What’s the chicken and egg problem?
The chicken and egg problem in marketplaces arises when the platform is in its initial stage, lacking both those who offer a specific product or service and those who are looking for it. The biggest challenge occurs when we want to expand the platform - it seems impossible to attract one group without the presence of the other.
Let's say we want to launch an online marketplace platform for selling used guitars, UsedAccord. We've come up with a kind-of-creative name, created a nice-looking web and mobile application, and now we want our first users, but everything is so empty and we don't know where to start.
First Steps
The key to success and growth for every marketplace platform lies in the demand for what is being sold. Marketplace users who are willing to pay for products or services are crucial for marketplace growth; they both bring in money and attract more sellers and service providers.
Although this may sound contradictory, in the beginning, you should forget about buyers. It's hard to focus on acquiring both buyers and sellers simultaneously, so we will focus on significantly easier part - supply. You can more easily find and onboard sellers, because they are proactively trying to explore new markets to sell.
In my UsedAccord example, instead of advertising an empty platform, wasting both time and money in vain, I would reach out to sellers of used guitars, introduce my platform, and try to onboard them. I'll tell them that I expect a large number of buyers soon after onboarding enough sellers.
For this specific niche, I would look for people selling used guitars in Facebook groups, while for more serious sellers who work on a larger scale, I'll search on existing, general marketplace platforms like Amazon and eBay.
How to Properly Focus on Supply?
1. Niche Down
In my example, instead of selling all types of guitars, I would make my initial focus exclusively on acoustic guitars.
2. Focus on a Specific Location
In my example, I would focus on Austin, Texas. It's a fast-growing city that is neither too small nor too big. I won't prohibit other cities and states but will personally focus on users from this city, making my search more effective, as well as my later marketing campaign.
3. Make It as Easy as Possible for Early Users
In my example, I would choose 100 sellers of used acoustic guitars from Austin and divide them into two groups. I would introduce the platform to the first group and offer to create their accounts for them, while I would just introduce the platform to the second group and ask them to create an account without doing all of their work. Depending on the results, I would plan further actions.
Most Common Mistake
By far, the most common mistake entrepreneurs make in the initial stages is trying to adapt the platform to fit every possible user. This completely destroys focus and significantly slows growth while simultaneously burning through your marketing budget. Maybe some VC-backed companies with a lot of money can afford to do this, but you can't, especially not in the initial stages.
Instead of adding categories for additional instruments, make sure your platform is great for selling acoustic guitars.
Instead of having multiple languages on the platform, make sure that visitors from Austin have the best possible experience.
Instead of adding a feature requested by one user, make sure that the most frequently used feature works perfectly.
You can't please all users, especially not in the early stages. The good news is that there is no need to - it's important to meet the needs of the average user.
What’s next?
After successfully acquiring sellers for your platform, the next step is to concentrate on generating demand.
Set up a budget for a marketing campaign and use channels such as social media marketing, Google AdWords and influencers, as well as various partnerships with people who are connected with your target audience.
All of the above are excellent ways to attract initial customers for your platform as they don't require a huge budget to start, and it's easy to pull statistics. Depending on how well you have chosen your niche, the competition can be very small or even non-existent!
In my UsedAccord example, after onboarding a certain number of sellers, I would initially focus on Google AdWords. I'd try to position myself well in situations when people in Austin search for used acoustic guitars. As for partnerships, I would contact 50 individuals who give private guitar lessons to beginners and offer them a partnership where they receive a certain amount of money every time they refer a beginner to our platform. There's a high chance that these people are in touch with many beginners who need used acoustic guitars.
Final Words
Once you have attracted enough sellers, although you have only completed the easier part of the job, you have successfully overcome the chicken and egg phase. This means that, while you still have many challenges ahead, you already have some results and are on the way to something good. Moreover, you have come further than the vast majority of people who have an idea, and you can definitely be proud of yourself.
“Well begun is half done.” - Aristotle.