Brian Rothenberg - How To Build & Scale a Marketplace from $0 to Billions

I need some traction hi everyone I'm really excited to be here today I've been working on marketplace businesses for north of 13 years now from starting my own all the way through to Eventbrite current scale will do about three billion dollars in gross ticket sales this year so I've learned a lot along the way and excited to share some of those with you today so starting with some of the basics just to make sure we're all baselines on the same things here so two sided marketplaces have buyers and sellers and sellers bring with them the supply or the inventory that sits within the middle of the marketplace and the buyers bringing the demand and what happens in the middle is the transactions which is where there's liquidity and so for eBay products sit in the middle there are other verticals of marketplaces such as air B&B where spaces are transacted in between or Eventbrite where events are the transaction that happens in between and marketplace businesses are some of the most valuable businesses of all internet companies so if you look at this list very prestigious list there's a saying that money can't buy you happiness but if you look at this guy he looks pretty happy so I think we can maybe challenge that but the question that I have asked over time is well what makes marketplace business is so valuable and really the core answer is because they've achieved marketplace liquidity and my favorite qualitative definition of what that means is that liquidity is the reasonable expectation of selling something that you list or finding what you're looking for and this was defined by Simon Rothman a partner at Greylock partners and a notable marketplace expert and what liquidity brings with it are what are called cross side network effects so network effects are when the next new user brings more valuable value to all users and the distinction for cross side network effects is when the strength of one side has effects on the growth of the other so the classic example is as more sellers join a marketplace they provide more inventory that buyers then want to seek out and with more buyers coming to a platform to seek out those items more sellers want to come and list their items for sale and so on and so forth this virtuous cycle kicks in and has many positive benefits some of which being your cost of customer acquisition tends to go down the amount of revenue you can make per user tends to go up and your lock-in or retention goes up as well so they'd be kidding create very very defensible moats around marketplace businesses and my favorite summary around this is by James Courier a network effects guru who wrote the only feature that mattered was that everyone was there whoever gets the network effect first wins so now we're gonna spend a little bit of time talking about well how do I start a marketplace business and how do I ultimately gain that initial traction and what distinguishes those that do gain that traction versus those that don't so every marketplace has the initial startup challenge of the classic chicken-or-egg which side of the marketplace you start on do you start by building supply do you start by building demand how do you get one when you don't have any of the other and there are many different beliefs in this area and this might be a little bit controversial but my opinion is to always start with the supply side there will be people in this audience who have examples of people starting with demand and it can work I've just seen best results when you start with supply and one of the reasons I believe that is driving demand before you have supply is like driving people into an empty store and first experience really matters so if you drive people into a store they can't find what they're looking for they're likely to never come back and as other speakers have talked about the importance of having baseline retention you will have very very low retention which makes it hard to scale the demand side of the marketplace so in building out supply this sounds a little counterintuitive but you actually want to seek out inefficient fragments and markets that you can roll up so fragmentation plus high friction for supply sign up is actually a positive there's a saying that anything that's worth doing is hard and in this case it's true so if you are thinking about starting a marketplace business and you can easily find say a database online of a list of all of the supply that you'd like to pull into the marketplace it's too easy there's probably a reason it hasn't been done before so again look for those very fragmented example Zillow and Trulia being one in the real estate space so prior to them coming on board real estate listings were very fragmented they were in local markets all around the country they were owned the data was owned by different sources and Realtors were highly skeptical of these new entrants into the space but ultimately they were able to brute force their way through and achieve liquidity so next we're going to talk about some strategies and tactics that I found to be successful in growing supply and demand one of my favorites of which I call the Trojan horse strategy which is kind of a backdoor into building a marketplace and the way it's done is first you build a product that serves your target supply customer and it can work as a standalone without having any demand and then once you have that product once you've rolled up that supply you can later drive the demand to start the flywheel and I'll go through a couple examples next but one of the things that I love about this is if you can monetize the transactions happening on the supply side it can actually help to bootstrap the marketplace help to fund as you work to layer on demand later so the example here for Eventbrite the first eight years or so the company's life was really focused on creating ticketing software self-service ticketing software to capture the long tail of events and as they built out as we built out critical mass of supply the right density within each local area within each category that we care about for event discovery we've put in a lot more effort to drive the demand side and help to create that that flywheel of marketplace growth but again we monetize for years by taking a small transaction fee of all of the ticket sales that came through on the supply side frequently a novel approach or some kind of hack can help to roll up the supply side so this is a startup that I found it in the local services space and what we did at the time this was about 2009 we crawled the web classifieds listing so a lot of independent service professionals didn't have a website yet they weren't on Yelp they didn't have their own website but they were posting frequently to Craigslist and other temporary classified sites we crawl the web we use technology to structure the data categorize them by vertical and then we use Amazon Mechanical Turk to help to answer questions like well what area do they work in and how much do they charge per hour and what are their specialties and we built their first web sites publish them to the web and invited them to claim to augment their information it was a highly effective way to start to roll up the supply-side but it hadn't been done before I will say well that we took a tech driven approach the most scalable tech driven approach doesn't always win so we sold our business to TaskRabbit and it was a pretty good outcome but thumbtack is now a billion dollar plus valuation company