are just a few key steps in what, for you, will be a much bigger plan — in the real world, each of its sections will have multiple detailed subsections. The more detailed your plan is, the easier your path to overall success will be.

Financial funding is a task with its own distinct issues. It’s not enough to have a brilliant idea — you have to prove its viability in order to convince investors. As Marc-Arthur Gauthey of Startupassembly.co once noted, “Try to explain to an investor that you want to create relationships between people, and he’ll ask you how much they’d pay. These people think exclusively in capital letters: ROI, BFR, EBITDA, and IPO.”

In order to raise capital, you need to show that your product solves some real problems — then demonstrate both that your approach is unique, and that you are committed to planning your marketplace’s functionality with utmost care, in both the short and long term. The bottom line is that hard figures are king: your pitch needs to include a spreadsheet convincingly showing your investors that they can make millions from your project.

Take eBay. When it was founded in 1995, it was primarily focused on collectables — and at the time, even Bessemer Venture Partners, a renowned VC firm, didn’t believe in eBay’s future success. “Stamps? Coins? Comic books? You’ve GOT to be kidding,” legendary investor and Bessemer partner David Cowan mused at the time.

In real-world business it’s only numbers, facts and documents that count for much. Dreams and ideas are great, but keep them as fuel for your own journey, and don’t expect them to power your investability.

Mistake №3: Overestimating your own capabilities and resources

It’s not just startupers who can sometimes be seduced into overestimating themselves — even the best and biggest players do it occasionally. On June 18, 2014, Amazon launched its first (and, spoiler alert, last) smartphone, Fire, in a bid to take a slice of the booming mobile devices market. Failure came quickly, costing the company $170m. And this wasn’t a one-off for the company: Amazon had previously tried to claim a piece of eBay’s home turf by launching an auction platform — which quickly flopped and then disappeared.

With these examples in mind, remember to be ruthlessly pragmatic in assessing the strengths and weaknesses of your project, and the resources you have to invest in your fledgeling business. Are you a technical lightweight? Then realistically, you need to hire a dev team. A business newbie? Better go in search of some more experienced partners. You need to take the full range of factors into account, from your own skills, education, and professional contacts, to the contents of your bank account. Compare online store and marketplace models, and decide which one suits your needs better.

Remember, this won’t be a quick or easy process — but it’s essential if you want to truly understand the state of play and be able to progress along an evidence-based route forward. It’s also inevitable that along the way, you’ll find yourself feeling down, and comparing your own talents unfavourably with those of the founders you look up to. But do not be discouraged! With perseverance, and a bit of ingenuity, your limitations can be overcome — or even, sometimes, turned to your advantage.

Mistake №4: Expecting to make it big overnight

We’ve seen countless entrepreneurs who want to create, right from the word ‘go’, a vast platform like Amazon or eBay, or an m-marketplace like Uber — along with all the bells, whistles, and global reach that go with it. But doing this requires huge investment, and however keen you may be to get moving, pouring major resources into an untested project is a recipe for bankruptcy (unless, of course, you’re seeking to emulate another, already-successful venture).

Global vision is important, but even the most renowned e-commerce players started small. The first Airbnb website was built with the ‘box version’ of WordPress, with the fully-featured version we know today, replete with every imaginable additional function, only appearing much later. The company’s founders knew that their first priority was to ensure their product had a genuine market at its disposal.

For most new players in the marketplace game it’s wise to begin by launching a minimum viable product, or MVP, within a local market, using a default open source development platform like Sharetribe, CS-Cart Multi-Vendor, or Cocorico. Try to forget at first about your millions of nameless prospective customers and instead focus on finding 10–100 real people who are interested in your product. These will be the real-life subjects on which you can hone your ability to understand customers’ needs.

From here, there are two possible outcomes: you either move forward, adding further features, scale, and polish to your marketplace, or you fail. But in the latter case, you will have failed without using up all your resources, and will be all set to have another go.

Mistake №5: Trying to monetize too soon

It’s understandable that you’d want a return on your investment as quickly as possible, but new entrepreneurs need to understand that any monetization attempt will fail if you have not yet reached a certain critical volume of traffic — and until you can offer true value to your users.

