The earliest days in a marketplace are a tricky time. As I’ve discussed before, there’s a chicken and egg problem when it comes to supply and demand: customers need supply, and suppliers need customers. But it’s nearly impossible to ramp up supply and demand in lock step.
We’ve found that in most cases it’s best to focus on building up the supply first. That’s because there’s more incentive for a seller to invest their time in the early days. There’s zero motivation for customers to stick around without any inventory.
So how to you go about seeding supply? Here are four common strategies:
1. Identify unique inventory
One of the best ways to convince sellers/providers to join your marketplace is if they don’t already have an online platform to sell. For example, Etsy went after the producers of hand-made goods. These designers and crafters often found their unique goods buried within eBay’s massive inventory and typically resorted to selling their items locally at craft shows, farmers’ markets, etc. Etsy came along and brought these local experiences online.
The advantage of focusing on unique inventory is that it won’t take much effort to persuade providers to join once they’re made aware of your site. In addition, these types of sellers will typically bring along some of their own buyers – helping you ramp up your customer base at the same time.
2. Convince existing inventory to list on your platform
If your ideal suppliers already have an online outlet, you’ll need to be creative and exert more energy to convince them to join your young marketplace. Airbnb is a classic example:
Airbnb’s target customers and suppliers were using Craigslist to rent out and find lodging outside of the standard hotel experience. Airbnb offered a more personal and trustworthy experience than the free-for-all on Craigslist, but Craigslist had one thing Airbnb didn’t: a massive user base and inventory.
As detailed in this Growth Hackers case study, Airbnb found some interesting ways to leverage the existing supply on Craigslist, including emailing Craigslist listers and encouraging them to check out Airbnb. While this approach may be close to spam, it most likely enabled Airbnb to cheaply reach tens of thousands of their targeted suppliers each day.
3. Pay for inventory
During the early days at my startup JustBooks, our first growth hack was buying books to list so we didn’t have an empty site. Similarly, when Uber launched in Seattle, they paid town car drivers to idle. This generated the supply and once the customers and money started rolling in, they switched those drivers over to commission.
Buying inventory artificially creates supply, improving the way the marketplace works at the outset. It’s an easy way to get inventory in the early stage, but it’s not scalable as it gets expensive to both buy and manage inventory yourself.
4. Aggregate readily accessible inventory
A last strategy is to aggregate inventory that’s already listed out there, for example through affiliate programs. This approach will provide the initial scale that you’re looking for, but there are several key drawbacks. First, while you may have a lot of inventory, none of it will be unique: why should buyers come to your site versus all the other sites you’re pulling inventory from?
The second problem is that when you aggregate existing inventory, you run the risk of becoming a cross-platform utility rather than your own marketplace with lots of highly engaged users. Fred Wilson discusses this issue with networks, but his words are equally relevant to marketplaces:
If the initial utility of an app is to connect to a bunch of networks, collect information, present it, and then let the user engage with one or more of those networks, what incentive is there for the user to engage directly with other users of the app and help build a network inside of it?
No matter which approach you use, it’s easier to build a strong community if there’s a large overlap between buyers and sellers. For example, think about the number of Airbnb hosts who stay with other hosts during their own travels. Likewise, sellers on Etsy also make purchases since they appreciate handcrafted goods. Peer-to-peer marketplaces are more likely to have sellers that double as customers and vice versa.
The bottom line is if you are building a marketplace, you need to devise an effective strategy for ramping up supply. The next stage is getting to that virtuous cycle of supply and demand.