Wout Withagen

Nobody is waiting for your marketplace. Or are they...? (2/5)

Innovate & digitalize

Marketplaces

Jan 27, 2021

Wout Withagen holds his book Build a Successful Online Marketplace in his hand

You have the best idea ever for an online marketplace — a plan you want to roll out NOW. This is the ultimate solution. On to the next step: building an online platform. Stop, take a breath, think again. Instead, invest your time and attention in thorough analysis and validation before taking even one step further. After the central question from my first blog (‘Should you even want to develop an online marketplace?’), I would now like to guide you through step two: how do you find out if anyone is actually waiting for your idea? I'll give you 4 basic tips to answer this question.

If you are an enterprising type, you might recognize yourself in this: when a good plan presents itself, you prefer to jump right on it. Why would you delay with preliminary research? Very simple: that super cool idea in your head consists of 99% assumptions. Things that have arisen in your brain based on your own knowledge and experiences. And even if they seem so obvious, you can't rely on them. Compare it to a captain. It's no coincidence that he trusts — in addition to his intuition — much more on his measuring instruments. He's constantly testing his assumptions. And that's how he arrives exactly at the place where he needs to be.

In this article, I share four basic tips to help you get started with the preliminary research:

1. Start with a coaster

In the world of marketplaces, a good idea fits on a coaster. Just try it: does it fit? Then pitch your idea and record it with your phone for fun. How long does it take to explain it well? Did it take longer than thirty seconds? Then your first task is to simplify your idea. Make it smaller. Peel back the text to the essence, think of three lines or so. Can't do that? Then your idea is probably not concrete enough yet. Keep refining until you get to the core. This Product Statement Canvas helps with that.

2. Win-win-win

People don't just use your online marketplace, just for the fun of it, no matter how fantastic your idea is. Ronald Egas, former CEO of Werkspot, confirmed what we also noticed, namely: that it takes an average of five to ten years (!) to make a (project) marketplace big.

The reason Werkspot eventually became such a success is due to the perfect product-market fit. If you achieve that, we call it a win-win-win situation: a win for the person looking for something, a win for the person offering something, and a win for the one who makes the match and transaction possible. That's what you should be looking for!

How do you ensure a perfect product-market fit? An important key lies in a thorough analysis of your idea.

How big is your market and what is your own position in it?
Who are your competitors and what are they doing (well)?
Can you reach your target groups, and if so: what does that cost?
Is there money in your idea?
How is the timing of your plan: is it okay?

A recent example of perfect timing is YoungOnes. This platform grew by 1100% in 2019. A tight labor market and high demand for temporary staff brought supply and demand on the platform into a surge. Unclear and changing legislation regarding flexible work in the form of temporary employment and payrolling did the rest. Clients massively switched to independent flexible workers without hassle and complex regulations.

Add to your analysis an important question of conscience, namely:

Does your idea really add value?

Try to answer this question as honestly as possible. Grab your coaster and pitch again, and compare it to your market, competition, and target group analysis. Does your platform provide convenience, trade, and thus transactions? Are certain costs substantially lower? Or does something else happen that makes the game of supply and demand so much more interesting for providers and customers?

A good model to analyze whether your idea adds substantial value is the Value Proposition Canvas by Alex Osterwalder (co-founder of consultancy company Strategyzer). You normally view a value proposition from the user's perspective. But because you are dealing with an online marketplace, a broader view is needed. You need to view your value proposition from multiple perspectives: the demand, the supply, and yourself (the platform). Keep that win-win-win situation, as I mentioned above, constantly in mind.

3. Your mother, neighbor, and colleagues are sure to be enthusiastic

And that's nice, but it doesn't give a realistic picture. You want to know if your target groups will actually use your marketplace. Will they come back to it again and again because it solves a particular problem for them? And of course: are they willing to pay for it? No matter the situation, validation is the answer. By testing and validating the most important assumptions one by one, the success probability of your concept significantly increases and you remove more and more uncertainties.

Validation roughly consists of three types: interviews, surveys, and experiments. It's not rocket science, but mostly a matter of doing. Books have been written about interview techniques, surveying, and setting up good experiments (including our own book ;-)), so I won't bother you with that here. However, here are some marketplace-specific tips to keep in mind:

In interviews, surveys, and experiments, directly search for the 'problem'. Instead of asking, 'Suppose there were a platform where you could rent special wedding cars, would you use it?' ask: are you getting married in a wedding car? Do you already have a car in mind? With or without a driver? What should such a car cost? Do you already know where to rent the car? Did you have trouble finding the car? What would help you find and organize a special wedding car more easily? In this way, you will find out where the 'pain' of your target audience lies, and you avoid socially desirable answers.
You validate an online marketplace for two sides of the spectrum: the demand side and the supply side of a market. For both sides, you research the accessibility and willingness to pay of your target groups, and the added value and mechanism of your platform for the target groups.
Is everybody happy? It's crucial to find out whether the interests and 'wins' of the involved parties are balanced. An idea that solves the 'pain' of the demand side but hardly offers a better solution for the providers is probably not a good idea. Keep the right balance in sight.

4. Stop or continue?

Is stopping for losers? Nonsense. A winner continually quits. You can only spend your time, energy, and money once. So make sure to find out where you can be the best. It's essential to be honest and realistic. Does your idea really add indispensable value for providers and customers? And: do you have the long breath, time, and budget? And how long and at what cost can you keep it up? Agree on a boundary with yourself: if you go beyond that point, the plan in its current form is not profitable and you need to stop.

Is (no) one waiting for your idea? The conclusion is that you don't know. Not without a thorough analysis, and by validating your plans step by step. Once that's done, it's safe to proceed to the next phase: the preparation and budgeting of your business case. In my next blog, I'll take you through that (The team, the tent, and the money: Three basic ingredients for a successful start).