business-model, customer-development, chicken-eggI have had an idea for a business model but my business unites two distinct groups of customers and there’s no value without both of them being engaged with the platform.
Obviously companies like AirBnB and Uber etc all had the same problems.
In AirBnB’s case they needed property owners to be on the platform to offer anything to potential guests but without guests there’s no reason for property owners to engage with AirBnB. And without property owners then guests aren’t going to be interested.
With Uber they need people who are willing to drive other people around but there’s no point in offering that service if there’s no people willing to take them up on it. And if there’s no drivers then no customer is going to use Uber because they’ll just use a local taxi company instead.
How have other companies mitigated this problem?
My problem is slightly more complicated in that with AirBnB and Uber the suppliers of the service (property owners/drivers) can also be consumers where my business model has no way of making that work.
http://blog.asmartbear.com/marketplace-business-model.html has some good content on this topic, including the example of SpareFoot manually linking consumers with suppliers, and in so making the suppliers more likely to join their marketplace:
Instead SpareFoot decided to automate nothing. When a potential buyer made a search, they grabbed their email or phone number and said “Thanks, we’re going to find you a great deal by Thursday.” Then they banged the phone all day, calling up regional storage facilities. Their pitch was awesome: “I’ve got a lead for you; his name is John Doe and he’s looking for a 10×20 with air conditioning. If your rate is competitive, we can do the deal today. By the way, if you want us to send leads like this to you all the time, it’s $20/mo to list with us.”
It also suggests solving the supplier side first, as they are potentially easier to contact and bring on board (although this may not be true for all marketplaces). Build a proposition for suppliers that is low cost for you, and low risk for them:
What could “the right proposition” look like?
You build their listing for them. Their listing is free for 12 months. They pay only if the lead you provide completes a sale. They get a low price lock-in for one year.And you could ask for a few things in return:
They complete a survey (your customer/market research). They agree to a public testimonial (after the first sale). They agree to let you A/B test different ways of presenting their offering. If you start bringing monthly X traffic, you get to start charging them $Y.
I suspect companies like TaskRabbit could have started by in a small local area either running the errands themselves, or recruiting a small number of people to run them, unitl they got a critical mass of users so more natural ‘suppliers’ would be interested.
The two-sided sale isn’t just common, it’s present in almost all of business outside of on-street retail.
So what do you do? There are three straightforward strategies, and you can see examples (successful and disastrous) of all three.
The first approach is to go for the core idea from day one, only in a confined area. Often that’s defined by geography, sometimes by other factors. eBay is one often-cited example, facebook is another.
The second approach is to do what I’ll call value mapping. The core idea is two draw a 2d graph: one axis is the size/scope of one of the two communities you’re bringing together, the other (you guessed it) is based on the other community. Then at each point, you’re estimating what value is created on each side. You’ll likely do this exercise a few times: first you may just look at the number of people on board, but you’ll also want to look at identifiable subgroups.
As you survey the value map you’ve drawn, you’re looking for places where your intuition of a Catch 22 doesn’t hold so well - where you can create value even when your traction is very limited in one community. I would place Youtube in this category as a great success, and Myspace as a great failure. Both found niches of content creators and consumers where value was high at quite modest scale, though only Youtube managed to ride the journey to the broad market on both sides.
The third approach I’d call hide from the money. The strategy is
To create value for one community from day one, by bringing the other community to the table by smoke and mirrors, by spending money, or by any other means
To follow up when you have scale on one side, by bringing the second community in
Why “hide from the money”? Because you typically forego revenue with the value you create first, in order to create a revenue stream on the other side later on. So it makes sense to stay away from the more readily monetizable side at the outset.
Price comparison sites, reviews, vouchers, a host of others have followed this approach. In B2C cases, the typical start point is creating the illusion of a relationship on the business side, in order to create value for the consumers.
And guess what? When you have enough consumers using your service regularly, there’s something to offer prospective business customers.
I’m sure there are other great strategies out there, but I hope this may give you a way in to thinking about how to get where you want to be.
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