22 Tactics used by Big Startups to solve The Chicken egg Egg Problem
What is the Chicken & Egg Problem?
The core of business-related Chicken & Egg problem lays in a classical “Chicken or Egg” where you don’t know what was the first. The Chicken & Egg problem is related to marketplaces mainly. Once you are developing such a platform you need to have sellers and buyers. As a business model it sounds really cool: gather commission — let just buyers buy and sellers sell. But it makes a big problem to launch. It is not so easy to attract a single type of user into the app, but with the marketplace, it makes x2 harder. Each side (user type) finds the platform useful only if there is another side on the platform. A good sample here is PS or X-Box, no-one would buy them if there are no games. So, let’s say you are launching a third type console. You would need to show some games — attract developers to sell the console. But who of them would agree to have extra platform support with no users? That’s an endless discussion…
Tactics to Learn
The chicken & Egg problem is the number one that is needed to be solved with marketplaces. This is super important for any technical partner to know, as they need to guide startups. So, we examined a list of well-known marketplaces’ history and are pleased to share tactics that they did during their own way. So…
Tactic #1: Complicated feature first
Once a single side reaches its top activity point, the other side (supply or demand) starts to grow organically. Sure, it depends on a market, it always hard to attract a single side, either supply or demand. The easiest way to sort out is just to gather analytics from your sales & onboarding. And sure, the hardest side provides much more value, once you get such users enough, the other would take x2-x10 easier to get on board.
The great sample here is Outdoorsy. Outdoorsy is the RV rental marketplace. Getting RV owners was the hardest side for them. Since they could convince suppliers to join the platform their demand came x5 cheaper & faster. That’s was a key point for Outdoorsy to become the online Mecca for mobile lodging.
Tactic #2: White Hot Center
Find a small group in your community that cares the most about your idea — your marketplace. Once it is found, go after such users. You would need to stay tight to such a niche and repeat it till it scales.
Samples: The first traction eBay got with selling Beanie Babies. Craigslist had just email lists to own’s friends who were searching for a job and apartments for rent. Uber started its own campaign in San Francisco with luxury cars to rent. Poshmark targeted urban female professionals in California.
Tactic #3: Capitalise the most valuable side
Pay cash to one of the sides which is most valuable to join your marketplace.
A list of companies did it. Uber gets to key cities and paid drivers (suppliers) to be in the app, so their riders (buyers) always had a car to book. ClassPass paid gyms upfront to join their platform. Helix covered a portion of the cost of genetic tests.
Tactic #4: Fake your supply size with the automatization
Get as much data as possible from the web regarding your supply side. All this will give a vision of quite a big marketplace that has a lot of activity.
This is quite a popular tactic, and here are some well-known companies who did that already. GoodReads, Indeed, and Yelp collected data about local businesses, books, and job posting. All the data they put into their own platform. This gave their targeted audience a vision that a lot of good companies are placing jobs there and they need to try such a platform out.
Tactic #5: Fake your value
You can try to create bots that will use other resources and grab users to your platform. Such tactics were used by Paypal. They created a bot that was purchasing stuff on eBay and asked to pay with Paypal. Sure, such a bot should behave as a human. Nevertheless, it worked. Reddit also used fake users to “plant” interesting questions and attract users into the platform.
Tactic #6: Target & launch only 1 side as an email list.
One of the easiest ways to launch a marketplace if your buyers would be sellers too. That’s how several well-known companies started their own way.
Threadless started with a light version — an email list. The same tactics were used by Craigslist, Craig had emails of friends and was selling them instruments. Later he proposed all subscribers to sell his own stuff within his list.
Tactic #7: Host Events
Yes, scale events are a tough task. But they are quite effective at the very beginning. You can generate community, demonstrate activity, and provide your customers with real-time feedback. This works even better if it is powered up with social loudness.
That’s what Poshmark did. They hosted “Posh Parties” where guests could exchange fashion goods. It was a place where the app was presented and users could solidify their own new connections. The same tactics were used by Yelp in 2004. It was “Yelp Elite parties”. All Attendees received such a “badge” and went home as heavy reviewer members of the Yelp community.
Tactic #8: Build a SaaS tool for a single marketplace side.
Such tactics provide you with time to attract another side. What is more, it locks the first one inside if you have real-time support and feedback gathering.
That’s exactly what did OpenTable. Once they launched a reservation side for customers, they had several managers on the backend side who were calling restaurants and were booking tables for users. Once it was booked, users received notifications. Honeybook launched software for event planners and professionals to deal with billings, workflow, and proposals. And similar tactics were used by StyleSeat that allow reserving hairdressers.
Tactic #9: Provide with a software 3d party who can cover a second side
The great sample here is Android. They build software for cell phone manufacturers that provided them with customers. Such a move pushed Android to cover a half (if not more) of mobile OS coverage and revenue. MySpace provided bands with free pre-setup profiles. In return, bands attracted their own fans to the platform.
Tactic #10: Target on a single giant user for a supply or demand.
One of the best samples we could find is Candex. They targeted Siemens who becomes a big anchor for their demand-side. Once they partnered, Siemens starts to require its own vendors to use the Candex marketplace to be paid.
