It’s hard to beat the scale of marketplace businesses. In 2022, Amazon Business, the largest B2B marketplace is estimated to generate $41.5 billion in GMV.

Marketplace are defensible because of a cold start problem. Consider AirBnB which connects hosts with guests: hosts will list their properties only if there are enough guests, and guests will find AirBnB valuable only if there are enough properties.

In this essay, we’re going to look at 6 examples of how marketplaces bootstrapped their networks.

To get your marketplace going, you need to get either demand (e.g. Airbnb guests) or supply (e.g. AirBnb hosts) on the platform. The general rule is to choose the one that is harder to acquire, and is therefore more valuable.

It’s better to focus on supply for B2C. Onboarding supply tends to require more effort. For example, in ride hailing, drivers need to put in more effort to sign up (KYC, license, car) vs. passengers. If you are an AirBnB host, you need to consider pictures and a host of other things before listing your property.

For B2B marketplaces, it’s generally better to start with the demand side. Buyers are less price sensitive. Quality, reputation and product specifications are critical. Buyers require more choice before making a decision.

Let’s look at tactics the tactics used by 3 B2C and 3 B2B companies to get their network going.

Doordash quickly realised that the playbook for food delivery marketplaces is to start with restaurants.

Doordash started as Palo Alto delivery. They scanned PDFs of restaurant menus and put it up on the website. Customers called to order, and the founders did deliveries themselves. This was a simple test to show restaurants (and themselves) that they could earn incremental revenue using delivery. They also started by focussing on a specific area — better to have many options in one area vs. spreading yourself too thin.

Fresha is a market place for hairdressers. They started in the UK where Treatwell was an incumbent.

Fresh bootstrapped their network by using a come for the tool, stay for the network strategy. They offered free software for salons to manage account booking.

Once they had salons, generating demand for them via customer bookings was easier.

Meesho is a marketplace in India helps small to medium businesses sell online.

By the time Meesho launched, there were several e-commerce players dominating the Indian market: Flipkart, Amazon, Snapdeal etc.

Meesho bootstrapped the network using two tactics. First, they focussed on small and medium businesses. These businesses conducted businesses on Whatsapp and were underserved by large incumbents. Second, Meesho focussed on simplifying their workflow. These businesses were already selling via Whatsapp. Meesho made it frictionless for them to move their business over, and helped with a critical problem: inventory management.

Faire is a marketplace that connects independent brands with small retailers.

Max Rhodes, the founder and CEO of Faire, found an interesting insight when talking to retailers. They loved discovering new products but try them very often. The risk of selling a new product was too high. Small retailers are often cash strung and don’t want to try anything that might affect working capital.

Faire won over small retailers, i.e. the demand side, by taking on the inventory risk. Of course, this was a bet on day zero. Their hypothesis was that data from social media, e-commerce and point of sales systems could be used to minimise risk. They also offered free returns to the retailer. Being able to touch and feel products was critical to small retailers before they committed to an independent brand.

Convoy connects shippers with trucking companies to move freight within the US.

The freight industry is fragmented and has a lot of participants. Generally speaking, the more participants there are in a market, the higher the margin on the end user (everyone needs a slice of the pie).

Convoy won demand by offering helping them save money. By going direct to trucking companies, they were able to save costs for shippers. In the early days, Convoy’s unit economics were not positive, but this is something they addressed over time.

Rooser is a B2B marketplace that helps businesses source fish. It’s niche, but it’s big — the fishing market globally was worth $253 billion in 2021.

The fishing industry is complicated because of the variety of products that are on offer. There can be up to 35k SKUs making it difficult to source exactly what you like. Rooser is winning over buyers by offering an organised way to find exactly what they want, promising high quality and on-time delivery.

Marketplaces suffer from the cold-start problem: buyers have no incentive without sellers, and sellers have no incentive without buyers.

If you are building in a B2C market, focus on supply. Win supply by being targeted, offering software to solve a critical need and making onboarding frictionless.

If you are building in a B2B market, focus on demand. Win demand by offering the best price, removing barriers to moving online or improve transparency.