Lessons I learned from trying (and failing) to start a marketplace business

About a year ago, a friend of mine and I began an incredible journey: starting an online marketplace business. It went horribly horribly wrong.

Well... I shouldn't say that. It just went meh. Well actually. It sort of just... didn't go.

Let me explain.

The idea was a marketplace that would connect tech startups with college students for project-based work. Think Fiverr, but exclusively for college students and startups (lesson number one - there is such a thing as niching down too far. Keep reading.)

We never had a single paying customer, and we had a few dozen users on the student side who never got assigned any work at all. It was a major disappointment. We pivoted to a job board, which actually went a lot better! I'll write about that experience in the future.

So what went wrong? Well, we talked to about 30 different startup founders and CEOs. All of them said they loved the idea! None of them said "How do I hire a student right now?"... That should have been hint number one that we didn't have product market fit, and probably wouldn't find it. There were a number of objections: I don't have time to think about this, I already have a university recruiter who spends all of their time thinking about this, why wouldn't I just use Fiverr?.. All super valid objections that we didn't have great answers for. But talking to these potential users was a huge leap forward for us, because we found out what didn't work, and why.

Here are the lessons that we learned along the way, and what you can do to be just a litttttle bit better at starting a marketplace than us:

Just start

This one may sound obvious, but not everyone does this. Lots of time spent thinking, pondering, wandering... but ultimately, the sooner you start reaching out to customers the better. And that's what starting is! If you want to gain an understanding of if your marketplace idea has legs then talking with users is the best way to do it.

Now as a marketplace, you're going to have two types of users: the supply side (people who are providing goods or services) and the demand side (people who are buying said goods and services). If you don't have both, then you don't have a marketplace. So make sure you talk to people on both sides and get confirmation that there is at least a need.

Lesson 1: Your Minimum Viable Product should include way way way less than you think

The old saying goes "If you aren't embarrassed by your MVP then you've released too late" and this is definitely true. What we did was actually build out a marketplace via a no-code platform (softr.io and Airtable), and integrated it with stripe for payments. Absolutely none of that was necessary at all. Instead, we should have just created a spreadsheet and asked college professors to ask their students if they wanted to be considered.

Why a spreadsheet? Well... since so few people signed up as users on our platform anyway, fewer than like 50 people even saw our super fancy website anyway. Also, spreadsheets make great marketplace MVPs. Flexiple is a great example of this. They are a marketplace connecting developers with people who need developers, similar to TopTal.

Lesson 2: Who receives the most value?

One issue that we ran into was that the demand side of the marketplace was more valuable to us, but they ultimately did not receive as much value. But why not? They are getting great work from students who may be full-time hires after they graduate. Isn't that valuable? Well, yes, but not nearly as valuable as the college students being able to put real world work on their resume that will propel them into their careers.

The opportunity cost is also quite low for the demand side of this marketplace, and in some cases, our marketplace would have been providing negative value. What do I mean? College students have spent 15 years of their lives doing school work instead of actual work. Some freelancers on Upwork, Fiverr, Flexiple and others have been doing actual work for 30+ years. They can get work out the door faster, and it will likely be of higher quality.

This was the primary dilemma we faced throughout our time trying to build the marketplace: the side with the money had better alternatives, and the supply side received most of the value. That's a losing equation for a marketplace. You always need to make sure that both sides of the marketplace are receiving equal value, or that the demand side is receiving more value than what they are paying for.

Lesson 3: Solving the Chicken & Egg Problem

The Chicken & Egg Problem is simply that you can't really have demand without supply (no one will come to the marketplace to buy goods or services if there are no goods or servics to buy), and you can't have supply without demand (no one wants to go to the trouble of making a profile on your platform if they'll ultimately never make money on your platform).

So how do you fix this?

Well... It's really really f*cking hard. Every marketplace has figured this out though, somehow.

Which leads me to my final few bulletpoints:

Lesson 4: Fake it... not even until you make it, just fake it...

I spoke with the founder of a highly successful marketplace business ($15b+ in total transactions, 20m users) and he let me in on some secrets that, to be honest, seem almost fraudulent. But after quite a bit of reflection, doing what he suggested might have just made everything work.

He suggested to seed the platform with fake users on both sides. The platform should have looked and felt like a vibrant hub of activity in order to attract users on both sides. For an MVP, this would have looked like a spreadsheet with hundreds of students, and a broad diversity of experiences. It would have looked like us (myself and my cofounder) hiring real students to do work for us that likely would not have made any sort of impact, beyond creating a case study that we could share with our next potential customers.

I know what you're thinking: What if your customers try to hire a fake student? Well, the founder of the successful marketplace really pulled back the kimono on this one: When they were getting started, they would seed their platform, and then when a real request was made that they couldn't actually fulfill, they would just say "Oops, sorry... somethings come up and we can't fulfill what you're asking for."

Is this a sustainable way to run the business for the long term?

Absolutely not.

But that's why my cofounder and I would have just pretended to be the students ourselves!! Sure, I'll be Suzie Halpert, Marketing Student at BYU, why not? I'd happily ghostwrite some LinkedIn posts for a new user of the platform in order to get them to come back. We hardly know a damn thing about ghostwriting, or even marketing, but all a startup is flexing your figure-it-out-iveness until something works.

Lesson 5: Niching up and down

The founder of the successful marketplace also gave us some sage advice: open up your demand side. We only went after tech startups. It led to a much smaller total addressable market than what we could have potentially had. If anything, we should have niched down our supply side, and just focused one type of student: "A marketplace connecting marketing students with small businesses, for project-based work" might have been a much better value proposition. It would have made our lives a lot easier with customer acquisition, because the demand-side customers would have been able to visualize what we do in a single sentence.

Instead, in our conversations, we got a lot of "what kinds of students does your platform offer?" and the answer (any type of student) was pretty insufficient. Instead of product-market fit, we should have focused on problem-solution fit. What problems do small business owners have? Some small business owners don't have the bandwidth to think about social media marketing. Our marketplace could have been the solution to that problem. Instead, we closed ourselves off, both ways.

Lesson 6: Spend money

This one seems a little bit counterintuitive, but unless you have unlimited time, you're going to have to burn a little bit of cash in order to get things going. This probably looks like "being the demand side" at the very beginning, and also spending money or some sort of advertising.

The reason this one is important is because at this point marketplace businesses are usually winner-take-most, and it take a lot (A LOT) of work, and time, and energy, to get all of the elements right. You could have great demand, and your supply is super happy as well. But if the pricing model is off, then the whole house of cards could come crumbling down.

Who is going to have more "shots on goal" to try and make it work? The company that has more resources to keep going.

Lesson 7: Oftentimes, the hardest things are just worth doing

Marketplace businesses are really really f*cking hard. And that is why you should totally try and start one. My suggestion here would be to try and place yourself right in the middle of two sides that are really really interesting to you. Or pick one type of person that you really really want to add value for, and put them on the demand side. If you find that it's impossible to put that persona on the demand side of the marketplace because they either lack resources (money) or the supply side will always receive more value than the demand side then just offering up a service for them might be the better route to go.

Here's an example of a marketplace business, with this thought process in-mind: