5 things every entrepreneur building a marketplace should know

Marketplaces like Flipkart, Fiverr, and HomeHero seem very profitable at first glance — all you have to do is build a portal and bring merchants on board to sell products or professionals to offer their service. But this is not as easy as it seems. Building marketplace-driven brands is complicated. Very complicated.

I have been building the same for the last two years and thought it would make perfect sense to share the lessons learnt with aspiring entrepreneurs. So, here’s what you need to know if you are thinking about building a product or service-driven marketplace:

Merchants/providers will take time to join

There is no chicken-or-egg question here. You have to get the merchants/service providers on board first and let me tell you it is not going to be easy. Locating merchants and convincing them to join will require a lot of effort, online as well as offline. Let’s say if you approach 100, only 20 will agree to hear you out. Out of those, only eight will say that they will join, and only two will actually join.

One more thing — the above example applies only if you are approaching highly relevant people. Don’t even think about buying a generic email list and shooting with a mail blaster. (Check out this HubSpot post for reference)

In the first month of operations, Amazon received orders from 45 countries, but remember, this was back in 1994. Now there are established brands out there in major marketplace models, so don’t even think of launching a marketplace if you don’t have the patience and grit to keep going.

Pick the technology carefully   

Marketplaces are not online stores where a small catalogue of products will go on sale or a few people will offer their services. It will host thousands of merchants/service providers and cater to tens of thousands of customers. Hence, a website built on an ill-suited technology won’t cut it.

You need a technology that can guarantee stability, security, and performance to your mega online store. Most entrepreneurs coming from non-technical backgrounds don’t know much about technology selection, and that’s why you first have to speak with a technology consultant.

I have the perfect example for this. In its early days, Paypal almost made the mistake of switching to Windows from Unix but was saved by the CEO switch. This might have killed the current giant of online transactions. Paul Graham (Co-founder of Y Combinator) shared the same in this interesting blog post written back in 2006.

Marketplace cloning software aren’t any good

If you have been scrutinising ways to build your online superstore or services marketplace, you must have come across marketplace builders. They are readymade software that are marketed as quick solutions to launch clones of Amazon, Freelancer, and similar platforms. But the truth, like always, is a bit twisted.

95 percent of the turnkey marketplace solutions are not even worth looking at. The remaining will come at a decent price but will require major customisations and plugins to deliver your envisioned marketplace.

Personally, I won’t recommend building your e-commerce/people marketplace with a turnkey software. If you have no other option due to budget constraints, be very careful while selecting your multivendor store builder and clone software.

Marketing spend will be huge

Building a marketplace is an expensive affair but that’s certainly not the end of spending. Marketing is going to demand a big investment as well. From online banner ads to SEO, PPC, media coverage, and social media, everything will demand money, and I’m not even counting the offline spend yet.

Most startups are so focused on building a website and launching it that they never take the time to plan and save for marketing. This puts the future of their marketplace startup in jeopardy.

Also, please don’t begin with the assumption that someone will fund your venture to take care of the marketing spend because that’s not going to happen until you have something unique. Need some numbers?

Angels and seed deals stood at 845 back in 2015. 2016’s number (from January to September) stood at 540. Check out this VC Circle post for more stats.

Great development teams are hard to find

There are probably millions of IT companies in the world but the ones that have the expertise to build powerful marketplaces are very few. A great development team will:

• Guide you about technology (but I still recommend speaking to a consultant)
• Think about UX and search performance while planning architecture
• Share feature recommendations and follow transparent development processes

Finding such a team will be a tiring process. This is the reason startups choose to build an in-house team to handle the development work. One more thing — don’t fall in the costly-is-better trap. There are lots of IT firms out there that charge a premium price but don’t deliver quality.

Read reviews, scrutinise earlier works, and speak with the team before finalising your development partner.

The bottom line

Nothing about launching and scaling a marketplace-based venture is easy. So many things need work that it is almost a risky proposition. Rob Kramer is probably the perfect example for aspiring entrepreneurs — the serial

entrepreneur and founder of HipSwap (a US-based marketplace for used goods) has vast experience in building online businesses but still failed with many ventures (the most notable among which was PopRule).

In short, building the next Amazon or Fiverr will take everything you have, so start only if you are ready to give the same and have the right knowhow.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)