Chicken before Egg: Getting Your Marketplace Startup Off the Ground

Nishant Aggarwal has been a member of Founders Network since March 2019. He’s also been a prominent FN member in our San Francisco Chapter. To receive peer mentorship from Nishant and over 600 fellow Founders, please request an invite and join our global network.

According to NFX, over 70% of value created between 1994 and 2017 has been driven by network effects. At the marketplace conference in San Francisco earlier this year hosted by Founders Network member Daniel Hoffer (Founder, Couchsurfing turned investor), Roger Lee (Partner at Battery Ventures) said in his opening keynote that equity value of marketplace companies has risen from $10B in 1998 to $1T in 2019, and is expected to hit $6T by 2025. Clearly, the future is very promising for marketplace companies.

As founder of BlueWander, a 2-sided managed vertical marketplace (and platform), I am deeply passionate about marketplace companies and network effects. There’s a lot of talk about big success stories such as Uber, Lyft, Airbnb going public, one thing that gets overlooked is how different and unique each one of them is. They faced the same challenges that most marketplace companies face.

One of the biggest issues’ marketplace companies face early on, is balancing the supply and demand. You need “supply” to generate “demand”, and “demand” to build “supply”. My advice is to use a chicken before egg approach and start with a handful of supply-side partners who are willing to go above and beyond to help you build and serve early demand. In this post, I am sharing some recommendations based on my experience tackling this supply-demand “chicken-or-egg” problem at BlueWander.

Step 1: Pick a niche focus

My mantra is “dream big, start small, start smart”. Even if you are targeting a massive market and you think your marketplace company is going to be the next big unicorn, you need to pick a niche target segment. This could be a geographical focus, or a subset of the type of services that you plan to offer. This is a very important decision, so you should consider how your small team is qualified to deliver in this segment, how it fits into the bigger picture, and how competitive it is, in order to assess how quick can you become a leader in this niche segment.

Step 2: Build a list of potential supply-side partners

Identify partners, based on qualifying criteria, that are more than just individuals or companies that fit your niche focus. Consider things such as core values, and mission (in addition to revenue numbers) and make a list of partners that you would like to be associated with.

Step 3: Offer utility value for free

Your core offer will take some time to build for it to be meaningful for your supply-side partners. Figure out ways that you can add value to them by helping them do their existing business better. For example, at Bluewander we are providing our supply-side partners with a utility SaaS platform (that complements the marketplace) to manage their business better, removing the need of separate products for communications, workflow management, payments etc. – for free.

Step 4: Make them feel special

The icing on the cake that can make your offer undeniable is incentivizing them by offering things such as a special status, enhanced exposure, and opportunities to help co-innovate. For example, we call our first few supply-side partners as founding partners and give additional exposure through our own channels as well as media opportunities.

Step 5: Convert and onboard

Once done with steps one through four, all you need to do is carefully plan your outreach strategy. Use a free CRM like Hubspot to create some automated sequences and use powerful email messages in order to get them buy into your company’s mission and vision.

If you follow a similar approach and tailor it for your offer and target market, you can solve the chicken-or-egg problem, get detailed product feedback, create strong early advocates, and plant seeds for potential long-term strategic partnerships.