Marketplace Startups and Phone Hacking

When I say phone hacking I don't mean the scandal that's hit the UK tabloid press in the last few years, tapping celebrity phones. Although there's probably a great startup opportunity for someone who can stop phone spam.

So what has the telephone got to do with online marketplaces?

At Forward Partners we've partnered with several entrepreneurs to develop marketplace businesses. Recent examples include Appear Here (pop-up shops), Snaptrip (last minute holiday rentals) and Lexoo (legal services for SME's).

An online marketplace is a website that connects buyers of a service or product with sellers. Appear Here's buyers are retailers who are looking for a short term rental. Their sellers are landlords. Snaptrip's buyers are holidaymakers, their sellers are holiday home owners and letting agents. Lexoo's buyers are small businesses that need legal help, the sellers are lawyers. In each case the marketplace makes money by taking a small share of the transaction.

In all cases, the telephone was an important part of how each startup grew and built great product. I'll explain.

Why the telephone matters in building an online marketplace

Marketplaces work when you have lots of demand (buyers) and lots of supply (sellers). As a buyer you seek out a place where you can get a good choice and good prices. As a seller you seek out a place where there are lots of buyers. When this is going well, you have what's known as great liquidity. (There's a large flow of supply and demand).

To build liquidity is difficult. You need to find ways to stimulate both supply and demand. In the meantime, you need to build a website / platform where both parties interact. Yet, as most startups have very few resources in their first few months, they need to find a way to get started without building all the functionality of a fully developed website.

One technique we've encouraged companies to use at this stage is to start with a very simple website where the aim is to get consumers (buyers) to make a request to buy. This request come be in the form of filling out a form and hitting "send" which generates an email to the startup team.

This is where the phone comes in.

The team phone the buyer to double check what they need and why and then they call the seller to make the purchase / booking / order.

It's a highly manual process and it doesn't scale. Why would a startup do that? Isn't the whole point of a tech startup to develop tech solutions?

The reason is simple; this manual process gives startup founders a chance to have conversations with real customers. Every interaction is a chance to learn. It's provides insight into the motivations of buyers and sellers and helps inform what the product will need to do to delight both.

The Concierge MVP

This technique is known as the "Concierge MVP" (MVP = minimum viable product). It's purpose is to maximise learning and to minimise the risk of building a product that no-one needs or wants.

I'd encourage anyone starting out in business to solve a problem first without technology and develop deep customer understanding before committing to creating code. Startups always need to hustle and hack to get started. If you're starting a marketplace, I highly recommend the phone hack. You'll learn a lot and you'll build a great product first time around.

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