How to kickstart and scale a marketplace business by Lenny Rachitsky

[Music] well hello thank you for having me thank you for coming Thank You Maria for bringing me to Miami I have never been to Miami before this is my first time and I don't get how you guys get anything done with this weather that you have very it's like this every day okay wait where did I put my clicker there it is okay okay well Who am I why am I here why are you guys listening to me my name is Lenny I was at Airbnb for seven years I worked on a lot of different things there conversion instant book supply growth marketplace quality super host before that I had a startup that I started in Montreal of all places and represent but I'm not Canadian a lot of people think I'm Canadian because I start a company in Montreal but not Canadian so we sold the company at Airbnb I joined 2012 before that I was an engineer engineer emanager software engineer my whole life and since I left air being there we go since I left there baby I did a lot of writing I started putting out things that I kind of learned at Airbnb in other places that I was working at and I put it out there a bunch of different platforms and eventually I started my own newsletter called Lenny's newsletter very creative and the stuff we're talking about today is all actually in that newsletter and so you don't have to actually take any notes you'll find everything there plus probably ten times more because we only have an hour so check that out there we go why are we here we're talking about growth specifically marketplace growth raise your hand if you work at a marketplace company or start at a marketplace company oh wow okay that's like maybe 30% of come people why the hell are the rest of you here I'm just joking as you would have guessed most of these lessons apply to any kind of company so this is just a lens into marketplaces and I'd say 50 percent is applicable to any kind of company around growth so the talk is gonna be broken up into two parts part one is cracking the chicken-and-egg problem and part two is scaling the marketplace where did all this come from so I left Airbnb and started writing about my learnings and I found a lot of people asking me a lot of questions about what Airbnb did right and what how they got to where they are today and so I started sharing my learnings and sharing wisdom and I have this feeling that it's it's dangerous to just rely on one company's experience in defining your strategy prioritizing things like that so I had this desire to learn what other marketplaces did and so I ended up interviewing founders and early growth people at 17 of the biggest marketplace companies about what worked for them and what emerged is essentially a playbook of how to kickstart and scale a marketplace business and so what I'm gonna share with you today is the tactics the learnings of strategies that all of these companies used that help them become as successful as they're a huge shout out to all these folks that helped contribute to this this would be nothing without all of the insights and learnings and and honestly the time that they gave to help me with this thing and the transparency that they had into like what actually worked is pretty inspiring and I was amazed and I think honestly a lot of the innovation that we see in tech in the technology industries comes from this culture of sharing and giving back and this is a really good example of that so he'd shout out to all these folks and you'll see a lot of quotes and stories from all these people so before we dive in three things I just want to cover just a little bit of a foundation what is the marketplace why our marketplace business is interesting and a few disclaimers so what is a marketplace business for the benefit of this presentation and the way I think about marketplace businesses there's essentially three three parts to a marketplace one is they connect to demand which are essentially people that want a thing with supply which are people that have that thing and it leads to financial transaction so examples of marketplace companies Airbnb connects travelers to people with homes Etsy connects people that make handcrafted goods to people that want to buy those things and TaskRabbit will connect people that have needs in their home to professionals that can help them like electricians to why or marketplace business is interesting wire investor is really excited about marketplaces and why do people want to start marketplace companies there's three reasons that have that I've kind of identified one is they have built-in network effects which are a really powerful moat and just a way to build a business and all that means is the more users you have in your business in the product the cheaper and better it becomes and so as people join it becomes easier and cheaper for everybody in in the in the service and then that leads to number two which is there were a strong barrier to entry it's hard to replicate a marketplace once you've got it up and running and then because they have no inventory and they're just connecting supply and demand and they don't have to buy all the supply they're really efficient really scalable and really flexible so for example thumbtack doesn't have to hire a million plumbers all around the world to scale globally they just find a million plumbers that already exist and then three disclaimers so one is kind of the foundation of all of these companies is that they actually had really good product market fit and they all the things I'm gonna talk about our ways to accelerate growth on top of that and to control growth but you're not gonna be able to follow step one two three and then have a billion dollar company it's important that you actually solve a problem for people that is important to them so that's just one two is these are all interviews on the past what happened for them in the past things change growth channels change and so don't assume that if you do what somebody did it's gonna work exactly the same way and then three this is all based on interviews and memory which we all know is faulty and so there may be flaws in this but I will say I did my best to triangulate everything that everyone shared with me across multiple people at a company and I looked at comparable companies to see if they were doing similar things and I feel really good about where all this landed and they stand behind all these things that we're gonna share today but I just wanted to point these out okay phase one cracking the chicken-and-egg problem why are we talking about chickens I thought we were talking about marketplaces so what is the chicken and egg problem if you're starting a marketplace a business this is often what it feels like so it's a start a marketplace you have to get a lot of things right you got to do a lot of things and get them all working for example you have to get supply and demand almost at the same time because without supply we demand come without demand why would supply Jordan for example say you're starting door - how do you convince user to download your app and check it every time they're hungry before you have any restaurants on the platform and how do you convince restaurants to change the way they do their ordering and train their staff and on board - your service before you actually have anybody that you're sending them so that's a classic challenge of a marketplace how do you get both sides working and it's called the chicken and egg problem which came first and how do you solve this problem so one of the more interesting takeaways from this research is essentially four steps that emerged from the research of how all of these marketplaces crack the chicken and egg problem and essentially but they all went through these four steps essentially in this order so I'm going to go through each of these steps are step 1 is constraining your marketplace let me see it the next slide ok yeah so constraining your