Having a strong market based business is great. You are a power-broker and can often profit from both sides. But how do you get over the chicken and egg problem?
Market based businesses are when you need to bring together two different parties to perform a transaction. Some examples;
- Ebay – needs sellers and buyers.
- Craigslist – needs advertisers and readers.
- Comparison shopping – needs retailers and shoppers.
This is opposed to a single customer business like products or services where you have one supplier and one customer who buys from them. Single customer businesses are often easier because you only have to convince one person/group to complete transactions.
Empty market place in Braila, sunday afternoon (by cod_gabriel)
Convincing two parties to transact is always much harder because you have to match them up at the right time with the right offer. How do you start an auction site when you don’t have any sellers to attract buyers, and you don’t have any buyers to attract sellers? How do you get over the market-building hump? There are two things you need to do.
1. Focus (of course!)
Instead of going after anyone and everything, going after a more targeted segment will increase your chances of a matching a transaction – i.e. a buyer wanting what a seller is offering. You only need to get 10 people selling Star Wars figurines to attract people who want to buy them. It will also make your limited resources more effective since they are focusing on a smaller segment.
2. Buy In
If you’ve got the budget, or the time, then you can pay for one side of the market. Often this is the seller since they are more likely to be in a list somewhere already. Finding someone willing to sell or rent a list who is non-competitve is the next challenge.
You can also heavily incentivse one side through discounts, prizes and even cash to kick things off.
Another way to buy in is by building a base of one side with some other value. This could be a blog, forum or another application which you use to grow a base and then convert it into a market. MyBlogLog did this very well, although not exactly in a market setting, by offering a stats tool for blog owners, building a base with it and then converting the base into a community. MySpace was much more of a market, and they offered Indie music bands in LA their own website and then pulled the fans in by asking the bands to promote it themselves. Clever and cheap promotion.
Arusha food market (by hansco)
My advice is to think twice about building markets. Not to avoid it, but just to consider the chicken and egg challenge. How are you going to get over the hump? I suggest a combination of focus and buying your way in.
If you’re in a market based web business, I’d love to hear your story or add a comment.