What Startup Founders should know before building a C2C Marketplace
The Dos and Don’ts
The only reason why you are building a platform is to make money. Even if you are building a non-profit, you need to create a business model for it. Therefore, business model building is the first thing that you should do as a founder.
If you are building a marketplace, your primary focus should be on building a sustainable business.
The reason being that in the current landscape, there is no such an easy way to replicate your product. Therefore, you need to really nail the product and create a unique value proposition to differentiate your offering from other players.
The second thing you should know is that there are two kinds of business models: the C2C marketplace and B2C marketplace.
In C2C, you are selling directly to customers whereas in B2C, you are selling through retailers/wholesalers
These two models are very different from each other and require different approaches for building a sustainable marketplace model.
What’s the best way to go about finding merchants for a C2C Marketplace?
It is difficult to find merchants who fit your target customer profile and who will be willing to do business with you in the first place.
For example, if you are building an eCommerce marketplace and looking to serve high-end customers who are willing to spend $500 for a pair of jeans, it is very likely that no one will sell these items on your platform.
However, there are certain ways to go about doing this. First, you can create a community around your product and then promote the marketplace to the people in that community.
This will give you access to experts who can help you get merchants on board as well as people who can make purchases on your platform.
Second, you can look for brands that are currently operating in the market and try outbound cold calling or emailing them about your platform. However, this is not a scalable solution for getting merchants on board.
The third way is through partnerships with retailers or other brands who already have access to the customer base that you want to acquire. It is very difficult to do this if you are just starting out but once you have established a strong position in the marketplace, it might be easier for you to strike a deal with retailers.
When you are looking for merchants, make sure that you understand their business needs and try to figure out how you can help them. This will help you get the right merchants on board and will make your product more valuable for everyone.
How do you ensure that your marketplace has a healthy competitive environment?
The best way to ensure a healthy competitive environment is to create a platform that is valuable for both the buyers and sellers.
The more valuable the marketplace becomes for customers, the more they are willing to spend on it.
When customers spend, then sellers will follow suit because they have access to a larger customer base on your platform.
Therefore, it is very important to build value both ways when building the platform or else it might not last long because not many people are willing to participate in an unbalanced market where one side is making money while other side is either losing money or making nothing at all.
It is quite difficult to do this at first but once there are enough sellers on board who have access to volumes of buyers through your platform, then there will be enough competition between these sellers and prices will start going down naturally.
You just have to provide a level playing field for both sides — and make sure that buyers always win!
How do you choose which marketplace to build? (Or should you build one at all?)
It is very important to understand your customers’ problems and find out how they are solving those problems in their current state. Then, once you have understood these problems, it is very important to figure out if there is a way you can solve these problems better than what already exists in the market.
If not, then there is no point in building a marketplace because someone else will come and do it for you or someone who can solve the problem better than you.
The second part of this question is “should I build a marketplace?” It depends on your current stage of business — if you are an early-stage startup, then building a marketplace might not be the best idea because it requires a lot of time and resources to get traction.
Therefore, if your business model is not proven yet or if you are running out of cash, then building a marketplace might not be the best option for you yet.
However, once your business model has been proven and once your customer base has grown large enough, then it might be worthwhile for you to start thinking about building a marketplace business.
How should you decide what category to build your marketplace around?
It is important to choose a good category because categories are like a fingerprint — they represent your business. If you are building an eCommerce marketplace, then make sure that you only pick categories that are relevant to your business.
For example, if you are building an eCommerce marketplace for high-end products, then it might not be worthwhile for you to pick categories like baby care or medicines because it will not fit with the business model and customer base that you are looking at.
It is also important to find out which category is making the most money in your industry and which one has the highest growth potential.
If there is a particular category where people can spend $10,000 on something but they spend $50 on something else, then this category with higher spending should be the one where you should focus on building your platform first.
Is it a good idea to build a marketplace if you are not the first one to enter the market?
If you are looking to build a monopoly-like business model where you have access to 100% of the market, then yes, it is absolutely a good idea to build a marketplace.
However, if you just want to solve some problems in your industry and increase the overall growth of your industry or solve some pain points in your target customer base, then building a marketplace might not be for you.
It is very difficult to become the market leader if someone else is already doing it and has more resources than you do at this point in time.
What are some of the mistakes that I should avoid while building my marketplace business?
There are certain things that I usually see people doing wrong when they are starting out with their marketplace business.
The first thing is that they try to do everything themselves — from acquiring merchants on board, acquiring customers on board and even fulfilling orders themselves.
The reason why this happens is because people think that they can do everything themselves because they have more control over everything this way.
However, as soon as things go out of their hands, they start facing problems because they don’t have enough resources or expertise in that particular area.
Therefore, it’s better to let experts handle different parts of the business so that you don’t have one person handling all aspects of your business which means no focus on anything since all their attention will be divided into different areas of business.
The second thing I see people doing wrong when building marketplace businesses is focusing too much on getting merchants on board instead of focusing on getting customers on board.
If there are no buyers using your platform then there will be no sellers — so make sure that you focus on getting buyers first and then work backwards towards getting sellers as well as creating value for these buyers so that there is an incentive for sellers to get involved with your platform as well.
The third thing I see people doing wrong is not thinking about the long-term consequences of their actions.
If you are building a marketplace business then there should be no space for short-term gains.
You need to ensure that you are creating a sustainable business model and that your focus should be on creating value for the customer and the merchant — not on making money from them.
If you can focus on providing value to both sides, then people will come back to your platform again and again, which will result in a profitable business model for you in the long run.
Therefore, it is very important to think about the long term when building a marketplace business so that there is no place for short-term gains.
In summary, the three biggest mistakes that you should avoid when building a marketplace business are:
- Not focusing on acquiring customers first before focusing on acquiring sellers.
- Not considering the long-term consequences of your actions — looking at short-term gains instead of thinking about the long term.
- Not thinking about providing value to both sides instead of just making money from them.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students teach and learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.