For example, nobody will pay to promote their product on the main page of your site if your site only has ten listings. Nobody will pay for membership of a platform that doesn’t have a proven track-record. Main-page advertising is likely only to make your users feel uncomfortable if you introduce it before you have real rapport with them.

As such, all your early efforts need to go into improving your product from the perspective of users, increasing traffic, developing a marketing strategy to promote your service, and finding ambassadors for your brand who will try your products and services for free — leaving feedback and paving the way for future sales.

Only once all this is in place should you begin to focus on building your revenue streams.

Mistake №6: Neglecting brand personality

So you’ve found a promising niche for your online store or multi-vendor marketplace, — and then you’ve created a well-designed product, and invested in marketing. But all this will be for nothing if you’ve neglected those intangible characteristics that help people to recognize your brand, and which make them want to be involved with it. That’s right: your business needs to have a likeable brand personality.

Building a brand is a long and painstaking job, entailing many laborious steps — but the fundamentals of your brand’s personality are something you need to have carefully considered long before you launch your MVP. From name and logo to colours and style of content — everything must be in harmony, and ready to act as a unified driving force behind your project. The punishment for failure here is harsh: at best you will go unnoticed by your target audience — at worst, you will scare them off.

At the same time, don’t be afraid to experiment with fresh ideas — paradoxically, playing things too safe can be a risky strategy, and if you can find a way to avoid clichés without seeming too ‘out there’, you’re likely onto a winning formula.

Some important questions you should ask yourself here:

  • What makes my brand stand out from the crowd?
  • Why would people choose my brand over others?
  • Is my solution to the problem unique?

You’ll find that just answering these questions represents a powerful step towards building a desirable brand.

Mistake №7: Bad user experience

You may so far only be launching an MVP, and not yet a fully-functional product, but in order to be viable, user experience needs to be up to a certain standard. That doesn’t mean you need to blow vast sums of cash on honing your UI to technical perfection — but you should offer a clean, uncluttered interface, make registration simple, and think carefully about functionality, so that what you do offer works well.

The hallmark of good UX is that users simply use, everything is obvious, and there is nothing to ‘get the hang of’. Of course, getting to this point requires time, effort, and attention to the tiniest details — while it takes just a single disappointment to ensure a customer leaves and never comes back again (never mind recommending your site to anyone else).

The bottom line is — your MVP must be minimal, but it must also be 100% working.

Mistake №8: Insufficient data analysis

With a host of different tools available for collecting statistics from your multi-vendor marketplace, there’s simply no excuse for not having a proper command over your data — after all, information is the most powerful tool around.

Collecting, recording, and analyzing data allows you to find out what’s working for your service and what isn’t — to understand which channels are paying back the most, and to spot problems on the horizon before they wreak havoc. Data is no replacement for instincts, but remember, by the same token, that nor can instincts ever offer the consistent, unemotional picture provided by good statistical analysis.

Mistake №9: Using unsafe payment methods

With a large proportion of consumers citing concerns over privacy and the security of payment systems as reasons for staying away from e-commerce, any marketplace entrepreneur who wants to grow their business must take these issues very seriously.

Using unreliable payment systems weakens trust, scares off customers, and loses sales.

Each market has its own particular features, and these often determine the precise nature of the technical solutions required. But as time goes on, some innovative solutions, such as blockchain-based cryptocurrencies, are becoming less geo-specific. These can be a great way to boost trust — and sales — across a broad sweep of markets.

Mistake №10: Failing to manage risk

Each marketplace is unique, but sooner or later all have to deal with the same issue: an inherent limit on the control they have over the products and services whose sale they facilitate. There will always be a minority of both sellers and buyers who don’t deal with each other fairly, but what will set your platform apart is how effectively you identify and deal with such situations. The ability to safeguard the security of all users can be what separates prosperous marketplaces from those that fail.

Establishing a dispute settlement procedure is something that must be done early in the life of your marketplace, with careful thought given to crafting each step of the process for resolving unhappy interactions. At the sharper end of things, filtering out ‘bad players’ is key — and essential to the protection of your reputation. Users’ trust is difficult to win back once lost — and is something that can’t be bought. But without it, your business is doomed.

