Growth hacks for a marketplace model

[This article is an extract from our book Growth Hack Your Way to Startup Success (link)]

Marketplace models are notoriously hard to get started. They are attractive because there is always the allure that once a two sided platform is set into motion, it will be self-sustaining and very little effort would be needed to go forward from there. This is largely a fallacy and marketplaces do need extreme attention even after passing the first hurdle – but we will not address that problem here.

The first problem lies in starting a marketplace. The obvious challenge is that such platforms are two sided and hence they need both producers and consumers of the product/service at the same time. This problem is not twice as hard (as one could assume) but exponentially more complex! And this is where most marketplace startups get stuck because right at the start you need both sides present – and none of them want to be the first to come (and then wait for the other end to appear).

This problem is often seen in e-commerce marketplaces, dating sites, forums, social networks and similar. In fact, all peer-2-peer networks face this challenge.

Fortunately for us, large and (now) successful startups have already faced and passed this test. While there are variation, in a nutshell there are broadly two techniques which can be applied:

1) Fake it till you make it: Most of the platforms/ networks would have certain opaqueness between the two ends of the chain. That is, even though buyers are interacting with suppliers, the interaction is the only thing which proves that the other side is present – there is no other tangible proof. This allows the platform some opportunity to present a perception of an active community even before it has become a reality.

Reddit.com is a famous example. As you would probably know it is a link sharing website that now has some excellent and subject based micro-communities. For such a site, it was essential that when a new user came on board he saw some action. If the website appeared empty on first visit there was little chance of repeat visitors. And the website was obviously empty when it started – to counter this, Reddit made fake user profiles who acted like genuine users. These fake users pretended to not be associated with the website and instead submitted links just like a normal user would. While this may raise certain ethical questions, for the website it proved to be a great launching pad and once actual users started sharing content the site went on to become one of the most visited ones.

You can hear the exact methodology employed by Steve Huffman himself below:

A similar example can be seen in dating websites. The problem of such websites is pretty well known and yet almost always unsolvable. In dating websites a vast majority of users are “men looking for women“. It is obvious that if the male users visited and found an extremely low ratio of females they would not come back. And the small number of genuine female users also get inundated by too much interaction to stay on the website. Hence a lot of dating websites have started by making fake female profiles and engaging in conversations with the male users.  A very recent and infamous example has been the Ashley Madison website hack. The website itself operated on highly questionable moral standards but what came to the fore after the hack was that an inordinate number of ‘pretend female users‘ were actually employees of the company and whose sole purpose was to project the perception of an active female user group.

The fake-till-you-make-it part is not only limited to digital services. Many physical good marketplaces would register in the names of different brand names/ suppliers to give the appearance of a roster that is larger than it actually is.

2) Seed the initial growth: In certain cases you can actually not fake user growth – there are physical and tangibles parts that need to be present. Here it becomes necessary to seed one side of the marketplace to attract the other. Uber’s competitor Lyft practised this technique while starting up. The shared economy taxi service depends on peer-to-peer supply of drivers and passengers. However initially while it was aiming for user (passenger) growth, there were not enough drivers to assure on time availability of rides. Hence Lyft hired its own drivers to jumpstart the process till the point where more drivers started on-boarding on their own.

In fact, while the context here is about online businesses, in reality even physical start-ups have employed these techniques. For example, shops & restaurants have tried to hire people who only pretend to shop or eat at the business place in order to give the perception of a running & in-demand business.

Again, these techniques are not free from moral dilemmas because you are in reality claiming to be something you’re not (however subtle that claim may be). However these growth hacks have been employed by companies from time to time to get over the problems of jumpstarting a marketplace business.

Follow us at gumroad to get prelaunch discount on our book. Click belowGrowth hack your way to startup success

Deepak
 

A bit of education, a byte of startups.

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