marketplace is around creating the minimum viable marketplace kind of the smallest possible marketplace so that you can get it working and create a flywheel and figure out what the product is and there's two ways to constrain it there's a constraint around a geography and then there you can constrain it around a category and so how do you know which one to constrain your marketplace by it's pretty simple I find that if the service requires physical interaction if you have to like pick up food or get in a car or stay at home that's it you can constraint it geographically that way by focusing on one market if you can't do that then you can constrain it by category a couple examples with geography Airbnb started in New York and and with category Etsy started just with handcraft Goods and so I'll talk through a bunch more examples oops okay so here's how all of these companies essentially constrain their marketplace and there's one exception that's really interesting that we'll talk about but so one takeaway here is seventy percent of companies constrained their initial marketplace by geography and the rest by category and then thumbtack consistently is a weird one and they're always an exception and I'll talk about them and so we're gonna talk to you through a few examples so let's start with geography Rover they started in Seattle and as you can see they're hyper focused in Seattle and stayed in Seattle until they felt like they actually figured out what they were doing and it was a good city for them because Amazon is a big employer there and they're very dog friendly and so they saw it as a perfect City for figuring this problem out and and yeah and help them figure out what they were doing instacart similarly they figured out they picked markets where they expected a lot of demand specifically say Chicago in the winter nobody wants to go outside to buy groceries and so they started in those markets and that was where they picked to go first and an open table found that to get a market working they needed fifty to a hundred restaurants in a concentrated area for it to be a market that's working and so they focused on one initial city got to that and then moved on to the next city so that's a geography and then a few examples of category Eventbrite focused on just tech events and mixers initially and TaskRabbit focused on handyman tasks and housecleaning and and moving moving help and honestly behind the scenes on this quote is they actually wish they actually focused more they actually were still a little too broad and what other learnings is we should have focused even more and eventually I think they pivoted to just I think furniture IKEA furniture assembly and then they got Bob IKEA and then this last example thumbtack super interesting so they kind of realized and they kind of realized that because of their specific type of business they thought that they had to go white both on category and geography because how often do you need a plumber and how often do you need an electrician and their feeling was to get people using this product over and over and over we need all the different services that you ever need and let's just go nationally while we're at it and it took them four or five years I think to crack the problem and to actually get to a working marketplace so they it worked out for them but I think honestly they probably would have been a lot more successful if they started with a geographic constraint maybe a few category constraints but but it worked out they brute force did is the way they described it okay so that's constrained so you figure out how to constrain your marketplace step one step two is you figure out how to you figure out which side of the marketplace to focus on so I skipped ahead a little bit here but essentially you decide to I focus on supply or do you focus on demand and a hundred percent of companies picked one or the other so that's alerting and as you can see eighty percent of companies focused on supply so I take away there is most likely you're gonna want to focus on supply initially when you're building a marketplace so a few examples lift supply growth no question was an unlock for them and they knew this from the beginning door - they essentially looked at how companies like you them start and it always starts with restaurants and getting more supply because they drive demand and so they focused on supply and then thumbtack looked at all of the biggest marketplace companies out there so they looked at Amazon and eBay and Craigslist and their takeaway was what are they doing consistently across the three and they found one they had all the supply and two they didn't really care about brand or product and so they realized let's just focus on getting all the supply and we can come back to the product later and that's what they did and it worked out on the demand side there's only three companies in the ones I talked to that found that demand was the constraint and they all very unique Rover found that they had no problem with supply and and if you look at their value prop which they talked about here it's a pretty cool value prop 50 bucks have a dog over for one night anytime you want you decide if you want them or not so it's a compelling value proposition and meaningful money and its really flexible and so they had I'm getting supply and zillow as another example they bootstrap their supply off existing data that existed around homes so they didn't have to convince anyone to sign up they just kind of had it from the beginning and then they built their estimates on top of that and then they got people to list their homes on Zillow later so they focused on demand a really interesting example and story that came out of this as patreon who realized that they're not actually a marketplace as they were building both sides of the marketplace they kind of realized that they're better off just being a SAS tool for their creators and what they did is they took the demand side off their roadmap and it ended up being a huge win for their company and so that's just something to think about as as much as you want to be a marketplace and as much as your supply wants you to drive them more demand you may not have a problem that you're solving for the demand side and so you may not actually be a marketplace in the end so it's something to think about so oK we've constrained the marketplace we've picked which side of the marketplace to work on probably supply so the next step is you drive supply and demand so let's talk about how to drive supply okay so these are the twelve most common growth levers that all of these companies used across supply growth and I hit that first three can anyone guess what some of the top three initial supply growth levers might be just shout it out SEO what was that referral nope look it's it's further down okay okay that's very clean that's essentially right social media what was that digital marketing I bundle that under performance monitor marketing which very low sharing codes it's like referrals so nope weirdo okay that's good guess what was that thick Oh fake mmm interesting okay so that I get that under subsidizing supply a little bit but this is this like Schley to shiny in my face I can't see everyone but that gentleman guess the number one which I labeled direct sales so Dirk sales was the biggest lever by far across all these companies which surprised me I thought I was gonna be like forints marketing or SEO or viral loops and it turned out it's just sales and so 60% of companies use sales as their primary growth lever a couple other interesting learnings here we're gonna talk about all these in a couple examples but let's see so single player mode stood out to me that's something I don't know if you guys have heard of what this is I'll talk about it a little bit but I thought it was gonna be a lot more common this idea of building a single player mode for the supply side I was also surprised performance