How to Start a Winning Local Marketplace Business: Growth Hacking Guide

Trade has been accompanying the humankind since its birth. At all times, people have effected trade at marketplaces. In the very general sense, a marketplace is where the buyer meets the seller. In a city, marketplace has always held one of the central locations to provide easy access for those, who came to offer their goods for sale and for those who came to browse and maybe make a purchase.

In the 21st century, trade has expanded to the global scale and got a firm foothold in the digital space. Online marketplaces have become common and range from such global giants as eBay or OLX where anyone can sell and buy anything, to smaller marketplaces like, for example, Scott’s Marketplace operating within the US only, or various Facebook groups where members can offer something for sale or shop for something they need.

Online marketplaces have turned into an attractive startup idea, thus many companies are now trying to figure out how to start a local online marketplace.

So, if you have decided to venture into the realm of online marketplaces and start your business at a local market, let’s shape up some basic do’s and don’ts to follow if you wish to build a successful local marketplace.

First, what is an online marketplace? A marketplace (not necessarily online) is a platform enabling sellers to display their goods and buyers to shop. In other words, a marketplace is where sellers and buyers get together to make deals. A marketplace is usually a two-sided network, meaning that there are two groups of users enjoying the benefit of the platform – buyers on one side and sellers on the other. Marketplace is not necessarily about buying and selling in their primary sense. It can offer, for example, accommodation rentals, like Airbnb, or services, like TaskRabbit.

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So, what are the things you should consider if you are set to launch a winning local marketplace for business?

Determine the Purpose of Your Marketplace

Like any other startup, your marketplace should solve an actual problem. In other words, you should know positively that the service you offer will be appreciated by your target community – both sellers and buyers. Depending on your actual situation, you may decide to create a general marketplace where all sorts of goods can be sold or you can aim at a particular industry, like food products, handcrafts or services.

Think whether your marketplace will follow the business-to-business (B2B), business-to-customer (B2C) or customer-to-customer model – your choices will have an impact on the payment policy, length and complexity of the sales pipeline, as well as other business processes. In plain language, trade between two individuals is aimed at reaching the most beneficial terms for both of them, which means good old bargaining, and can be completed within a couple of hours. At the same time, sales deals between enterprises are made for much higher amounts, involving a lot of people and departments in the decision-making process and can take months to close.

Therefore, if you are planning to create a successful local marketplace, you should build it following on from a thorough marketing analysis and business plan. A business plan will put all your vague ideas and expectations into words, figures, and particular acts, which can reveal some gaps in the development planning or errors of timing.

Vertical or Horizontal?

Let’s dig a bit deeper into the theory of online marketplaces. While planning an online local marketplace business, you have to answer the question whether your marketplace is going to be vertical or horizontal.

Vertical marketplaces are targeted at a particular type of products, like, for example, TrueFacet which is a platform for buying and selling jewelry and luxury watches. The strong side of a vertical marketplace is its strong focus on the niche product family and the ability to present the goods in the most advantageous manner.

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[Image source: TrueFacet, Inc.]

Horizontal marketplaces sell different types of products which have something in common. They are usually targeted at a particular type of customers. For example, Panjo is a marketplace for enthusiasts, no matter what they are enthusiastic about. According to Panjo, it is a place to “Buy, sell and talk about things that make you tick”, such things ranging from aquarium fishes to motorcycles. With a horizontal marketplace, you form a sort of a community among your users, thus making them come back again.

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[Image source: Panjo]

There is one more type of marketplaces, and that is global. Global marketplaces sell everything and are used by all types of customers, both on the buying and selling sides. Think of eBay or Amazon, the truly global e-commerce whales where you can find anything and anywhere in the world. However, in the old days, both giants have started small and scaled slowly but steadily.

Under the Hood

Any website, application or platform aimed at providing a service to customers must be, above all, convenient and user-friendly. A good marketplace should offer an easy and intuitive process of products listing for sellers – account creation, data entry, image upload, etc. For buyers it’s important to develop an effective search engine with various sorting and filtering options and the possibility to leave and browse reviews and ratings. Note that under no conditions should the buyer leave your website during the shopping process, thus make sure you have a convenient embedded payment mechanism supported by a reliable payment system.

Having said all that, we are coming to the matters of marketplace production and maintenance. Like any platform aiming at success, it has to have a solid technological base. Along with any other project, you can either use a ready-made solution or create your own. Of course, the online marketplace development cost will be different, since with a ready-made platform you do not have to invest into actual development. The most common example of a marketplace creation platform is Sharetribe, an open-source project allowing to launch a marketplace quickly.

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[Image source: Sharetribe]

However, despite its deceptive ease and relatively lower cost, marketplaces built on such platforms may prove to be too difficult-to-customize. If you have a team of developers, you can create your own marketplace using one of the open-source e-commerce development platforms, such as Magento or Shopify. In this case, you will have better flexibility, but still, the customization options will be limited.

