Juho Makkonen - The Lean Marketplace: A Practical Guide to Building a Successful Online Marketplace Business

Copyright Juho Makkonen & Cristbal Gracia, 2018. All rights reserved.

Edited by Ville Saarinen
Design by Janne Koivistoinen
Produced by Sjoerd Handgraaf

Imprint: Sharetribe

ISBN: 978-952-94-0011-9

If youd like to read more about online marketplaces, check out the Marketplace Academy at
www.sharetribe.com/academy . We regularly publish articles about running a marketplace business, growth and marketing, as well as inspiring interviews with other marketplace entrepreneurs.

Want to share or write about this book? Awesome! Do remember to give Sharetribe appropriate credit along with a link ( www.sharetribe.com ). Please dont use this book or any parts of it for your own financial gain.

Acclaim for The Lean Marketplace

Juho and Cristbal have written a practical in-the-weeds guide on marketplace execution that will prove invaluable for all entrepreneurs looking to start a marketplace. No fluff, just actionable ideas.

Sangeet Paul Choudary,
best-selling author of Platform Revolution and Platform Scale

Building marketplaces can be hard. The Lean Marketplace is a very useful step-by-step guide to help entrepreneurs think through the challenges and solutions to create the next Uber or Airbnb.

Boris Wertz,
Founder and General Partner, Version One Ventures

Must read for every marketplace entrepreneur. Im going to ask everyone in our our team to read this book.

Bram de Zwart,
Co-founder and CEO, 3D Hubs

As Im friends with both authors, I know first hand that the information in their book is hard won from long experience helping dozens of marketplaces succeed and consulting the top experts from around the world. However, the quality and comprehensiveness of the content speaks for itself. It covers all the essentials of growing an online marketplace, and in the most straightforward way possible. It is an impressively practical, must read resource for any current or aspiring marketplace entrepreneur. I cant recommend it highly enough, but please see for yourself.

Neal Gorenflo,
Co-founder of Shareable

The essential guide to building an essential marketplace.

Tristan Pollock, Co-founder, Storefront, Partner, 500 Startups

Reading Juhos and Cristobals advice online before launching our platform helped us save so much time and avoid the most common mistakes. If youre considering building a marketplace business, read this book first. Seriously.

Agne Milukaite, Co-founder and CEO, Cycle.land

Envisioning, validating, building and growing a marketplace is no small challenge: the most important aspect to nailing this challenge down is all about avoiding losing time and energy in the myriad of wrong directions that can come up your way. This book is an essential guide, the lifeboat for the marketplace founder that faces the ocean of bootstrapping.

Simone Cicero, platform strategist and consultant, creator of Platform Design Toolkit

I bootstrapped my marketplace business from launch to profitability in 6 months. Reading this book will help you do the same.

Mike Williams, CEO and Founder, Studiotime

Table of contents

PHASE I - GETTING STARTED

PHASE II - BUILDING A PLATFORM

PHASE III - LAUNCHING AND GROWING THE MARKETPLACE

Introduction

In May 2015, we had a discussion about our experiences in helping marketplace entrepreneurs with their fledgling businesses. We noticed that both of us had heard the same story multiple times: an enthusiastic small team has a big vision of how their marketplace will change the world. They start building their business. Soon, the struggle begins. What seemed easy on paper turns out to be extremely challenging in practice.

Make no mistake: not all marketplace ideas are great. Some of them deserve to die. However, most marketplace businesses that fail today dont fail because the idea itself is badthey fail because of poor execution. People keep making the same mistakes over and over again. If only people were aware of these situations and knew how to handle them, mistakes could be avoided.

We were both fans of the Lean Startup approach to validating business concepts quickly and with as little waste as possible. However, we realized that the existing books about the topic were lacking a practical approach for applying the method to building a two-sided marketplace in particular. Marketplaces are quite specific in nature, and building them requires specific knowledge. Previously, this knowledge has been acquired mostly through trial and error; only once youve built a marketplace business or two do you become an expert on these topics. Thats how we learned this stuff over the past 10 years: by banging our heads against the wall ourselves, and watching countless other people do so as well.

It doesnt have to be this way. Theres no need to learn everything the hard way. The applicable tactics and techniques can be studied in advance, helping you avoid the most common pitfalls.

This is what this book is about. Its a handbook for anyone building an online marketplace. The same methods will apply whether your organization is a startup, a cooperative, a non-profit, or a big brand. Not every marketplace will be as big as Airbnb and Uber, but we believe there are thousands of marketplace ideas out there that can make for great, sustainable businesses. With the help of this book, youre one step closer to building the next one.

February 2018, in Helsinki and Barcelona,
Juho Makkonen and Cristbal Gracia

What you need to know before starting your marketplace business

Online marketplaces are hot. The success of platforms like Airbnb , Etsy and Uber has proven that the marketplace model is very scalable and can be applied to pretty much any area of business. As one of the top VC firms, Andreessen Horowitz, put it : This is just the beginning.

Theres no better time to become a marketplace entrepreneur. In the coming years, were going to see tremendous innovation in the field of building and running marketplaces.

However, even though the time is rightand the technology is finally mature enoughbuilding a successful marketplace is far from a trivial task.

Before we start, a word of warning: there are no shortcuts to launching a marketplace and making it successful. Having a sound strategy and knowing the best practices are important, but you still need to be prepared to put in plenty of hard work to grow your community and make it flourish.

This first chapter will act as a high-level overview of the many things that are required to build a successful marketplace. These include:

• Why marketplaces are booming
• The most common challenges in building a marketplace business
• Why its important to understand your personal motivation
• Why the best way to learn is by launching as soon as possible
• Why engaging your users should be a priority

We are going to take a deeper dive into these subjects in the following chapters.

Why marketplaces make for great businesses

The first time we came across Airbnb , we were amazed. The design and usability were excellent. Whenever we showed the service to someone, they fell in love with it. Many started searching for a host for their next trip right away. Once they returned from their trip, they recommended Airbnb to their friends and colleagues.

Airbnb is a poster child of the sharing economy (sometimes also called collaborative economy ), a phenomenon where individuals and small businesses interact with each other directly through online marketplace platforms, bypassing the big corporations that traditionally acted as middlemen.

Many entrepreneurs who approach us are eager to share their idea of creating an Airbnb for X . Thats normal: the success of Airbnb and the sharing economy in general is something that cannot go unnoticed. And were still talking about a young industry with great potential for growth. The consulting company PriceWaterhouseCoopers recently estimated that in the UK alone, the sharing economy generated transactions worth 28B in 2015. They believe that in 2025, the same figure will be 140B, and Europes total will reach 570B. Globally, this means the market will be worth more than a trillion.