marketing and SEO was really low on this spectrum for supply growth and it changes on the demand side and changes later when we talk about scaling but but I thought that was really interesting so I'm gonna go through a few examples of these so dark sales tan of the 17 companies relied on direct sales to kick-start their supply growth Airbnb which you wouldn't think it was a direct sales driven company initially was very direct sales driven as I quote from an international expansion a guy named Georg and an open table they kind of walked around restaurant to restaurant with their servers under their arm walked into restaurants pitched him on their product and and set it up for them so that's direct sales so piggybacking what this is is essentially piggybacking off of an existing platform or network that people already using for solving that problem so in this case it's essentially always Craigslist is what I find everyone's just piggybacking off of Craigslist poor Craigslist all these companies being built on their back so uber as you can see when go straight to Craigslist to get their drivers Airbnb allegedly not confirmed before my time solicited people on Craigslist that were renting their home and got them to switch they're being beat I wasn't there for them the third most common lever is referrals something I worked on an air B&B and I love a referral a good referrals program and so it was the third most common lever across all these companies to drive early supply and so lift double digits of their supply came from referrals uber a third of their trips and caviar is a big lever someone said word-of-mouth so where to mouth was the fourth most common way that people heard about supply so open table restaurants I started restaurants talk to each other so is a really powerful kind of viral loop across the restaurants at a market Eventbrite 36 percent of their supply came from word of mouth and then patreon creators follow creators so whatever the other people are doing people end up doing and then a few more subsidizing supply that's kind of what that gentleman mentioned and so lyft and uber both did this they pay drivers initially to be supply and they just paid him a salary and that was a good way to bootstrap supply and then breather made their rooms really nice I don't know if you guys know breather it's a meetings on demand kind of startup and then single player mode so single player mode is a really cool tactic that I was actually surprised more people didn't do and what it means is you build so the marketplace you need both supply and demand what if you could build a tool just for one side of the marketplace before the other side is there and that's called single player mode so it open table did is they just built an amazing reservation system for restaurants that they just used to book tables without anything else without any demand coming at them and with that they got a bunch of restaurants on board and then they were able to drive demand to those restaurants and so initially their sales pitch was 90 percent reservation system 10 percent we're gonna drive you demand and then it slowly switched to mostly demand driving and then again performance monarch marketing very only used by Brent lift across all these 17 companies early on for supply and then SEO only event used it as an effective lever early on so super interesting I thought another interesting takeaway is so there's 12 levers that came out of this research the average number that each individual company used was only two and a half and the median was two so I take away there is that even though there are many ways to grow supply probably there's going to be just a few that work for you and so learning there is don't try to do them all just pick the ones that seem to be working and double down on those because it's unlikely you're gonna find a ton of option things that are working really well for you so don't just do all these twelve and and assume it's gonna work out great okay so we can strain the marketplace we picked which site to work on we have supply working at some point you have to get to driving demand and so again here are the twelve most common levers that companies used don't take a picture of this one because I'm gonna give you the answers and it's gonna be a lot more useful okay who can guess one of the top three and the first ones tricky shout it out subsidies okay what was it any other guesses free trial okay network effects I put that under loops actually in bed so it's in there social media for you funny that's just PayPal and piggyback off of them hmm you might be you might be right okay not not one of the top three but that's a good idea PR gap ster nope but good guess so the answers are where to mouth is by far the biggest driver of growth for all of these companies which is really amazing and to me that just reaffirms how important product market fit is that that drives a lot of product marketing a lot of order mouths so we're - mouths - is a really interesting tactic that I hadn't even thought about which is supply driving demand and I'll talk about what that means and then SEO so unlike on the supply side SEO is actually a really big lever on the demand side and then let's see what else is interesting here so PR somebody said PR surprisingly very common the fifth most common lever for and for a number of companies was the number one lever and then loops is really interesting we're gonna talk about that sort of mouth lift the pink mustache was a really important lever for them to drive a lot of word of mouth open table as they say here it started with the word of mouth and then Airbnb so I joined a 2012 and I think in 2014 we finally measured where growth is coming from and the learning was that 50% of growth was coming from word of mouth and so we all thought we're doing amazing everything's going great and it turns out it's just like people are talking about it and that's how we're growing and on the host side of 70% so that was pretty cool so that's word of mouth so supply driving demand this is really interesting this essentially means that your own supply brings the demand to the marketplace so for example a door - they get a restaurant onboard then they start marketing hey download door - to order food delivery and people download door - and and they order from other restaurants and this worked for seven of the companies that I talk to you and so if you can pull this off it's a really incredible growth lever because they do all the work for you similarly Etsy their market or their sellers drove demand Eventbrite same thing you created demand sorry you created an event can't like this event you sign up for Eventbrite and then you send it to all these people and that drives people to Eventbrite and then they check out what else is happening so that's a really empower 'fl ever if you can get that SEO again unlike on the supply side it was really popular on the demand side seven of the seventeen companies I talked to this is a funny story the founder of thumbtack was sitting at a bar set next to this guy that happened to be a world expert at SEO and the founders like what's SEO and he told them and he ended up joining their board and helping them figure out SEO and now it's it was 80 to 90 percent of the growth so maybe go out to some bars yeah let's go after and GrubHub similarly 30 percent of their new users came from SEO is their number one lever quote by Casey winners who I know was at one of these events not long ago performance marketing unlike again on the supply side it was actually really powerful and debate on the demand side and so Bri third and I just used this quote because it was really interesting Julian the founder found a way to kind of hack Twitter ads by instead of using them to drive followers and retweets he used his own personal account or it's like his face and just Julian and he's ad was hey we're lunching in New York messaged me if