A community can make or break a marketplace. I owe much of the success of my former company, AbeBooks, to the passionate community of book lovers that came to our site. Considering more than 1/3 of Version One’s portfolio are marketplaces, I appreciate just how much a strong community can be one of the most powerful differentiators and growth drivers for marketplaces.

When a group of users starts spreading the word and engaging with your site beyond pure utility (i.e. comes to chat with other users, not just make a transaction), then that community can help build and scale your marketplace. Early eBay, Etsy, and AirBnB are all great examples of this.

Yet while community can be a marketplace’s biggest asset, it can also be its biggest liability. A marketplace company needs to strike a careful balance between giving up some control to the community, without being overrun by it. For example, much of Digg’s downfall is attributed to just how much it listened to is hard core fanatical user base…i.e rolling out new features, then quickly rolling them back when their more vocal users complained.

How can you best manage a community so it contributes to your growth? Here are a few tips:

1. Give up some control: You can’t let Digg’s story scare you into taking a 100% dictatorship approach to managing community. Your community wants to be a part of something; you’ll need to give up some control to let them participate. For example, you can listen to product feedback, ask for beta testers, and consult with them on community rules.

2. Listen to the whole range of your users: If you want to build a marketplace for a broad user base, you need to listen to everybody…and not just your vocal power users. Find ways to capture input from a diverse representation: from the vocal power users to the silent majority. Your more vocal users will make themselves heard through user forums, but you may need offline events, client advisory groups and 1:1 conversations to tap into the thoughts of everyone else.

3. Publish community values and rules: It’s best to define the values and rules for the community you are trying to build early on. This way everyone understands the ground rules from the start and you have terms to refer back to if the need arises. Ebay did a great job of defining and living by their values.

4. Invest in community managers: In many ways, communities are self-organizing, but they still require active administration and moderation. A good community manager will play both a reactive and proactive role: first to respond to any poor behavior that might drive away other participants and second to draw out the best level of contribution from everyone.

5. Always take the ultimate decision: while it’s important to engage with and listen to your community, keep in mind that you have the ultimate decision in all matters. It is impossible to make everyone happy and companies can run into big trouble when they try. You need to have a strong sense of your company’s core values and then you can weigh user feedback within the framework of your own convictions.