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In the difficult world of startups, founders often face a paradoxical challenge: tips on how to attract buyers without sellers and sellers without buyers.
This chicken-and-egg problem has derailed more promising startups than we’d wish to count. The truth is, you can overcome this dilemma. Successful marketplaces like Airbnb, Uber, and Etsy have already completed this by creatively laser-focusing on one side of the market before moving on to the other.
Single player mode
The key to solving the chicken-and-egg problem is often to temporarily ignore it. Instead of attempting to build each side of your market at once, focus on creating value for one side first.
Airbnb, now a household name, began targeting New York City hosts during major events. They manually reached out to potential hosts, helping them list their properties and even offering free skilled photography services. By providing a reliable source of great listings, they created a compelling reason for travelers to make use of their platform.
As a rule of thumb, determine which side of your market is more essential to capture and start there. We’re launching an ad network soon and we were faced with the same dilemma a few months ago. So we acquired a few area of interest products that attract creators, like newsletter directories. As a result, we have a creator network that can sustain the launch and continued growth of our platform for the foreseeable future. Now all we want to do is get advertisers on board too. So in cases like this, create an offer that gives value to one group, even without the other side being there.
Fake it till you make it
At first, your market could appear a bit empty. Don’t let that discourage you. Instead, roll up your sleeves and start hand-curating content.
Reddit, in its early days, faced the challenge of pretending to be lively and engaging without a user base. The solution? The founders created a bunch of faux accounts and filled the site with interesting content themselves. This created the illusion of an lively community that attracted real users, who then added their very own content.
Piggybacking Strategy
Why build a network from scratch when you can leverage existing ones? This strategy involves identifying platforms where your audience already gathers and bringing them to market.
PayPal did a great job of integrating with eBay. They targeted powerful sellers and offered a more efficient payment solution. When those sellers adopted PayPal, buyers naturally followed suit, and each side of their payments marketplace grew rapidly.
Exclusivity Gambit
Nothing drives demand like exclusivity. Limiting access to a market can create a sense of scarcity and desire that draws buyers and sellers.
When Spotify entered the US market, they used an invite-only system. This allowed them to administer growth and created buzz and anticipation. People clamored for invites and were more prone to actively use the platform when they finally got in.
In addition, this manner you do not create expectations of immediate mainstream entry. A quieter market could be acceptable and expected by your current users.
Loss leader
Sometimes you have to sweeten the deal to get your first few users. This may mean a loss initially, but it can repay in the long term.
In its early days, Uber offered heavily subsidized rides to passengers and guaranteed drivers a minimum wage. This two-way subsidy quickly increased each supply and demand, creating the network effects essential for sustainable growth.
Network effect
Design your product with viral growth in mind. Make it not only easy but also useful for users to draw others to the platform.
Dropbox hit the nail on the head by offering users who referred friends additional free storage. This encouraged users to develop into advocates for the platform, and the user base grew quickly at minimal cost to the company. The fantastic thing about this approach is its simplicity and scalability—each recent user became a potential vector for further growth, creating a self-perpetuating cycle of expansion.
Trust and credibility
In the world of marketplace startups, trust is the Most worthy currency. Without it, buyers and sellers won’t feel comfortable transacting on your platform, irrespective of how elegant your user interface or how extensive your offering.
Etsy addressed this challenge head-on. They implemented a review system that allowed buyers to rate products and sellers. They also introduced secure payment methods and buyer protection policies. These measures created a secure environment for transactions and encouraged more buyers and sellers to affix the platform.
Another great example is Airbnb’s implementation of host and guest verification processes. Requiring users to confirm their identities has significantly reduced the perceived risk of peer-to-peer transactions in the short-term rental market.
Solving the “chicken and egg” problem of marketplace startups is no small feat. It requires creativity, persistence, and a willingness to experiment. By focusing on one site first, handcrafting initial offers, leveraging existing networks, creating exclusivity, offering compelling incentives, designing for viral growth, and building credibility, you can overcome this obstacle and put your marketplace on the path to success.