you want to check it out and he got thousands of people messaging him and he just manually on-boarded them all and walked them through the seven step funnel that he kind of concocted on his own and Twitter ended up calling him into their office because the ad was performing so well because he was getting all these DMS and the an Ian ended up costing him only a penny per click because it was converting so well because they never thought of using it this way and so that was kind of what a hockey stick to grow both for them so kind of a reminder to think outside the box PR important for six of the companies and these two are actually these two were essentially relied on PR is their number one growth channel TaskRabbit and Zillow and loops are somebody mentioned kind of viral kind of sharing as a tactic and that's what this is and so what you want to what you want to create here is a way to kind of get supply to drive demand to drive supply to drive demand and so it grew up how by getting Casey built this loop where they get all these menus they convert traffic to book at the restaurant then they go to the restaurant hey we're getting all this traffic you should sign up and then they sign up and then they get more demands so that's effective for a number of these companies okay so that's the four steps constrain concentrate supply and demand there's a lot of inform there was a lot of information so I'm gonna give you a chance to rest your brain for a moment doesn't work what does that say there's gonna be a funny video it's okay we'll keep going get those brains working again no rest for the weary okay phase two so you've kickstart at the market place you've got a flywheel going you you feel like it's time to expand so the way that I structured phase 2 is around the four most common questions that I get from companies that are scaling and trying to grow so number one how do I know if I'm supply or demand constrained as I scale to is what works at scale so we talked about all these early growth levers but what actually works when you try to grow past the kind of the chicken in X stage three how do you maintain quality and for a question asked everybody if you did it again what would you do differently some of the most interesting stuff so we'll get to that okay how do you know if your supply or demand constrained so first of all what is being constrained on supply demand it essentially means which side is keeping you most from growing so if you added an additional batch of supplier demand which is gonna kickstart growth more which is keeping you from growing a lot of times if you add one side of the marketplace nothing happens because you already have enough of that you have enough restaurants or you have enough tasker's on TaskRabbit and there's no benefit and so it's important to know which side you should be concentrating on and here's how it broke out across the companies that I talked to you in their later stage and so forty percent found that they're always supply constrained so that's really easy they're always working on supply twenty percent found they're always demand constrain and then the rest were somewhere in between and that's the interesting one so I'll go through a few examples oh we supply constrained so door - similarly - initially they found that restaurants were the key later on they found the same exact thing anytime they looked at what is slowing growth and what'll help us grow faster it was always more restaurants more supply so they always focus on their uber Andrew Chen shared how they essentially didn't even think about supply or demand imbalance they always knew they had more cars they're gonna get more bookings and trips opentable same thing always demand constrained TaskRabbit essentially at a wait list of people that wanted to become tasker's and they started charging a fee to even become a Tasker because they had so much supply and so they knew that demand was their biggest issue and so the last bucket is the most interesting is when you don't know and it changes by category by market and so what happens is everybody builds a model or a heuristic or some kind of metric that tells them which side to focus on so a few examples GrubHub casey again they sorted all of their markets by two things what percentage of restaurants in the market say what percentage of restaurants in miami does grow up have online and then what / so many orders as each restaurant have orders per restaurant and they sorted that to find which restaurants are in the higher percentiles and focused on those markets to drive supply at thumbtack they took a different approach and they basically found that when you when a user has less than three results in their search they're looking for a plumber and they get one plumber in the market once they hit three results their happiness on NPS score goes up significantly and so they set a goal of just make sure we have at least three results in every search and that became their big ol' and then it our B&B there's a quote from me because nobody gave me this coat so I just wrote it this is this is how we thought about it so initially we focused on occupancy rate so for markets say Miami was at 70% occupancy but that meant that it was supply constrained that the rest of the stuff no one's gonna want a book anyway so that was a threshold we set and then we changed that and then we started looking at okay where does conversion drop in a market so in some markets once you're 50% occupancy conversion drops and that tells us that's a supply constrained threshold and so that became a goal per market and then now there's a very sophisticated model that tells us which is gonna drive more revenue and then there's just like a cool story how did surge pricing get invented at uber GM and you know Boston was having trouble getting cars at 3 3 a.m. on a Friday and so he just likes sending emails to all the drivers and just we're gonna double your your payments if you drive at 3 a.m. and it worked really well and other jams copied it and then they knit a bill to get into the product ok number two what levers worked at scale so this is how it broke out a couple interesting takeaways just looking at this high level there's a lot less levers that people use and where this comes from is you know initially do things that don't scale but eventually you got to scale the things you're doing and not everything's gonna scale and so that reduces though the lab the channels that you can use to grow supply also performance marketing number one at this point so eventually everybody essentially gets into performance marketing that was super interesting to me let's just go through each of these oops that rocket Suburbans marketing a new per 50 percent of their growth comes from performance marketing now and in Zillow added it later in their history and became a huge lever by the way one caveat I'll go back one this is a combination of supply and demand I kind of combined them just to keep this simple and not turn this into three hours of of talking so just keep that in mind so too is expanding geographically this wasn't a lever early on because you start in one market but it turns out once you're scaling expanding geographically is a really big way to grow so it instacart is one of their main levers that grow up it was when they were top two or three levers when they wanted to grow three converging just optimizing the funnel making it easier to use your product so that's a they removed a lot of friction early on and then it was a big focus of theirs and that made a lot of impact what's interesting here is that how many companies that wasn't a huge lever at you think conversion would be a huge opportunity to every sorta company but it turns out it wasn't for SEO it was open table came to it late it was a big it was a big success for them once they got to and a lot of companies came to a lot of these levers late but once they got to it it worked out so that's