Marketplace Best Practices: 10 Lessons From Marketplace Operators

Businesses that launch marketplaces often face similar challenges.

In a Forrester study commissioned by Nautical Commerce, over 80% of respondents faced unexpected challenges when launching their marketplaces, from employee reticence to adopt new technologies to unexpectedly high costs.

To avoid hitting unexpected bumps in the road, it's helpful to hear from people who've been there before. Marketplaces are complex ecosystems, and getting advice from marketplace experts is a great first step to simplifying your marketplace journey.

First, how do you build an effective marketplace?

To build an effective marketplace, you must consider both sides of the business. On the one side, marketplaces have to ensure that consumers have an easy, user-friendly experience. At the same time, marketplaces need to provide sellers with a seamless system behind the scenes. 

Many invisible operations take place behind the scenes like how your products get delivered within 24 hours, how your payments always go through to the right place, and how the entire digital ecosystem fits together without faltering. It's these invisible operations that make or break a marketplace.

10 Marketplace best practices for success (from marketplace operators)

There’s no one-size-fits-all approach when it comes to launching a marketplace. That being said, marketplace founders come across many of the same challenges. We compiled best practices for addressing these obstacles. And who better to hear from than marketplace operators themselves.

1: Start with an MVP

For Matt Holder, founder of Loop Golf, a marketplace for booking tee times for golfers, marketplaces should always start with a minimum viable product (MVP) and go from there. 

Loop Golf began as a simple web app that tracked GPS data relevant to golf, like shot tracking. 

“It sucked. It was so bad,” laughs Matt. “It didn't work, but I learned a lot from it.”

Despite the lackluster reception of his initial prototype, Matt came to understand something extremely important by building a marketplace MVP: while the product was a failure he was able to take the feedback he received and iterate to create a brand new product that solved real demands.

2. Get clear on your mission

Over the last 10+ years, ThredUp has established itself as a preeminent player in recommerce. When we asked Ryan Moser, former VP of Strategy, what makes ThredUp a successful marketplace, Ryan credits how fully their team believes in the company’s mission: to inspire the world to think secondhand first.

“A lot of people have been [with the marketplace] a long time and care deeply. And I think without having a clear sense of purpose, it’s really hard to do that,” he says. “Do you have talented people who are bought in? We have a ton of those people. So I also think that’s a major part of it.”

3. Solve for the hardest side of the marketplace first

As mentioned earlier, part of what makes a marketplace so challenging is that you need to solve for two sides: Supply and demand. According to Matt Holder, it’s critical to tackle the hardest side first. For many, that will be the supply side.

Matt explains: 

“Unless you have supply, you’re never going to generate demand. While generating demand isn't easy and getting in front of millions of consumers and building up that brand isn't easy, you'll never get there unless you have the supply side.” 

Once you’ve found sellers to join your marketplace, operators can make the onboarding process easier by allowing sellers to integrate their preferred order management system (OMS), inventory management system, product catalog, shipping providers, and other ecommerce tools directly into their platform.

4. Leverage technology to get started and scale

Some marketplace operators believe they need to write all their own code to compete. But marketplaces grow because of their ability to execute sales, not because of their ability to build IP software. Using marketplace software lets you validate your marketplace model and make adjustments without pouring too many resources into a brand new piece of technology. 

Matt used pre-existing solutions to quickly create the first version of his Loop Golf product, which ultimately helped him understand where he was going wrong. It was faster and cheaper to create than it would have been to build himself, which allowed him to get his MVP off the ground.

“Launch it, put it in people's hands, and have them tell you it sucks,” Matt says. “Great. Why does it suck?” Getting that fast and cheap feedback was invaluable. “The best position for me as a product manager and as an entrepreneur has always been either ‘This sucks and it's horrible’, or ‘This is really great.’”

Using a pre-existing platform built by experts also means you don’t need to worry about keeping up with technology updates and regulations.  

5. Adapt your business model to market needs

Olivia Mihaljevic, founder of LIVD, a B2B marketplace for employee lifestyle benefits, believes that businesses should be ready to pivot and adapt to market needs, however unexpected.

While being hyper-localized and hyper-personalized were critical to LIVD’s initial value proposition as a B2C beauty services marketplace, they would eventually prove too difficult to scale in the marketplace model.

Olivia sought counsel from her network and ultimately made the leap from B2C beauty to B2B benefits.