If you want to create something unique, special, one-of-a-kind, you have to develop your local marketplace from scratch. Thereby, you can build an intuitive solution, offering all the necessary functions and convenient navigation. Laying emphasis on compelling user experience you stand a good chance to win the market. We have already built innovative peer-to-peer marketplaces together with our clients and now these solutions are used by thousands of consumers worldwide.

While the development process can take longer than using an off-the-shelf solution, the result will be worth it – you will get a unique platform customizable to any extent. You can start with MVP and then add necessary features and integrate third-party components at a time, when your e-commerce platform has already gone live.

Get a Lawyer

That's right, get a lawyer now, while you are still at the preparation stage, not when you are faced with a claim or a lawsuit. You are about to start a project which will be a complicated puzzle of matters related to data privacy, security, intellectual property, labor regulations, financial liability and sometimes, conflicting laws of different jurisdictions. You will be a facilitator for two groups of customers which, on one hand, have a common goal of closing their transactions but, on the other hand, pursue their own interests.

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Before launching your startup, have a lawyer to draw the terms and conditions of your service, the form of user acceptance and the privacy policy. This is the absolute minimum with which you get to the market. Your terms and conditions may explicitly state that the marketplace bears no responsibility for any transaction, not being a side to it. This can protect your business from claims from either side.

Be clear about the data gathering procedures and explain your consumers which data is collected and for which purpose. At the same time, take appropriate security measures to protect the user-data.

At the same time, we have to admit, there may be claims and complaints, because you can hardly foresee everything. In the event of a dispute, your customers will turn to you for resolution, thus make sure you have a legal counsel to consult you or to provide legal assistance to your customers.

Promote Your Marketplace

As to marketing and promotion, online marketplaces are in a more challenging situation than companies offering their own goods or services. An online marketplace has to attract not one group of customers but two – sellers and buyers - because only when both are present in the sufficient numbers, business can succeed. So, how should you market a marketplace to both parties of the trade?

The answer is simple – you shouldn’t. A marketplace starts only when there are sellers, so aim your initial marketing effort at them. And where can you find sellers? Well, you should have done the marketing analysis and formed up your business plan (we told you!), thus to be pretty sure that there is demand for such a service. And, this, in its turn, means that there is a certain group of sellers willing to offer their goods. They are the ones at which you should aim your initial marketing campaign.

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Offer very attractive terms to your first sellers – free listing (for a limited period of time, because marketplaces earn from sellers' listings as well), various promotion opportunities, such as referral links on external resources, postings on social media, and others. Simultaneously, start a campaign to attract buyers through paid advertising, social network groups, SEO, etc. Make sure you are consistent in your marketing efforts – for example, post on Facebook daily or every other day for the subscribers to see your name regularly and buyers will come. If their first experience is successful, your promotional campaign will be enhanced by the word-of-mouth marketing. Ask your customers for reviews, since most users tend to look up reviews before trying something new.

Metrics and Measurement

As with any business, you need to measure your progress and growth to define whether your marketplace is successful and whether you need to make any adjustments.

At first glance, it may seem that the marketplace is successful along with the growing number of sellers and buyers. In fact, such growth does not mean profit, because what matters is the number of closed transactions. To determine the marketplace progress, you need to analyze its liquidity that, in very loose terms, means the probability of success. Liquidity is the percentage of products or services that are sold within a certain period of time. The more goods are booked and the shorter the timeframes, thus sellers make more money and buyers turn into loyal customers.

Other important metrics include the time at the marketplace spent by your buyers. This value helps to evaluate the efficiency of your internal search engine – long cycle can mean that customers cannot find what they are looking for. Thus, make sure you have a well-behaved matching and filtering engine for positive customer experience.

We recommend using Google Analytics, a free tool for collecting, processing and analyzing various data related to your online marketplace performance.

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Slow and Steady Wins the Race

With your own software development startup, you can make certain adjustments already a year after the launch. With online marketplaces, time flies slower, and it can take several years before your business moves into the black. For example, it took eBay two years to see first indicators of growth, and now it is a powerful e-commerce heavyweight with a global presence. Remember, it is a two-sided platform, which means it takes twice as much effort to attract and retain enough users on both sides.

Start small and focus on your local target audience. Expand only when you have firmly established name within your area. It is up to you to decide whether your marketplace remains an exclusive community focused on a particular line of products or services or whether it takes the global path and accepts all sorts of goods.

Good tactics is to cater to your passionate early adopters – create communities, social platforms and forums allowing your customers to communicate and establish trust. Loyal customers can be a powerful advertisement channel, so make the most of it. Once the marketplace reaches a certain scale, it begins, more or less, to support itself through reputation, brand awareness and recognition. But you have to work hard to “unlock that achievement”.

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