a take aways you don't have to do all these things initially you can kind of keep things in your back pocket and get to them later referrals the sixth most common lever as company scale another quote by me it was a big part of our both supply and demand growth that are being be 10 to 15 percent and similarly 15 percent and then just a fun quote from Gokul at caviar that there's a sense there's gonna be like one silver bullet that does everything and you win and you up into the right and you're unicorn but in reality a lot of these cases there are a lot of light bullets just regular and just keep shooting keep shooting and you'll things start to add up don't shoot anyone okay three how do I maintain quality so this is something that I care a lot about because I worked on quality there beat me for a long time and so I was really curious how folks maintain the quality of their marketplace as you scale it becomes really hard so so these are the tactics and strategies that folks use to grow to maintain quality I'll just go through a couple of them the most common is essentially just setting a standard of quality and kicking people off or warning them if they're falling below that so a classic example Hoover if you're below a certain percent star rating you get kicked off second the second most common we did this at Airbnb for sure is just onboard your initial supply and kind of get them aware of what the hell you're doing and walk them through a talk them through it and so the early folks that are being B had a 12-point checklist that they used that told people what your photo should look like how to set your price how your description should look and help them become successful early on and companies like door - and caviar still do it as far as I understand they still walk restaurants do everything I skipped a few and all I'll just show list of all the rest I'm skipping but search ranking is really interesting lever for quality as you can see Rover kind of looked at it as a way to control everything that's happening in the business and the way you use this you essentially demote low quality stuff and promote high quality stuff and that leads to the high quality stuff getting booked so search ranking is really interesting Liberty's a really fun story here is you can find early signals of supply of quality and takes time to figure this out so an example TaskRabbit gave their supply kind of a mini myers-briggs test to figure out their personality type and then correlated in certain personality types to being successful on TaskRabbit and when they came on board they helped them they focused on those folks more and another example Rover they found a question that they could ask in their flow that if they answered a certain way they're more likely to be a great dog walker and the question is where does the dog sleep at night and if you answer in my bed that tells you that they're gonna be a really good dog dog walker slash dog border amazing yep it's not for everyone and then just like a really fun quote from door - who knew that uh french fries and buffalo wings are this kind of white whale in the food delivery business getting them hot and crispy very hard turns out and then the last part asked everybody what would you do differently if you could do this all over again and the number one takeaway was everybody wished that they'd focused more this is just one example of that breather had this feeling they want it to be a lot of things they wanted to build this big consumer brand and do a lot of things for but in the end they realize they're just like an on-demand meeting company and their learning was we should have just realized that early on and just focused on that more to is to be more aggressive this came up a lot a set quote from GrubHub is you think that all these food companies are ready spending a lot of money but his regret is we should have spent more because they could have done a little better this is a great story around thinking longer term so opentable had this restriction on their app initially where you had to be an open table restaurant to show up in the app because they wanted to use that as a carrot to use open table but it turned out Yelp won the demand side of that because they had everything and so if they didn't if they thought of ahead if they realized a we should be the app everyone goes to you for everything and not just the things that are on the that we have on the back end they could have been like the go-to app for going out and so looking back at that was kind of a strategic decision they may have worked with them in the but there's a learning about just leveraging data sooner this is a lesson for us all they had most of their company at Etsy apparently working on a part of the product that drove like 700 bookings a day and then they had like a few people working on the part of the product that drove a hundred thousand bookings a day and part of this is I don't think they knew what was going on there and they didn't look at their data as much as they should have and so they missed a huge opportunity and then fun story here is just lived sharing a story about how they wish that they had more empathy for their drivers I think they kind of pushed them to do things that were important to the end into the business and to help them understand why they're doing certain things from a customer perspective and so that's something that came out from lift and then Rover shared this story were they so this Rover started as a dog boarding company and then there's always this idea of hey we should do dog walking what if we do dog walking and they always kind of push that off let's get to that later let's get to that later and then why I came around and wag is doing really great and so they kind of missed the opportunity to be what Dubai I guess today and said they regret not getting into that earlier and I think the key here is that it's like the same customer base the same infrastructure and it was even better economics because it's like if more frequent you don't need to board your dog often but you can walk them a lot and so that was a big opportunity that they missed and there's a lot more you could check the newsletter for all these things because there's so many so summery days one crack the chicken air problem figure out a way to constrain the marketplace pick which site to focus on figure out how to drive supply and then figure how to drive demand and then face to figure out how to know if your supply constrained figure out which levers make sense for you as you scale maintain your quality and then don't make all these mistakes that all these guys made so next for this kind of body of work there's a phase three that all put out at some point which looks at kind of the evolution of market places specifically moving to manage market place where you have a lot more control over the supply it's a kind of a trend in market places there's a lot more in the newsletter so check that out and then I think we're going to move into QA that's it thank you [Applause] how should we do QA okay I'm gonna come to you with the mic cuz we were recording this so please wait and I'm in heels so give me some space some time any questions hi I'm Jacqueline hello a lot of stuff on my lap so I'm not gonna stand up that was a lot of strategy and it's great thank you so much one thing I'm wondering is can you tell me anything about who you told us a lot about what but who are gonna do who are the people that are gonna do these things like who do I want on my team that could be titles or that could be skillsets I what I what I think about on all these questions is just is there anything different from a regular startup in a marketplace and honestly I don't think there's anything different you would do to start a marketplace company from just a general company tech company so I guess to think about it broadly you know it always starts with the founders I [Music] guess