The number one piece of advice I would give to founders starting a marketplace or platform business is this: find your niche within a niche.
For any marketplace or platform, the value you are bringing to your customers is connecting suppliers of a product or service with interested buyers. The harder it is for this connection to happen outside your platform, the more value your platform adds.
It is also important to note that the reverse is true. The easier it is for connections to happen outside your platform, the less value your platform adds. So if you want to get your business off the ground quickly, I recommend starting with the most fragmented use cases. This allows you to litmus test the market dynamics quickly in order to achieve network effects. Once you’ve successfully validated network effects, you can expand outwards.
Essentially, you must find where the most pain is and start to solve that problem first. How you do this is by finding the specific use case where consumers rely on your platform the most.
This task can be difficult because you need to get REALLY specific. You need to find a niche market and then find the niche use case within that market… a niche within a niche.
Below are some examples of this strategy at work:
Rover started as a platform to connect pet professionals with pet owners. They offered pet sitting, boarding, and dog walking. Realizing the majority of transactions were dog walking, they began to specialize in dog walking. From there they realized the majority of dog walking transactions were last minute dog walking. They then created a service called ASAP walks where pet owners can get a walk within an hour. They actually created a new app specifically with this service.
The niche market in the pet services industry is dog walking. The niche use case is last minute walks. A niche within a niche. You can see the progression here:
|Service||Pet sitting||Dog walking||Last minute dog walking|
|Difficulty of connecting off platform?||Easy
Rover may make the initial connection, but buyer and seller can easily make subsequent arrangements off platform.
One-off walks are a bit harder to find, but still fairly easy given enough lead time. Recurring are just like pet sitting where buyer/seller can coordinate off platform.
One-off walks needed immediately are very hard to find for both buyers and sellers. Therefore the platform adds the most value for this use case.
Airbnb’s first example of success was during the 2008 Democratic national convention in Denver. Here is a great talk from Airbnb founder Brian Chesky explaining the story. He says, “If only there were political conventions every week we’d have a great business”. The niche use case was an event where demand for accommodations far exceeded the supply of hotel rooms.
I was attending Northeastern University in 2004 when Facebook started. Since Boston was such a big college town, I would often meet students from other Boston schools at parties, restaurants, and Red Sox games. Facebook was a great way to connect and stay in touch with other college students. Initially Facebook started with only Harvard students, then expanded to Boston colleges, then to all Ivy league schools. The niche market of Boston colleges provided lots of value because college students wanted to connect and Facebook made that possible.
The companies in each example have expanded far beyond their initial targeted use case. What makes this possible is that they are able to quickly achieve the network effect by targeting a niche within a niche.
Below are areas I’ve seen companies struggle in finding their niche within a niche. I’ve also suggested ways to overcome it:
It won’t be obvious. The niche within a niche isn’t going to come to you sitting behind your computer all day. You must get out with your customers (buyers and sellers) and live your product. Talk to each and every one of them over and over. Airbnb did this for 3 months in NYC, during which time they realized photos were key to successful listings.
You’ll dismiss this strategy because the market size isn’t very big. This is typical venture capital thinking, where business is in exiting, not starting. Instead you should be thinking about providing value to your buyers and sellers in order to achieve network effects.
You’ll try and do too much. When I started my yoga apparel company I had too many ideas and I went nowhere fast. For a new business, that usually means high burn and no progress. Focus is extremely important– especially in marketplace businesses. I hope that trying to find a niche within a niche provides the necessary focus to help you get started.
Finding your marketplace’s niche within a niche is not something that is going to happen in one sitting– you’ll need to study your customer base and how they interact with your platform. Getting into the mind of your consumer is essential to narrowing down your niche and then going that one step further.
Have you found your company’s niche within a niche? Comment below and let’s discuss!