Solving the ‘Empty Room’ Problem in Marketplace Startups

Have you ever walked into a bar with some friends, and it’s completely empty? The kind of empty that feels awkward. It feels uncomfortable. You and your friends look at each other and chuckle as if to say, “Welp, we certainly aren’t staying here long.” Maybe you look around or even have one quick drink. But ultimately you leave, and you leave fast. And you probably won’t go back.

This ‘empty room’ problem is the exact issue marketplace startups MUST avoid in their first user experience (FUX). If they don’t figure that out, maybe they will collect email addresses and maybe they will get signups. But churn will be high. And the experience will be sour for those first users. It is hard to succeed in that kind of environment.

But this problem can be managed with thoughtful product decisions. Patience. And a few strategic moves. Here are some ideas on how to navigate the long journey towards growing a marketplace business.

1. Don’t ‘launch’ a marketplace business. In my opinion, this is the best strategy. Figuring out how to deliver value to one side of the market is a lot easier than figuring out how to deliver to both sides. You only need to figure out one customer, instead of two. You only need to build half the features. And once you grab the attention and trust of one side, you can start implementing your marketplace strategy (if it still makes sense).
2. Focus on the scarce side of the market (or who you know). If you can grab the attention of the scarce side of the market, you will be in a great position to shift to the marketplace model in the feature. (The caveat to this rule is that if you have an existing network, or have some competitive advantage at understanding the other side of the market, then you should start there). A great example of this is Cratejoy. I’ve watched them manage their business and their product wonderfully over the last few years. They started as a tool that made managing a subscription box business easier. Shipping. Packaging. Logistics. All the headaches of running that type of business. Once these subscription providers trusted Cratejoy, Cratejoy opened up their marketplace. Seeded with a network of trusted subscription providers, they were now poised to help those subscription businesses grow by helping them find new customers. And they were able to help customers find relevant subscription box services from a large existing network. That is masterful execution.
3. Deliver some value, before you are able to deliver your core value. Be creative. Often I see in marketplace product design a flow that looks something like: Sign Up > Index Page of Listings. The thought goes, we should deliver the core value right away in the experience. True. But from a FUX standpoint, that index page of listings will be in an empty state when the product is launched. So businesses must find a way to deliver some value during that first interaction. I love the story of OkCupid. Before they were OkCupid, one of the first things the team did was launch a series of Myers-Briggs style personality tests. Taking a personality test provides value to an individual up front — albeit sometimes just for entertainment. But it’s real value. It was how they seeded their marketplace. It was not until later that they allowed for people to match with other’s based on the results of those tests.
4. Stay local. If you must launch a marketplace, you should be extremely strategic about geography. Airbnb’s first listings, were not just location specific, but also time specific. The listings were centered around conferences or conventions. This allowed them to minimize their problem and assumption set, and focus on just testing the core risks and model of their business.

The road to building a marketplace business can be a long one. But it can be extremely rewarding. It truly requires creative product vision, and precise execution. It involves understanding two customers and delivering multiple forms of value. It is a true test, and hopefully you find some of these tips helpful in passing that test.

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