8 key questions on how to build liquidity for a marketplace
TRANSCRIPT
8 key questions on how to build liquidity for a marketplace
Warren Leow
CEO Designs.net, VP Inmagine Group
Hello. My name is Warren and I wore many hats
I’m still an economist/trader at heart. Hence, I chose marketplaces as a topic.
Successful marketplaces are extremely valuable
Liquidity = Defensible Barriers of Scale
But building a marketplace is not easy…
You have to answer these 8 questions as a planning exercise
1. Am I selling the right product?
2. What does my supply look like?
3. How can I build initial awareness for my platform?
4. Why should customers buy from my platform vs competitors?
5. How much would I have to pay to play?
6. How much of the economic rent can I capture?
7. What will suck liquidity and hence lead to 'leakage' and even disruption?
8. Do my users & customers love me?
8questions
Am I selling the right product?
• What is the Total Addressable Market?
• Are my gross profit margins high enough?
• Has anyone succeeded with this business model in US, Europe or China?
• Am I selling a product or a derivative of a product?
• Do I want to sell this product for the next 10 years?
• Can I buy similar products from other platforms?
• Will I buy my own product?
1
ACTION: Articulate your clear value propositions early on AND validate with your friends
What does my supply look like?
• Where can I get my initial supply?
• Own vs 3rd party supply
• Free vs bought supply
• What is my supply strategy?• Value Add: Aggregation &
Bundling, Breakage, Add-ons, Distribution, Branding
• Commoditization (price leadership) vs Customization (service)
2
ACTION: Choose price leadership or service differentiation. Make it simple for sellers
In-house Community
How can I build initial awareness for my platform?
• Craft a story for Free Press, PR & endorsements
• Use social media to build a brand around founder or that ‘one’ product
• Leverage on partnerships for cross-marketing (e.g. blog mentions, lists)
• Have bait and lure on your platform- either discounts/ freebies or content
• Ensure user-friendly onboarding
ACTION: Get your first 5 quick win press mentions and partnerships. Ask for favors
3
Why should customers buy from my platform vs competitors?
• Educate the buyer via a simple guide/flow. Copy the basics. Don’t reinvent the wheel
• Offer something that no one has in terms of quantity/quality of product, UX or discounts
• Have social validation (e.g. testimonials, cross mentions, PR
• Initial subsidies (whether in discount $ or ’bend over the back’ efforts) and seeded transactions are unavoidable
• Seamless: FREE 1st offer Extra FREE credits Special Offers
4
ACTION: Optimise your product flow so that first 50 customers will make their first 3 purchases
How much do I have to pay to play?
• How many active sellers/buyers must I acquire?
• Incentives for early sellers & buyers• Attractive commissions (low take rate)
• Community building & trust-building
• Freebies
• Split and quantify Acquisition, Retention & Customer Success rates to model business case
• Question: If I have $200k and can acquire 20k users (not customers) at $10 a pop, can I build a sustainable business?
5
ACTION: Understand your two-sided CAC and factor in nurturing and community building
How much of the economic rent can I capture?
• A marketplace extracts a toll charge, whether direct or indirect, for transactions brokered on platform
• Business models• Listing fee for suppliers
• Quote-based fee chargeable to suppliers
• Transaction commission-based fee
• Subscription fee
• Convenience/ Boost /Premium fee for sellers & buyers
• Processing and fulfillment fee
• Principal transactions/trading
• Working capital and/or Exchange rate differentials
ACTION: Model the number of transactions required to sustain your staff pay-roll
6
What will suck liquidity from the market and hence lead to 'leakage' and even disruption?
• No product or lousy product
• Bad merchant experiences
• User fatigue leading to bad retention
• Race to the bottom competition
• You lost your Mojo and let your eyes off the ball
• ‘Jesus Phone’ phenomenon
7
ACTION: Assess what would deliver a KO blow to your business
Do my users, sellers & buyers love me?8
Users and customers like:• Multiple touch points
(without being creepy)• Responsiveness• Co-building• Value-add
You can measure this type of ‘love’ via:• Customer feedback interviews• Testimonials as social proof• NPS score and asking them to advocate for
you
ACTION: Ask your customers what would make them LOVE you MORE
Conclusion- 8 questions to recap
1. Am I selling the right product?
2. What does my supply look like?
3. How can I build initial awareness for my platform?
4. Why should customers buy from my platform vs competitors?
5. How much would I have to pay to play?
6. How much of the economic rent can I capture?
7. What will suck liquidity and hence lead to 'leakage' and even disruption?
8. Do my users & customers love me?
8questions
8 sequential steps to create a marketplace
1. Define a sellable product which people want
2. Hustle an angle to set the scene to build awareness
3. Understand competitor positioning and carve out a large enough market niche
4. Validate the basic marketplace economics
5. Grow initial supply, simplify seller onboarding and iterate
6. Seed initial transactions to drive market liquidity
7. Fire up the loyalty, retention and referral engine
8. Set the path to scale only after steps 1-7 are established
REMINDER: A market operator = broker. Your ultimate metric is # successful transactions
Free tips to reach lift-off
• Build both supply and demand sides in tandem
• A marketplace model is simple. It takes time for network effects to mature. Don’t be too quick to pivot
• Be targeted in product segment. Don’t go for shotgun approach
• Focus on community engagement for 1) feedback and 2) social amplifiers
• Get an anchor if you don’t have a differentiator. YNWA concept is key if you are early stage with no backing
• Start burning rocket fuel only when you have comfort in liquidity and you have established customer loyalty
When marketplace reaches liquidity, you will know
# sellers(organic)
# transactions (orders)
# SKUs listed# buyers(organic)
# feedback & comments
# basket size
Good Luck- Be a Leicester City.
We work with multiple accelerators at the global level
Keep in touch
• My name is Warren Leow
• You can reach me on [email protected]
• I’m interested in:• Design/creative-related startups
• API-related partnerships
• Printing-related startups
• Sales platforms
• Hiring top talent for the Inmaginegroup.com