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Why Build a Successful Marketplace Today (and Tomorrow)

Author
Patrick Kerssemakers
Date
July 25, 2022

If you ever have trouble comparing options and making the best decision, there’s likely a marketplace to help you with that. And if there isn’t one, it may be time for some disruption.

Founders often build marketplaces to make transactions more efficient, enjoyable, sustainable, and profitable for everyone involved in the purchasing process. They often create a fairer space for both the supplier and the consumer by cutting out the high costs of middlemen, especially in B2B transactions. Nowadays, it’s hard to envision convenience without digital marketplaces.

In the retail space, Goliath's like Amazon, eBay, Uber, Booking.com, and AirBnB have truly brought everything into one place for consumers to compare and purchase. In B2B, platforms like LinkedIn, Shypple, BuildStream, YourCampus, and OrderChamp have made industries more efficient and cost effective. These types of marketplaces can grow and thrive, especially in a bear market, because they help people make the best, most informed decisions for their future.

Whether more platforms are emerging in existing markets, or new marketplaces are blazing trails, the tech ecosystem can’t get enough. Dealroom and SpeedInvest found that marketplaces grew in valuation by an average of 70% in 2021, and while there are hundreds of them available, more and more savvy innovators continue to introduce marketplaces to spaces that desperately need a facelift for ease.

But not all marketplaces are created equal, nor can they be copied-and-pasted across verticals.

Why Build a Marketplace?

There’s no perfect formula for knowing when, where, how, and for whom to build a marketplace. Arguably, there has always been a need for marketplaces. But building one successfully 20 years ago was much more challenging than it is today.

To start, marketplaces can benefit from the amount of data generated over the past couple decades of internet usage. Whether it comes from AI or talent, there’s more knowledge about creating and scaling marketplaces than there was in the early 2000s. Not only is that data useful for understanding customers and how a marketplace can meet their needs, but it will also strengthen your pitch when speaking with investors.

As people build (or fail to build) marketplaces, there are more and more people with the experience and knowledge that new marketplaces are seeking to hire. And a solid team is a crucial component to a company’s success. “Hiring good people is still a challenge for many founders,” says Joost of OrderChamp. “We have a pretty strong tech team who built a really strong product, the best product out there in the market.”

Game-changing technological innovation and advances have also created opportunities for marketplaces to succeed. For OrderChamp, the advancement in recommendation algorithms has led to a more personalized online shopping experience. “These recommendation engines have made companies like Netflix and Amazon some of the biggest companies in the world,” Joost says. “The last 5 to 10 years have really brought that digitization wave even further.”

But for Florian and YourCampus, it was less about technology and more about the ecosystem. “There’s always been a need for employee benefits,” says Florian, founder of YourCampus. “However, the driver for employers to actually do something about it stems from external events. In this case, we see a decline in workforce well-being and a very tight labor market. We also see people working at different, remote locations. So those external events are very much the reason to act for employers now.”

The Challenges of Building Something without a Blueprint

Like a lot of new technology, marketplaces improve transactional experiences that already exist. Uber, for example, streamlined the process of hailing a cab and paying for the ride. Shypple aggregates various freight forwarding options into one platform for companies around the world.

But they’re also creating a space for transactions that don’t exist yet. AirBnB connects travelers with apartments and homes in destination cities. OrderChamp facilitates purchases between brands and retailers who may never find each other otherwise.

Regardless of whether the transaction type currently exists, marketplaces have to make themselves a necessary part of the experience. In other words, it needs to be more than a glorified search engine results page. Marketplaces are great at facilitating new transactions, but if the buyer and the seller can more efficiently transact outside of the platform, then the marketplace is sure to fail.

“Make sure you’re adding value and not getting in the way,” says Terry, founder of Buildstream. “We see ourselves as the infrastructure for facilitating relationships between contractors and workers.”

Convenience is the bedrock of a marketplace’s value

Marketplaces make people’s lives easier. That’s why people choose to use them. And in an age of one-click checkout and same-day delivery, many of us expect convenience with every experience and transaction, both personal and professional.

“It’s all about bringing efficiency and transparency to the markets,” says Laurens Groenendijk of Dutch Founders Fund. “People are already used to buying directly from a lot of suppliers.”

However, aggregating options isn’t the only convenience that marketplaces provide (or that people want from them). For example, buyers want to make their purchase in a single payment on the platform. But processing payments isn’t an area of expertise for most marketplace builders. “It wasn’t necessarily an issue 10 years ago because this type of problem didn’t exist,” Laurens says.

Furthermore, there’s no one-size-fits-all solution for payment convenience. OrderChamp recently introduced a Buy Now, Pay Later (BNPL) option for customers, but that option doesn’t fit the needs of marketplaces like YourCampus. “Employees have a digital wallet, which is a budget for flexible spending, and they can spend on any benefits they like,” Florian explains. “That budget is then being invoiced to the employer, and we make the payment to the supplier.”

Marketplaces need to have supply and a returning customer base

Another point is that people need a reason to come back to the marketplace more than once. That’s partly what makes job marketplaces especially challenging if the positions are meant to be full-time. But Terry knew that, for the construction industry, builders and workers are constantly looking for opportunities. It’s the nature of the work.

As a result, Buildstream needed to be designed in a way that spoke to those very specific needs with things like tailored profiles. A regular CV won’t necessarily cut it — builders are looking for very specific traits or qualifications, and if workers’ profiles are standardized in a way that makes the evaluation process faster, the platform then becomes a necessary tool in the hiring process.

For other marketplaces, the inventory is in the hands of the platform itself. Joost and his team vet and curate all of the retailers in OrderChamp. As a result, buyers know they will always see a certain quality and style of product in the shop. And with the incredible convenience of completing the order in one platform, customers return for that convenience.