a few questions you could ask in I don't know if there's anything specific you're thinking about is like do you need a growth person do you need a product manager what kind of functions you need so I'd say the way I think about startups is everyone's a growth person there doesn't make sense such as hire like a person that's doing growth early on at least so my advice is don't just hire a growth person and then there maybe the question is I don't know if you were asking about product managers that comes up often it's like when do you hire your first product manager and I guess the way I think about it is one it's once the founders just don't have time to do the product part of it of the business and they need someone else to take that on so that they can work on other things is there anything specific you're thinking about in terms of roles well especially so right now it's just me pretty much and I'm wondering who to bring on and you know is it does it make sense to have like a CIO and a marketing manager you know do regardless of what roles that they do like there's gonna be a lot of overlap but who are the first skill sets to go in a start-up yeah focus on people that get like actually do concrete deliver product things like engineers or designers or sometimes data scientists that's what that's what I would definitely focus on is just people they can like create the thing so that you could learn what you should be building and iterate quickly on it versus like outsourcing to engineering or something like that so avoid like up top-heavy a bunch of strategy folk that consider and and think and strategize and just want people that get stuff done thank you Thanks several questions are in when AJ Nate here but the biggest question on my mind right now is related to the growth question I mean all these companies the 17 companies that you interview they're you know they're virtually household names at least household for this crowd so my question is you guys what is your what would you say is your upper bound of marketplace growth for supply and demand constrained startups when it comes to being and remaining a net good for the communities they serve so for exist for instance uber has been in the media a lot getting a lot of PR lately and not necessarily for the good things you know they were seen right now as being so big that they're exploiting their workers so you know I mean ultimately we're not all trying to buy the moon we're not Jeff Bezos so when do you stop growing and just maintain a focus on the people that you're serving specially company it interacts with you know human beings that's their supply side yeah I'd say just living in a capitalist environment companies are almost pushed to grow especially if they want to be a public company and so I think it's challenging to build a company and then kind of stop thinking about growth it's just kind of pushed upon you and I don't know if any companies that just kind of like okay we're done growing let's just stay where we're at I don't know if that works and just like the system that were in the economic system just yeah but I think I think that connects adjust like if you don't have a future where you're gonna grow you you basically start to fail that's just like I think the way works like there's not a world in in the public markets where just like the guy we're good and we're not gonna grow anymore we're just gonna keep the way things are so I think maybe the way to think about is a lot of these companies have to like do crazy stuff to get to a certain point and then there try to address all the issues that they've all the problems they've caused which ideally they don't cause all those problems and from the beginning but I think honestly that it all comes from like the pressure that they get from the public and governments and cities and so you almost have to force them to do the things that are necessary it's not going to come innately in a lot of cases that's that is one way to solve that problem yeah absolutely yeah because there's there's a there's a pressure that comes along with that yeah yeah yeah well thank you for the presentation it's been great I was actually going to ask you when do you think it's a good time to raise capital for this type of business if there is any difference when compared to other type of startups and which do you think are fair valuation metrics for a marketplaces startup so a question around when is the good time to raise capital I think similar to other startups there's kind of like the idea stage when you just have a cool idea that could inspire people to what it could be with a strong team that's one way to that's one great time just raise capital early on and then once you have our product you want to actually you need to show that there's some traction that it's working and so you don't if you've missed kind of the idea phase you want to get to a place where you're showing some there's a reason to believe this is gonna work and so in a market place the metrics that you want to look at often are one of them is what people call fill rate which is the percentage of people that come to your site that ended up having a successful time and that's a sign that their marketplace is starting to work so that's a milestone in a marketplace is when you show some level of liquidity that's actually working and then I forget what the other part of the question okay hi um thank you for all that that was incredibly informative so building on these two questions marketplace obviously it's the chicken of the I guess you've shown us so it seems like it would take double the amount of money to sort of get it to a place which means that you're gonna run out of money twice as fast so the funding situation how do you actually get to having enough money to get it to where you have enough money and without it like if you go out and get funding do you need distraction do you need revenue do you need to be revenue positive like what like you mean yeah I wouldn't say it takes double the money because if you think back to the second step of cracking the chicken egg a lot of it is you concentrate on one side so you don't actually have to build both sides at the same time especially if one side drives the other side so it's not necessarily gonna be so much more money but in terms of like what investors want to see in a marketplace I think it's just there's needs to be a reason to believe this is gonna work and that you can you have some concept of cracking this problem and there's a few ways to do it one is kind of this fill rate what percentage of people coming actually end up getting booked now there's a lot of time is just like qualitative examples of this thing doing something really interesting it reminds me there's two things other people are two things people look for in a marketplace is frequency of use and the dollar amount that they're spending and so you've been just coming up with an idea of a marketplace that has high frequency of use and it's a high dollar amount even if it's just high frequency of use and it's not a huge dollar amount that's often a really good opportunity in the marketplace even just pointing to this like here's a big problem that we can solve and really if you think about marketplaces really they're just like any other business that are solving a problem and the marketplace is a way to solve it in essentially a cheaper way and so in the end it always just comes back to are you solving a problem for people are you solving it in a way that you can build a business on top of and if you can investors don't be excited about that or any of the companies that you showed us self-funded yeah I think I think a few of them were probably started bootstrapped and then they all raised money so was in Shark Tank what I do know that I don't know allegedly uber was on Shark Tank okay I remember that so I have this little cheat sheet here that I'm just gonna look at to see if anyone