and their approach to building up the supply-side and local services was to crawl the web as well but they built out a 300 person team in the Philippines to actually manually email a lot of these service providers invite them on the platform engage in a dialogue if those service pros had any questions and ultimately I would say their approach in the long run was much more successful so Reid Hoffman founder of LinkedIn once said the only way to scale is to do things that don't scale and I think that sometimes true especially in building marketplaces additionally timing and a story that people want to hear can go a very long way so when I was at TaskRabbit it was started in about 2008 this was the depths of the Great Recession globally the headlines were like the worst crisis since the 30s and the story of TaskRabbit coming to fruition helping people get back on their feet find odd jobs make money on the side it really really resonated and it was picked up by press and the company leaned into that it was just working really well and then the company drafted on the whole notion of the sharing economy and the result of that was well it only launched in a select number of markets just to start a select number of geographies people expressed interest from all over the country and all over the world and so there were a long list of people who had signed up to be the supply side or provide the labor in each city even pre-launch and so the company was never supply constrained and so really the takeaway for me is there are many different approaches you just have to find out what works for your business right now and next we're gonna go into a few of the other tactics that I've learned around scaling marketplace businesses starting with I've found that it's very very important to track satisfaction and Net Promoter scores for both the supply and demand and not to co-mingle the to look at the scores on both sides of the marketplace and how you apply that is you can actually borrow goodwill from one side of the marketplace and apply it to the other so say you are more demand constrained in the marketplace than supply and say your supply has a higher score satisfaction scores than the demand you can do things to actually shift some of that demand in favor of the more constrained side and I'll walk you through an example at TaskRabbit so TaskRabbit started its first business model was a lightly managed bidded marketplace consumers could come to the site post tasks that they need done the task rabbits could choose which tasks they they wanted to complete say the price they were willing to do it and it was all very loosely managed the benefit of this was that on the supply side the tasker's the people doing the tasks loved it they loved the flexibility they loved that they could bid on any job they wanted regardless of frankly whether they were totally qualified to do so they could charge any price that they want and NPS scores on this side of the market was they were extremely high consumers loved it too but they only loved it when they actually made a match when they were actually going to be connected with somebody who could do their job and do it really well and so there was high consumer demands at NPS when matched but that matter it was less than a hundred percent and we found that there was a lot of friction in the model people were questioning will this job actually get fulfilled will anybody bid on this will they be qualified to do so am I paying too much or too little and so one of the last things that I did before leaving to go to Eventbrite is I wrote the operating model for the pivot that event event ask rabbit eventually went through which is no bidding tighter matching of skills and supply hourly rates instead of one lump see for one lump fee for each task and we were convinced this was going to set the company on the right path when the pivot launched the this is a headline from TechCrunch with your your logo in flames that's definitely not what you want to see it doesn't feel good but as most big changes in a company for one people were passionate about the service and they were expressing their feeling of loss about the old model but also these things tend to pass and what we found is that well the people complaining were these active tasks rabbits who like the old model what ultimately happened was the demand side that I talked about they were much happier with the new model and so they solved the core demand side pain points it shifted that surplus goodwill from the supply to the demand side and ultimately growth for the overall business reaccelerating which was very very positive for them another tactic in marketplace that I love is getting your customers which is typically the supply side to promote your brand which can be worth more than a thousand marketing campaigns I'm sure many of you have seen these the famous Yelp stickers about people love us on Yelp instant carts branded grocery bags tasks rabbits logoed shirts etc this is great offline evangelism of a brand and if you can build that into how the service works even better there are also online examples so here you have Eventbrite s' ticket widget embedded in third-party sites you have open tables reservation widget embedded in others if you can use vanity like the thumbtack examples here saying hey I'm a top service professional that vanity can go a long way in getting people to evangelize your brand which again is extremely powerful and one of the last tips is looking for organic overlap between buyers and sellers in a marketplace can be incredibly powerful it's not something that I found you can start if it's not happening already but if it is happening organically there are ways to lean into that so here's the example for Eventbrite we work to acquire event organizers those event organizers bring events to the platform and they market those events to attendees like all of you and attendees come in and transact in the middle Eventbrite also acquires attendees people to find new events and purchase tickets at the current scale of Eventbrite we'll have 65 million active ticket buyers this year if you can find ways to tweak that conversion rate from first learning about Eventbrite as a ticket buyer to ultimately thinking about Eventbrite first and using the service when they have an event in the future we found that small percentage games result in huge growth on both sides of the marketplace so again look for that happening organically and lean into it and find ways to evangelize it throughout your service here's an Airbnb example so other companies have this dynamic as well it's a screen grab that I grabbed a while ago but they have obviously been a be testing and working to drive up that conversion rate too so again many approaches the only right one is what works for you right now and we're going to bring this all home very quickly so marketplaces aren't necessarily winner-take-all but generally our winner take most those cross side Network effects are incredibly powerful and typically they're one maybe two players that emerge in a given category as the marketplace winners winning really means that network effects are kicking in and so ultimately liquidity is the only thing that matters and the first one there wins thank you [Music] [Applause] [Music] I need some traction you need some traction let's get some traction [Music]

Channel: Traction - A Community for Innovators

Views: 63,162

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Length: 14min 54sec (894 seconds)

Published: Wed Dec 20 2017