You wake up one fine morning with a great marketplace idea. You start thinking how to start your business, how much revenue can be put into the business and so on while you stir your coffee. And the next day, you jump on to actually creating your online marketplace.
That’s exactly how it should never happen!
Marketplaces are never built overnight. It would probably make you ponder over coffee for the next one or two weeks. Or maybe, more! A good marketplace idea isn’t the only thing you need in order to “get going”. You need to make sure that people will actually “buy” your idea. Therefore, the first and foremost step before you even jump onto the technical bit is validating your idea. Check your idea against these questions to see if your idea is worth the shot.
Questioning before the Quest
Question 1. Why do you want to build this marketplace?
This is the first question that you should ask yourself. If you find yourself answering, “Oh, because I want to make some huge money,” then you should really reconsider your marketplace dream. Every marketplace is built on a purpose… and that shouldn’t be money. You can only make money from your marketplace when you’re catering to something that people need. Paul Graham rightly said that it’s hard to push people to want something. Instead, try working on a real problem.
According to a survey by MarketingSignals, about 90% of e-commerce startups fail during the first four months.It is found that products/services having no market need is the biggest reason for such marketplace failures. Therefore, focus on developing and selling a need-to-have product/service rather than a nice-to-have product/service.
Takeaway: Nobody pays for the idea, people pay for the solution.
Question 2. How will your marketplace solve the problem?
After you clearly identify the problem that you want to solve, the next step is how you are going to do this? Start thinking on paper. Write down all your assumptions regarding the problem and how you think your idea will solve each one of them.
There are a few business tools that will help you analyse your business idea. Business plan templates help you deconstruct your idea into its key assumptions. All you need to do is fill up each of these elements with your assumptions to check if all the key elements are valid. One such effective business plan template is the Marketplace Canvas developed by Kate Logan.
This template is a great idea validation tool especially in case of marketplaces. Unlike linear templates like the Lean Canvas, this template helps you focus both on your customers and your providers, their issues and how you can solve them. Filling these templates is a bit time-consuming but at the end, you would be able to have a clearer picture of your idea and how it will help you solve the ‘problem’. This is also a great way to understand the risks involved in the idea and to weigh if the idea has a potential to fail.
Takeaway: The marketplace should aim at both the parties; the sellers and the customers.
Question 3. How will people benefit from the solution?
No doubt, your idea will try solving a pertinent issue. But that’s not the only thing that will keep your buyers glued to you. Your concept might be unique in itself, but chances are, others have already tried their hands solving the same issue. If you build a marketplace derived from an already trodden idea, you have to make sure that your products/services has a strikingly better feature than what the previous idea provided. A successful marketplace not just provides what people want but also what people would continue wanting. Along with catering to their needs, your marketplace should provide some additional benefit to keep the interests of your buyers/audience. Amazon not only gives the convenience of shopping everything you need at one place but also provides free shipping for Amazon Prime members. This not only solves the problem of running around markets for buying various stuff but also relieves the customers from the pain of paying extra shipping charges, which happens to be the top most reason for checkout abandonment among US adults.
Plus, a survey has revealed that Prime members spend twice as much as non-members – this means more business! This strategy of providing some additional benefits along with convenience is the key behind customer retention.
Takeaway: Provide something that retains the prolonged interests and loyalty of your customers.
Question 4. Do people actually need the solution?
Or speaking simply, is there a market for such an idea? To answer this, you would need to do some extensive market research. Ask your target audience and even your peer, set up polls and try to understand if the problem is a real problem that people would actually want a solution for.
Think of putting up some sort of an enquiry form or running some online ads and determine the necessity of people. Take the example of CheckMaid.com. Alex Brola, the co-founder of this online cleaning service tried validating their concept by setting up a minimal website, a booking form, a contact number and ran a few online ads without actually having a functional team of cleaners.
Takeaway: A good solution without a need is as useless as a full-course meal kept in front of a full stomach
Question 5. Will people pay for your solution? And how much?
Your startup idea turns out to be great but do you think that people will pay for the same? When it comes to shelling a price, most of the people turn their back. It’s really difficult to make people willingly purchase your idea. It becomes especially difficult if your marketplace has a direct competitor. Over 18% of startups fail due to inappropriate pricing of their products. Apart from the unique features of your marketplace, your bet should be on the pricing of your products/services.
Understanding the value of your product is the key here. People will not hesitate to pay for your products/services if they’re worth the value. Take the example of Apple. The new generation iPhone models with the popular features come at lower entry price – even lower than the previous generations. But the top-of-the-line flagship models are comparatively expensive. That’s because Apple believe (and that’s based on data) that people would definitely pay that extra amount in order to buy that piece of innovation. Do some market research to get an idea of the price point at which similar products/services (if any) are being sold in the market. Analysing your competitor’s pricing is important as well. Based on the market value and your product’s value, decide on a pricing model that suits the best for your marketplace.
Remember, pricing becomes crucial when you have to cover up your costs and bring in customers simultaneously. High pricing would almost scare your customers away while extremely low costs would make it difficult for you to keep your vendors. Choosing the right price for your products/services is very crucial in order to run your business.
Takeaway: People would pay what’s worth their money and not just something that’s cheaper.
Hurrying into executing your business idea without proper analysis and market research can be fatal to your marketplace. Therefore, think of all the odds before taking the great leap. Validating your marketplace idea is only the first step towards your marketplace dream which will lead you to the planning and the ultimate execution of your marketplace structure. However, the success of your marketplace depends majorly on how passionate you are in solving the ‘problem’. So, grab your cup of coffee and get on to envisioning your marketplace dream!