I met with an entrepreneur who’s addressing a unique problem in the automotive space. He’s done lots of customer discovery and is looking to build an early version of his MVP. And he wants to build a marketplace and asked for my insights. We didn’t build a marketplace at CCAW, but we overcame challenges similar to those encountered by marketplaces. After a decade of hitting our heads against a wall, this is what we learned:
- Customer acquisition – Don’t outsource customer acquisition or use third-party software long-term. Third-party platforms (Shopify, Magento, etc.) are cost-effective to begin with, but they will eventually hinder you. These platforms aren’t built with your specific problem in mind. They have to appeal to many, so they must be somewhat generic. This will prevent your solution from being great. It will only be somewhat good. You try to customize the platform to overcome this. The more you spend to customize it, the harder it is to transition away from it. Such platforms will never be as good as building your own technology from scratch. All successful marketplaces (Airbnb, eBay, Etsy) built technology to nail solving the problems they saw.
- Product catalog – This is hard to address, but it’s critical. Don’t underestimate it. Understand the products you’re selling and build technology to manage the catalog properly. Don’t outsource the catalog or use third-party software long-term to manage it. We had about thirty thousand products in our catalog at CCAW. Taking the time to build technology to store that catalog gave us a huge competitive advantage.
- Pricing – This is one of the most important things in marketplaces. The right products with the wrong prices won’t sell. If pricing is calculated (i.e., not provided by the sellers), invest in developing your own technology long-term. (Are you seeing a pattern here?) We built a dynamic pricing engine at CCAW that became part of our secret sauce. It was frustrating and took a year to perfect, but once it was finished it was a thing of beauty and a big competitive advantage.
- Supply – This advice is more specific to the automotive industry, but I’ll share it anyway. You don’t want to go too big or small when you’re finding your first suppliers or sellers. Find companies large enough to have adequate systems and processes in place so they will be reliable and provide data in a consistent automated manner. Medium-sized players usually have these things, plus they’ll value the relationship. Big players typically won’t see the value in working with early companies; it’s more of a nuisance to them. Smaller players will be eager to work with you, but their lack of systems and processes will be an issue. Starting with one or two medium players is usually enough to test. Remember, your goal is to learn what you don’t know. We started out with one supplier at CCAW. Once we finished learning, we courted larger companies that were by that time eager to work with us because we had our act together and they’d heard good things about us.
- Supply side operations – Don’t worry about things like shipping, returns, and customer service at the MVP stage. You can manually handle this stuff with a patchwork of tools like Excel, Gmail, etc. They’re important, but not as important as getting the demand side (customer acquisition) right. First things first. Focus on acquiring customers effectively before you invest in supply side operations. If you can’t get any customers, you won’t need better systems on the supply side.
My biggest learning was the importance of focusing on the demand side when you’re building a marketplace MVP. Yes, you absolutely need supply, but you don’t need to have a world-class supply side operation or a ton of supply sources. Understand the customer’s pain points and address them. Doing so will help you accumulate customers and keep them coming back. If you nail this, you’ll have more customers than you know what to do with and then you can fix everything else!