The key moment, according to Olivia, was recognizing when a little problem had shifted into a larger one that demanded a big change

“I think for us, it was really being honest about what we had built and where we wanted to go. It’s challenging because you spend a lot of effort and energy building something. And then you have to start again.”

6. Listen to your customers’ feedback 

Nicole Murphy is the co-founder and CEO of Tall Size, a marketplace for clothing designed for tall women. Tall Size began as a directory of fashion brands for tall women. While the directory received positive reviews, their users were frustrated that they had to deal with so many separate websites.

Ultimately, it was thanks to this customer feedback that Nicole and her co-founder decided to launch their own marketplace that solved those consistent complaints.

“Try to find those micro-communities of people and use those to your advantage in the early days,” Nicole says. “I think as you grow, you'll be able to create your own community that you can tap into. But those existing communities were huge for getting our business off the ground.”

Listening to customer feedback is the first step to nailing your marketplace’s customer experience. Marketplace success doesn’t only come from the products they sell, but from the entire experience of buying on the platform. Ultimately, marketplaces are selling trust and reliability to their customers, and that isn’t possible without first listening to customers’ feedback.

7. Build trust among buyers 

For marketplaces in any industry, building trust with buyers and sellers is extremely important, and losing that trust comes at a high cost.

Nick Pinkston, Founder of Volition, is deeply familiar with the importance of building trust. It's what's allowed him to compete with bigger marketplaces like Amazon or Alibaba. He shares:

“At a tradeshow, I went around to the suppliers, and 30 or 40 percent told me that they were on a marketplace like Amazon 10 to 15 years ago, and they were driven off by all the knockoffs.”

As an industrial parts marketplace, it’s imperative that product data be correct and that suppliers are vetted. The risk of buying knock-off parts could be catastrophic. 

Volition builds trust by honing in on their niche and being experts in their field. They ensure that they're selling from the right people and building confidence with the right people by: 

1. Allowing customers to see what suppliers they’re purchasing from.

2. Targetting the people actually using the product before trying to sell the marketplace to the entire team. “Our developers are mechanical engineers and people like on the IC level a lot of the time," Nick explains. "You don't just go into the COO and say, we want to change all the sourcing. They're just going to say, well, does your stuff work for us? And then you're going to go back down. So, we would always go in at the bottom and then do a land and expand to other teams.”

8. Find community for support

Despite having experience in ecommerce, Nicole Murphy found the nuances of building a marketplace were a lot more challenging than traditional first-party commerce. Without having a community of people around who were in the same boat during the transition, it would have felt lonely. 

For Nicole, the Everything Marketplaces community was a great resource and a “game changer”. When she came across the community, it felt like she’d finally found her people. Nicole expands:

“It’s also validating that [building a marketplace] is actually really hard and really weird and challenging. You’re not alone in that.”

9. Believe in your team

Your customers aren't the only people you should listen to. You should also listen to your team. And the first step to doing that is building a team that you trust. After all, half of what makes a successful startup is the people on board the bus. 

Mariam Naficy, Founder and Executive Chairman of Minted, credits a lot of her entrepreneurial success to the people she chose to partner with. Early in Mariam’s career, she co-founded the first online cosmetics company, eve.com. Despite very little belief in the idea from VCs, her co-founder was set on cosmetics. And she was set on her co-founder. One year later, they sold the company for $110 million. 

As a marketplace founder, or any founder for that matter, it's critical to build a team whose opinions you take seriously. Mariam shares: 

“If you committed to being part of a team and the team you picked and believe in wants to go in a specific direction, I don’t think it’s a bad thing to listen and go in that different direction. Certainly it was the right move for me.”

10. Invest in marketing and PR

All publicity is good publicity, right? 

That was certainly the case for Yannis Moati, Founder and CEO of Hotels By Day. When it was time to build demand for his marketplace, one of the most impactful things he did was hire a PR agency. In particular, it landed him a spot on Shark Tank. And despite “bombing it legendarily”, it was a turnaround for the company because it got so many replays.

The moral of the story? You don’t necessarily need to get onto Shark Tank, but you do need buzz. 

Gather more marketplace insights to avoid common challenges

Every marketplace launch is a unique process with its own set of challenges, but seeking out insights and marketplace best practices from others is an excellent way to avoid common missteps. 

For more marketplace learnings, listen to our podcast: Operation Marketplace.