was bootstrapped real quick I know thumbtack had a lot of trouble raising money for a long time but I know they raise from Jason Calacanis at some point so they weren't that early yeah I think I think maybe AngelList but it's pretty rare I don't know these are all juggernauts and so I don't know if they're the best examples of boyscout right that's right yeah that's right yeah they had to pay the rent but then they got into YC yeah so I think yeah that's right what their serial hi I'm an average Lu so I have a show called analytical beat it's about tech startup intrapreneurship and social digital media in South Florida and we've talked a little bit about well quite a bit about social ventures here in Miami and I just want to point out maybe that's the kind of solution that we would try to strive for marketplaces to grow with different measurements of girls not just a kind of my economical measurements right so if your marketplace maybe addresses another issue it's creating another way to measure impact right yeah like in the end it has to make money for it to be a business but there's a company I'm advising called Ren that is a with a W and they connect regular folks that want to offset their carbon footprint and so they calculate your carbon footprint and then they connect you to a project that offsets that carbon and it's kind of tapping into I think a little bit of that so outside from that I wanted to point out I am assuming you included I'm not when you say word of mouth right I don't know how conventional that is like am I talking about word of mouth have like me talking to another person or me talking to another person online which is probably more common and in that sense I was wondering how you address the word of mouth phenomenom of social media because honestly that's essentially what it is but I didn't see it portrayed in any significant manner and any of the data you're presenting where the mouth is just you hear about a product through somebody else like wherever you see it you could see on Facebook you could see it on Twitter in person it's just like not being and not getting an ad not getting talk to you about it by the company that's kind of the broad spectrum of word-of-mouth I guess what I'm trying to say is specifically for social medias impact on the growth of these companies do you have any specific data you can share so it's a social media the way I see it as it breaks up into performance marketing Facebook Google Ads and people just posting things on Facebook and Twitter and so I think there's probably a segment of the word of mouth that comes from just people seeing things on Twitter and Facebook and nobody's highlighted that that was like where they got most of their growth I think it's kind of a combination of all the ways that people hear about stuff yeah I just found it curious that SEO was different than performance marketing which I thought what's the thing but either way like I imagine that at the time that these companies were growing social media wouldn't have the impact that it would have on a company starting today yeah yeah I think a lot of these relied on social media in a lot of different ways okay thank you you're welcome hi living thank you so much for sharing tons of value right there on that presentation I took pictures of everything as you're previewing but quick question as part of your research do you do you ask about how big of a pilot this companies run as their as they were on their journey to search for product market fit what's it like for instance you one of the the slideshow GrubHub was you know driving the man and then they went to customers to two restaurants right did they have a thousand users five thousand users a million users like when was that tipping point that they say hey you know we have enough of one side that we can attract the other I see so like when do you decide you have enough of a have one side that's a really good question I I think it just taps into this question of when do you know you have product market fit which essentially one tells you when when you should scale I guess there's two parts to it there's like getting to prior to market fit and then there's like how much supply do you need before you ready for demand I think the way I think about that is once you see the kind of the flywheel start to work so when you bring on demand so say it's like we're a pub how many restaurants do you need on GrubHub for it to be useful I think you look at just kind of qualitative signals of the demand coming in trying to use it and is there a point at which it starts to kind of take off where they book more often the kind of there's inflection point or they share good feedback or there's an NPS score bump so I think it depends a lot on the type of company and the type of business like how many restaurants do you need versus how many homes do you need in a market versus how many tasker's do you need so I think the answer is you just look for some change in the behavior of the demand side and like OpenTable is a good example they found that 50 to 100 restaurants in a market things change it becomes effective so I think it's only the kind of thing you have to do and then you start to see something shift that's useful thank you for the presentation it was great thank you when a company has developed a product / marketplace but what is the flag or metric that reflects a company is ready to diversify into similar services that they may offer say do they have to wait into after their drug Africa restricted or they stay white implemented so I think there's there's like expanding to other services which to me is starting like a new business line is that you mean by that or is it more scaling up and for example rover expanding a dog-walking excited yeah my my understanding and looking at all the companies that I've talked to it usually you want to wait a long time to get into a whole new business line because there's so much to do to get it right and to build a really big business of any kind and so if you start to distract yourself and start to do something completely different it's usually a terrible idea and Airbnb went through this process actually when I was joining they there's all this pressure on them to get into like air baby for dogs and Airbnb for boats and are being be four-tenths and all these things and the founders kind of huddled and they kind of realized that there's so much depth in the travel industry still and there's so many things they could make better in travel and the way they approach that is they hired a storyboard artist from Pixar that came on taeyeon as a full-time employee and drew the key frames of a guest and a host journey on Airbnb kind of like a story like a movie and it kind of pointed at all these key moments that we need to get better at to make our baby itself amazing and that there's like years of work left to do just to make that better and that kind of showed everyone there isn't we're not ready for anything else so I think the wag the rover examples my take is it's kind of a rare example where they look at is like hey we should have done that early on I'd say in the general case you don't want to do that because it's very hard to get any kind of business operating and the way there's this kind of concept of layers layers on the cake which is as you build a business it grows and grows and then eventually plateaus and what you want to do is find another business you lying on that all of a sudden starts to grow again at a high rate and together they add up to a very high growth rate for the broader business but that often comes later down the line so my advice is you wait thank you for the presentation a lot of great info so marketplaces are inherently risky right so I was wondering if you knew if any of these companies at the beginning just kind of accepted the risk that of what they were doing or if they were doing anything beyond smart onboarding to actively