How Most Two-Sided Marketplaces Fail Their Vendors

Five vendor flaws that eventually kill a platform

  • The more vendors who join, the more options the marketplace can advertise to its customers.
  • The more options the marketplace can advertise, the more customers it will bring in.
  • The more customers the marketplace brings in, the more valuable the marketing opportunity is for the vendors.

Most 2SMs fail because the best vendors don’t need new customers

You know how you can recognize the top tier of vendors in any traditional service industry?

You’re building a new kind of service, so you’re looking for a new kind of vendor

There’s only one way to escape the gravity of the 2SM death spiral. The marketplace has to offer, transact, and deliver the traditional service in a new and innovative way.

How to spot the vendor failure points in a 2SM

When I founded Teaching Startup — a new way to get answers to entrepreneurs — I built it off of traditional startup advising, which I do a lot of.

1. The onboarding and vetting process is a mess

In each and every single case, I had to provide my entire career’s worth of information to the marketplace before I would be accepted. Some offered to scrape my info from LinkedIn, but that usually resulted in a bad transfer, and even when it did work, LinkedIn isn’t the best representation of my value as an advisor.

2. There is very little matching or tiering.

With every single marketplace, I get more offers for jobs I can’t do than jobs I can, like the ratio is somewhere near 10:1. It’s obvious that the marketplace works on little more than supply and demand.

3. The expectation is that just listing the vendor is valuable to the vendor

You can do a Google search on a traditional service and find the best providers pretty quickly. None of them need another SEO-fueled channel to increase discoverability. A marketplace should help good vendors find new business that is more valuable to them than what’s coming in from those Google searches.

  1. The vendor not being engaged because there are too many customers that need the broad value they provide.

4. The vendors get inundated with noise

Service providers get paid for their time. Time is their most valuable resource. A 2SM does their vendors a huge disservice when they waste the vendor’s time.

5. The vendors get punished for vendor leak

Vendor leak, the scenario where the customer uses the 2SM to find the vendor, then goes around the 2SM to engage the vendor, is the scourge of the 2SM. And as it turns out, the less value the 2SM provides to either side, the bigger the problem vendor leak is.

The Solution: The 2SM needs to serve the vendor as well as it serves the customer

Once I decide that my marketplace will be two-sided, the first thing I do is determine what return my 2SM needs to provide to get vendors to transact their business in this new way, and exclusively through my platform.

I’m a multi-exit, multi-failure entrepreneur. Sold ExitEvent. Building TeachingStartup.com & GetSpiffy. Former Automated Insights. More info at joeprocopio.com

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