Marketplaces: Supply must precede demand

No chicken/egg dilemma, say marketplace companies at Vator Splash, because supply is crucial

Marketplaces: whether they're offering physical spaces in the world, items for purchase online, or connecting service providers with clients, marketplaces have certainly grown in prominence over the past couple years. Various technology trends have made it more lucrative than ever to create a marketplace, but there are still mysteries around why some succeed and others don't.

Many entrepreneurs wonder how a tech-enabled marketplace should get the flywheel going. To help answer that question, our third sharing economy session at Vator Splash Spring last week brought a diverse set of founders and CEOs to discuss their companies' approaches to growth.

Panelists (right to left in the photo) included Mark Lawrence (co-founder and CEO, SpotHero), Justas Janauskas (Founder and CEO, Vinted), and Ivan Tsybaev (Founder and CEO, Trucker Path), and the session was moderated by Ezra Roizen (Managing Director, Vator Investment Club).

Here were a few key takeaways from the session.

Chicken/egg, supply/demand: which comes first?

Ezra kicked off the session by asking one of the core questions about starting a marketplace: what is most important from the beginning, supply or demand? Interestingly, the question seemed a lot less difficult to answer than the classic "chicken or egg" dilemma.

Supply, the three panelists agreed, is crucial.

"Every market we entered we had to build the marketplace from scratch," said Janauskas, who said Vinted has expanded to 11 different regions so far. Every new beginning is like launching a new small startup, where he's literally asking friends and family to list their items on the website.

Notably, he remarked that the supply that fills the marketplace in those early days proves crucial to the future of the marketplace. "If you start the marketplace with really cheap [brands]," he said, "that drives the future supply." Conversely, if the marketplace fills up with high-end luxury brands, as Vinted saw when it launched in Italy, people will come to expect that from the service.

While a marketplace of parking spots has different needs from a marketplace of vintage clothing, Lawrence concurred about supply coming first, and explained that SpotHero's focus there was almost insanely local: "We started with supply not in one geo but in one neighborhood," he said. "We actually started with individual parking spots. It took us a year, I'm embarrassed to say, to get 50 parking spots."

But, as with Vinted, by focusing on the early stages of supply, SpotHero could vet for quality. And as they added more and more supply, things ended up accelerating very quickly.

In turn, Trucker Path is another different kind of marketplace, focused on connecting truckers with brokers who have loads to move. Again, however, Tsybaev said cultivating a rich supply of truckers was crucial to creating that marketplace.

As a matter of fact, Trucker Path initially started out by offering a free tool for truckers to gain all the info they needed about their work on the road, from parking options, to weigh stations, and other valuable information. Only after the company had amassed a reliable contingent of truckers, the stage was set.

"We decided to give value for truckers first," he said. "Once we had a huge crowd of users, we started building out the marketplace."

Managing the brand experience

Noting that marketplaces like Trucker Path, Vinted, and SpotHero necessarily depend on factors outside the companies' control (truckers, buyers and sellers, parking garages), Ezra asked the panelists how they manage and protect their brand experience.

"I don't like thinking of where my brand stops and [that of the parking garages] begins," said Lawrence. "We look end to end."

He said SpotHero is very data-hungry, forcing users to rate the spots or garages they use so the company can drill down by overall geographic region, company operator, and even individual garage so it can pinpoint problems and resolve them quickly.

Janauskas admitted that consumers create an image of your brand from their first impressions, so Vinted places a premium on curating the content that best reflects the brand they want to convey. Alternatively, Tsybaev says Trucker Path builds its brand around the community, which users appreciate.

Advice for entrepreneurs

To close out the session, Ezra polled the panel for some quick advice they would give to their fellow entrepreneurs.

"Don't rely too much on what others tell you," said Tsybaev, reaffirming the idea that what works for one startup may not work for the next.

"Focus on the first few customers," said Janauskas, "Make them very happy."

Lawrence echoed that statement, adding, "Don't do something kinda good for half a million people." In other words, do something really good for a small group of people and worry about scale later.

Thanks to our amazing top-tier Splash Spring 2016 sponsors: KPMG, Javelin Venture Partners, SAP Startup Focus Program, Bread and Butter, Kapor Center for Social Impact, Lyft, Avison Young, Tubemogul, Wendel Rosen and Dictionary.com.