All marketplace startups have to face the infamous chicken-and-egg problem. Their challenge is to bring on both producers and consumers so that they attract each other. Y Combinator says “cheat by building one part of the marketplace yourself.” For example, build Facebook communities.
Embrace the chicken-and-egg problem
Marketplaces are useless until there is something for sale. But producers won’t come to the marketplace without consumers and vice versa. This creates a vicious cycle (ghost town problem). The objective is to bring on enough producers and consumers until there is critical mass.
Critical mass is when there are enough of both sides for positive interactions to occur. Positive interactions can be anything from price inquiries, likes and actual transactions. A common mistake is to be unaware of who you expect to create these interactions.
Stimulate positive interactions in a micro-universe
It’s much easier to stimulate positive interactions if everyone in the room is there for the same thing. Imagine a flea market with many baby clothes sellers. It would attract a lot of mums. Similarly, you need to conquer your own micro-universe.
How do you pick the right micro-universe? Analyse the industry your marketplace operates in. Categorise and subdivide it into niches. For example, niches for lifestyle could be: streetwear, sneakers and watches. Identify the interesting niches based on trendiness and competition.
Test niches as communities on Facebook
Start a series of Facebook pages and run page-like-campaigns for them. Automate publishing content for these Facebook pages (e.g. Zapier/Buffer). Then compare the ROI on page likes/post engagement and select your winner(s).
My experience is that the cost per Facebook page like can be as low as £0.04 up to £2.00 (UK, 2017). Lower acquisition costs with the same budget equals a larger Facebook community. This gives more leverage to reach critical mass on the marketplace.
Analyse test results
I ran this test for a C2C mobile marketplace for lifestyle items. My test showed varied results for 9 different niches. The costs of a Facebook page like was between £0.06 and £0.72 [1].
The sneaker niche, a Facebook page called Sneaker Junkies had the highest ROI. I continued to scale this Facebook community to 100k followers. This niche has been our focus for reaching critical mass on the C2C mobile marketplace.
Provide a bait for the Facebook community
With a niche Facebook community you already have one part of the marketplace. But without any producers your marketplace is still empty (ghost town problem). The next step is to provide a bait for the consumers which in turn attracts producers:
- Act as a producer on your own platform — seed your own content (e.g. Apple placed the first apps in their first App store)
- Farm producers from other marketplaces — contact sellers on competitor marketplaces (e.g. AirBnB, the Craigslist hack)
Activate the Facebook community
Start driving Facebook traffic to the marketplace. Post some of the platform’s content on your Facebook page. This results into a continuous influx of niche consumers on to your marketplace.
Keep developing your content strategy and be careful not to spam. In the attention economy, content needs to get attention and create value. An engaged Facebook community creates more stickiness and leverage to your platform.
Conclusion
- To solve the chicken-and-egg problem marketplace startups need to reach critical mass. Critical mass comes from having enough positive interactions between producers and consumers.
- Stimulate positive interactions by focussing on people with the same interest. Analyse and identify interesting niches. Conquer your own micro-universe.
- Test niches as Facebook communities and look for the highest ROI. A larger community gives more leverage to reach critical mass on the marketplace.
- Provide a bait to the Facebook community. Act as a producer and/or farm sellers from competitor marketplaces. Make the empty marketplace look not so empty anymore.
- Start driving Facebook traffic to the platform. See a continuous influx of niche consumers into your marketplace. Cultivate your Facebook community.
Thanks for reading!
Feel free to reach out if you have any questions elco[AT]paintingtheinternet.com
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Elco
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