address marketplace risk my take is a lot of the biggest companies wouldn't have happened if they knew how hard they were gonna be or how risky it was or how impossible what they're trying to do is so I think it was a combination of they had no idea how risky and challenging they're gonna be plus probably like okay let's just do this thing and figure it out as we go there's a quote from breather and Julian the founder that is learning about how to build the marketplaces you just do whatever you have to do to get it working just get on the street on board a thousand people over Twitter just just figure it out so that's that's kind of one takeaway I don't know if that was your question also on the liability side because you're using people that you can't really control beyond on boarding them in an intelligent way you can do background information and checks and you can do smart questions like where does the dog sleep but there's a certain part that you can never control so at Airbnb there's the quote about finally at one point they were gonna do a hundred thousand dollars of liability insurance and then they chose to do a million so at what point does that really become relevant because at the beginning you can't really afford the million dollars of insurance right yeah that's right yeah that story is there there was an incident at our B&B where someone's apartment got trash is the first time that it happened and there's like a trending on Twitter our IP our B&B it's over and I wasn't gonna use it again and the team and this happened right before I joined left over in the office for two weeks launching 80 different features to help make it a lot safer to use Airbnb including the insurance policy and they were about to launch it I think with a I think was maybe ten thousand dollars and then Marc Andreessen came to the office just to check in on how things were gone and he's like got to add a zero to that and they're like what $100,000 and then they did that and it worked out great and then it's a million dollars now so I guess a couple things one is a lot of these businesses once they launch learned that people are generally good and that in most cases everything works out okay and there's a sliver of times that it doesn't and so you have to figure out how to solve those problems and at scale those numbers become bigger and that becomes a more challenging problem okay I think we have time for like two questions oh sorry I just had one quick thing that a trust is a huge part of marketplace businesses and I didn't cover any of that here and that's something I'm gonna spend time looking into more but just like building trust because you're interacting with a stranger it's a very crazy thing to do and so there's a lot of learnings or interests that I'd even talked about hi um my question is really quick what product market fit when you're trying to determine that for quintessential app or software service you I think right now the accepted norm is to you know if the app went away tomorrow would more than 40% of your users be upset about it now I guess with this two-sided marketplace situation do you have to do that on both sides to decide if you have program yeah yeah that's exactly right you gotta find two product market fits which is crazy so so I guess my follow-up question to that is what if you have product market spit on one side and not the other yeah what are you doing that's great question so that's patreon is a good example that they found a really amazing product for the supply side for the creators and then turned out demand didn't want this thing they didn't want to find creators to pay money to so one option is you just cut off that side and just do the other thing that's probably your best bet yeah the other option is try to change the value prop or change it's such that it's actually useful to people but it is that's a reason these are really hard hey thank you for the presentation my question is I would probably want to dive more in details to your Airbnb experience I want to correlate the theory in terms of like their story like I remember they had the they had like so much that in credit card and they almost want to give up and they I think they took this travel somewhere in New York I think and then they just spend time with one host and like get to know every host and they said right after that is just like what viral whatever so my question is it's easier said and done but my question is what was that bridge that flipped the switch like you know like I co-founded before like a startup related to like Airbnb at an slur we we did everything like we scraped the entire Craigslist to get all the listing with of the property managers and did some PR but never really sparked that traction and it went downhill after that so it's is it more of like the story or is it more of like the theories they're the concepts there but what really drives that traction that spark that went viral right after that if it's word of mouth I think that the answer is it's not any one thing it's always gonna be a combination of things that start to add up and and work so in the example of Airbnb they just like spend a lot of time in New York talking to hosts having meetups bringing them on board one by one taking photos of their homes and eventually it started to click and so it was like years there is I think a period of three years the first three years of Airbnb were just flat growth Joe one of the co-founders put this graph at his knee on his mirror every day of where they wanted to be by the end of that week and was just always very flat and then just started so the story started from the host and the word of mouth so they promoted their own what this thing's I guess I think it was a combination A's everything over there combination word-of-mouth they got some good PR with like their cereal box story if you know about that and then it was just like the cheapest way to travel and once people started to hear about it it was just a for check it out but a lot of that came from the other supply being there and then I think press driving demand to Airbnb and then started to spread the word of mouth again but it wasn't a spark it was just a bunch of LED bullets like we talked about okay really last question though thank you for this I think you presented on a lot of like famously large companies but also famously unprofitable given the subsidies the marketing the all of the promos that are required to build the marketplace and then the competition that ensues after that how do you build a moat or find that path to profitability well you had to you I think those are different questions ed he built a modem and like how do you build a real business that works so I think you're right a lot of these are too soon to say if they can make it money long term so that is a that is a big question and and so we'll see we could like look at this five years from now and be like that was all worthless this didn't actually work I shouldn't have done that but I think most likely they'll figure things out I think there's a lot of smart people there and they have a lot of a lot of incentive to crack this problem and then I think the other part is how to build a moat I think just being a marketplace creates a moat I think that's one answer because it's hard to like how do you compete with uber now they're just like in every market they have all the supply they have all this brand people have the app so that it natively makes it really hard so I think to build a moat you just build something people are using and then I think probably aggregating the supply first before anyone else is probably one of the more effective ways [Music] all right big round of applause for Lenny [Music]

Channel: Refresh Miami

Views: 34,703

Rating: 4.9389586 out of 5

Keywords: marketplaces, startups, tech, airbnb, uber, doordash, rover

Id: NwiIY3dZr1k

Length: 65min 51sec (3951 seconds)

Published: Thu Jan 09 2020