It’s also important to embed within your online marketplace as many KYC (know your customer) controls as possible. User identity verification will significantly increase the level of trust felt towards your platform, and will cut out a big chunk of risk.

Mistake №11 — Trying to conceal failings

Nobody wants the world to know when they’ve messed up, and many people — and even companies — are prepared to go to great lengths to conceal their failures, and project an image of infallibility. Many first-time entrepreneurs believe that making a mistake in the development or management of their marketplace will inevitably lead to a loss of trust and the ruin of their entire business. But this needn’t be the case.

In fact, users сare much less about WHAT happened than about HOW you deal with it — so instead of trying to hide problems, let people know what you’re doing to address them.

Demonstrating transparency, and showing that issues are dealt with quickly and fairly, will gain a much higher trust level than pretending that there is no issue.

In short, it’s sound decision-making, and not perfection, that is needed for a successful marketplace.

Mistake №12: Over-relying on social media

Setting up social media accounts is the first thing many founders do — often before they’ve even launched their product. Why? “Everyone has accounts in social media — so it must be the right thing to do!”, they’ll answer.

But before creating pages on Facebook, Instagram, Twitter, Pinterest, or Youtube, think about your strategy for managing these social media accounts. Are you ready to invest time, resources and effort in developing them? Are you sure that your content is interesting enough to bring in more sellers and acquire more buyers for your marketplace?

Take a moment to think about that last point. Which gives the worse impression to potential customers — no Facebook account at all, or one with 22 followers (most of whom are your staff members), that hasn’t seen a new post in the better part of a year?

Managing social media accounts requires an integrated approach, expert guidance, and significant effort, time, and money. Different social media have different cultures and habits among their users — and not all are likely to suit your particular business model.

Accordingly, you should analyze which social media you need — Facebook, Twitter, Instagram, or none of the above. After that, commit to paper a strategy that will really focus on attracting users to your website. What you should not do is rush to be on every platform just because other people are.

Mistake №13 — Neglecting communication with users

It’s amazing how many marketplace founders underestimate the importance of communicating with their users — because this is the one thing you really can’t do too much of. After all, who better to tell you about the real-life strengths and weaknesses of your marketplace? The understanding you’ll gain from engaging with your users gives you the opportunity to incrementally improve and develop — and lets you avoid problems that could otherwise cost you dear a little way down the line.

It seems relevant to quote here something that Christopher Lukezic, a marketer with Airbnb, said back in 2011:

“What I’ve learned working alongside our founders is to listen to your users early on and engage them in the process at every step of the way. Don’t just meet them; engage them, converse with them, and prod them to find out what their problems and needs are. People often start companies to solve their own problems, but, over time, all entrepreneurs recognize that to be successful, the product has to be built for a wider array of end users.”

Users are central to your platform. The more you listen to them, the fewer mistakes you’ll make.

‘Instead of an epilogue’, or, how to avoid making mistakes

Many a startup is built to be sold — but not all choose that path. Airbnb, now valued at some $38 billion, seems in no hurry for an IPO, instead preferring to follow the advice given to its CEO by Warren Buffett: “ Get rich slow”. In your business, it’ll be you that gets to decide when to cash that paycheck — but first, you’ll have to build something.

If you want your marketplace journey to be as smooth as possible — there are people who can help with that. For over eight years, we at Roobykon Software have been working with entrepreneurs to create successful online marketplaces, and providing follow-up support for their projects. We’re always ready to share our experience, and to help you find solutions that work.

So if you have an idea you want to take forward, please get in touch — and let’s work together.

Online Marketplaces

these are publications about online marketplace and its…

Online Marketplaces

these are publications about online marketplace and its problems: how to start, how to launch, how to get income, how to develop and other actual points

ROOBYKON SOFTWARE

Written by

We build online marketplaces and sharing economy platforms! We are experienced with Sharetribe, CS-cart, Multimerch, Cocorico and some other platforms.

Online Marketplaces

these are publications about online marketplace and its problems: how to start, how to launch, how to get income, how to develop and other actual points