Building a Two-Sided Marketplace: the Chicken and Egg Challenge

opinionThe following is  guest contributed post by Jerry Nettuno, founder and CEO at Schedulicity.

You can almost imagine the reaction to the initial pitch back in 2009: “Jump into some total stranger’s car instead of hailing a cab? Yeah right.” But now Uber is a multinational online transportation network. And I’m sure AirBnB founders initially got a few comments like: “Rent my place to some total stranger over the Internet? Are you totally nuts?” Now they facilitate rentals in more than 34,000 cities and 191 countries.

When building a two-sided marketplace the main obstacle is overcoming the initial reluctance to give the service a chance. It’s difficult to overcome that skepticism coming from both the supplier and user side, and get people to see that, yes, this is something I need.

Relational Economy

Such pioneers are common in the relational economy: service-based local businesses, such as, massage therapists, personal trainers and chiropractors. These entrepreneurs know from the moment they hang their shingle out front they’ve got to convince people to come in the door.

Startups looking to mediate a two-sided marketplace face the same chicken and the egg problem of trying to get both sides to trust their service.

It’s the exact issue we faced at Schedulicity when launching our appointment scheduling software for small and medium-sized businesses. To build out both sides of the equation your startup must find a way to deal with that chicken and egg problem. If there are buyers, but few sellers, the buyers get frustrated and leave. Yet if there are no buyers, what do you have to offer sellers to convince them to sign on?

Lets look at building a marketplace for hairstylists, for example. You’d have to get a variety of hairstylists listing their services or else you wouldn’t get any customers. But why would you get hairstylists if you have no customers?

Know Your Value

We realized right from the beginning that the secret was really to build something that was of value to service-based businesses. Even if this marketplace didn’t exist, the value in what we offer would still be there. It came from the realization that small service-based businesses — which make up roughly half of our country’s economy — are dramatically underserved.

That conclusion came from direct observation. When I was right out of school I had a job providing services for people. I was doing roof coating and things like that. Then I eventually became a financial advisor: consulting and meeting with people. Essentially, I was still a service provider.

At the end of the day I’d sit down and pour a glass of wine and think: “I could really use a massage right now.” But Addie, my massage therapist at Soma Sports Medicine, isn’t doing massages or answering the phone at 10 o’clock at night. So it wouldn’t happen. I got to thinking about that. That every time that happens somebody out there is losing business. More and more, we want everything that we want and we want it right now. So why not fill the need?

Wasted Inventory

So that was kind of the genesis. We could provide a platform that could help small businesses address their biggest challenge: not being able to fill a slot. If you’re a dog groomer or whatever and don’t have an appointment today at 3 o’clock then it’s like old bananas or rotten tomatoes at the grocery store. Wasted inventory. It’s worth nothing. So their biggest challenge is making sure that somebody’s there when they are available.

It took time to get the critical mass to be true meaningful marketplace: to build buyer and seller communities at scale. But we did it and we now have almost 40,000 individual service providers on our platform and growing. When we launched a new platform in February we grew the company by a third in six weeks.

We’re now in more than 60 different verticals. If you pull up Schedulicity where you are, every single one of those little pins that you see is dynamic — a person offering a service in your area.

Many Verticals: One Platform

My hairstylist is on Schedulicity. My massage therapist is on Schedulicity. Everyone from my CPA to carpet cleaner is on Schedulicity. I found a chimney sweep to clean my chimneys in the fall and have even started taking cooking classes that I found on Schedulicity. Everything you can imagine: from dog groomers to coaches, equestrian centers to marriage counselors. Next we’ll be adding a host of new features and functionality that will provide tremendous value to the businesses and consumers on our platform.  We’ve spent a great deal of time and energy really understanding who our customers are and what their needs are. More importantly, we understand how this whole relational economy works between service-based businesses and the consumers that we all are. We’ve taken all of that understanding and built a successful two-sided market place business model around it. Because we all know building a business is not easy. Building an entire marketplace can be even more challenging, but you’ve got to believe in your idea even when it seems like you’re the only one who does.