Young Upstarts

All about entrepreneurship, intrapreneurship, ideas, innovation, and small business.

Solving The Chicken And Egg Equation In A Marketplace Business

by Jay Barnett, founder of Priority Pickup

chicken eggI still remember the hot summer of February 2012 – it had just been days since I had launched my business. Priority Pickup was a marketplace that connected private chauffeurs with commuters to the Perth airport. I identified a need and got the website built. But the bigger question was how am I going to get customers to the service?

Well, one straightforward answer was to invest in Google Adwords until we gained sufficient authority to rank on Google search. But what next? With very few chauffeurs signed up, I realized that customers, even if they arrived by some stroke of luck, weren’t going to stick since we hardly had any chauffeurs enrolled to the service. And chauffeurs we talked to, weren’t ready to pay us until they were assured of business.

This classic chicken and egg problem hits every other business that intermediates between two categories of people. Think of popular communities like Facebook and Reddit – would you visit them if you knew there was nobody else in there? Or, take a website like elance that engages freelancers with project owners? Would project owners bother posting assignments if nobody was bidding?

How do you grow a business in such cases? One point to note is that in every marketplace business, there is a giver and a taker; a buyer and seller to put it in financial terms. Finding the giver/buyer is a relatively low hanging fruit and is an easier puzzle to solve. On the other hand, the taker/seller is the tougher nut to crack. Buyers typically reach out to the sellers through multiple avenues and pick their goods or services from where they get it best.

In my case, I realized that finding passengers should be easy if only I had sufficient chauffeurs. Even if it takes time to build a brand, I could use online ads to get passengers on to my website. But how do we convince the chauffeurs to sign up to an empty site? To tackle this, we offered our drivers a free three month trial. So basically every new driver to our service would get three months of free inbound enquiries through our service. I realized that if the chauffeurs would realize the potential of our concept, they would pay for being listed on the site beyond the three month trial period. I also used the three months to ramp up our customer acquisition and marketing so that we will have a steady flow of new passengers visiting our website.

You can extend this idea to any marketplace or community based business. In the case of Reddit, the buyer is the person consuming content – you will have them provided there are enough sellers – people who publish unique content. As the legend goes, the founders of Reddit used fake accounts to populate content on the site for a long time until the community started to curate content themselves.

Similarly, if one has to start a freelancer marketplace like elance today, they could start building a database of freelancers – through LinkedIn, advertisements, job postings, etc. And once you have a critical mass of people ready to sell their service, you could approach the project owners and small businesses who want to get work done.

A huge chunk of businesses in the marketplace and community segments fail because of insufficient planning. All that it takes to make a business as this successful is to know the different elements of the puzzle that is necessary to make it work, identify the tougher nut and crack that first before moving to the other side.

Do you have experience running a marketplace business? What is your story? Share it with us in the comments below.

 

Jay Barnett

Jay Barnett is the founder of Priority Pickup, an online airport transfer and passenger services company in Perth, Australia.

 

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