The Customer Isn’t Always Right, but They Know What They Want

Like most startups and product developers, it’s essential to receive feedback from your user. Founders often start building something, and they have such tunnel vision on the solution they set out to build, that they don’t realize their customer actually needs something else.

Regardless of what you think you know and how much experience you have, customer feedback is imperative to building a successful product. “We’ve been in this space for the last 10 years,” says Joost. “We knew what OrderChamp customers wanted, and what they were looking for. But even when we thought we had the best product, we listened to customer feedback and learned about all the things that still needed tweaking.”

When businesses use marketplaces, one of their main priorities is cutting costs and making processes more efficient. For Buildstream’s clients, they could leverage multiple selling points with their customers: a curated pool of specialized talent, lower costs than an agency, and an overall faster hiring experience. But in the beginning, they sold themselves as SaaS.

When the Buildstream team approached their first clients, their pitch leaned heavily on the capabilities of the software. But after talking with their customers, they realized that potential clients reacted more positively (and quickly) to learning about the marketplace itself. Clients rarely cared about how to use the technology. They just wanted to know that it could make their lives easier. “Now we start the conversation with ‘How are you recruiting workers?’ instead of starting with the features,” Terry says.

Another factor that makes Buildstream a game-changer is the tailored profiles. People in the construction/contracting industry rarely use LinkedIn because it just doesn’t reflect or highlight their unique selling points or knowledge. As a result, many create a single CV that doesn’t get updated very often and may be outdated.

Buildstream built a profile template that allows contractors to highlight the things that their clients would want to know, such as certifications and the use of industry jargon.

Challenging the Old Guard

Marketplaces have done a great job disrupting legacy, old-fashioned industries. But that doesn’t mean they’re adopted quickly.

As Joost with Orderchamp explained, a lot of retailers attend trade-shows to build personal connections with vendors and potentially meet with other industry influencers or friends. A marketplace doesn’t necessarily allow for that type of relationship building — it just evolves into something different. “Advances in personalization and recommendation technology are helping retailers make better decisions through that purchasing funnel. And that technology can also integrate with their existing systems to help them scale.”

There is also a lot of unnecessarily manual work still for wholesale buying and selling. It has been this way for decades, and convincing people to go digital is a lot of work. “A lot of the brands and retailers still use pen and paper to find and create orders,” Joost says. “It can be hard to convince people that this is the better option.”

It’s always hard to convince people to change their behavior and the things that have worked so far. But encountering friction — and convincing people it’s worthwhile — is an inherent part of building something new.

Similarly, Buildstream is shaking up the traditional industry of construction. “Perceptions of enterprise software have changed over the past 10 years,” Terry says, “and a marketplace is a good extension for software users.”

Plus, as apps become more accessible and easy to use, more people are willing to try going digital — especially when faced with a terrible experience with agencies. In Buildstream’s case, construction companies and contract workers alike were frustrated with agencies. The fees (for both sides) were too high, payments were slow, and there was little accountability if anything went wrong.

Buildstream solved a lot of those problems with their platform. “With apps becoming more accessible and easy to use, more workers are able to look for jobs on their own,” Terry explains.

Are Marketplaces a Better Middleman?

Many marketplaces claim to eliminate the middleman, when in reality, they actually become the middleman. They do, however, cost barely a fraction of what an agency or broker might charge. “Marketplaces take away a lot of inefficiencies for both the users and the sellers,” Joost says. As a result, starting or running a business becomes much more accessible and sustainable for new business owners.

But a marketplace still has to make money somehow, and that usually comes in the form of fees. Founders need to strike a fine balance of knowing what to charge while creating value worthy of that amount. Some marketplaces allow customers to use the SaaS for free, and then charge a commission on the transaction. Other marketplaces may charge per post or have a platform membership fee.

Regardless, marketplaces will almost always be more reasonable than agencies. The supposed advantage of working with a broker is that they’re more knowledgeable and can secure better prices than the buyer themselves. But “suppliers are already pretty educated, and they can bid on opportunities directly,” says Laurens.

Agencies can also provide that all-in-one, centralized place for retailers to make wholesale orders from numerous vendors. Marketplaces, however, digitize that process and make it more efficient. “The beauty about a marketplaces is that, once you have a solid user base, you can add all these services to your proposition,” Joost says. “We’re now doing payments and offering buy now, pay later (BNPL). We also have a fulfillment warehouse, where we manage fulfillment for brands. It really optimizes the backend for the retailer. We can build these service layers because we have that solid user base, which generates a constant flow of lead generation.”

It’s hard to beat an all-inclusive platform that has everything you need just one click away.

The Power of Marketplaces

At the end of the day, B2B marketplaces give more people access to the things they need. They make business operations more efficient while still offering a lot of choice.

But Terry cautions founders to be mindful of the value that they add, as opposed to causing more trouble in the transaction process. “Don’t create a marketplace where people need to learn how to use it and spend a lot of time in it,” he says. “We see ourselves as the infrastructure for relationships to blossom.”

Similarly, Joost advises marketplace builders to stay grounded in their goals. “There have been very high valuations with some of these marketplaces or new grocery startups,” he says. “It’s important for founders to focus on the company’s real value.”

Finding a gap in the market and building the solution to bridge it is the root of entrepreneurship, and no other business model may do it better than marketplaces. Joost may have said it best: “With a marketplace, you can optimize not only the core process, but everything surrounding it, and it just becomes a magical experience. You help fix the real root problems while bringing extra value to the supply chain.”

In our next article, we’ll dive more into why we’re (still) bullish on B2B marketplaces, and how they continue to endure market downturns. Subscribe to our newsletter to be first to know when it’s published!

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