In this article, we start to explore marketplaces, and what makes a good one different from a bad one. It’s the first step in an ever-evolving optimisation. I’ve used my friend Paul and his marketplace to bring it all to life. You can find out more in our Marketplace blueprint ebook where I share in-depth knowledge gleaned from building my very own marketplace and partnering with clients to build theirs. Enjoy the read!
Since it’s a difficult business model with many pitfalls, a disciplined approach is required to build a high-quality marketplace.
My friend Paul never needs to buy a drink at the pub.
He runs a very effective marketplace. Helping builders make more money and homeowners find reliable suppliers.
I first saw the power of Paul’s business when my skylight started to leak. It was a small drip, but it needed repairing. The prospect of dusting down the ladder and searching “skylight repairs” on YouTube was unappealing. I needed to find someone who could fix the problem. Sounds simple, doesn’t it?
I have no idea about repairing skylights, no idea how much it should cost and unless I’m prepared to climb onto the roof, no way of even seeing the problem. Whoever I choose to complete the job has incredible potential to rip me off.
So, what’s the next step?
Google? Checkatrade? Referrals? Finding someone trustworthy at the right price isn’t that simple.
I decided to head down to my friend Paul’s café. He has a noticeboard where people can post requests for building work. Local builders buying their bacon sandwiches in the café take a look every morning and get in contact if they can help. Local people have been using the board for a few years now with great success, so I decided to give it a go.
Before posting the advert, Paul asked me a few questions and guided me on how I can position my advert to get the right builder interested.
This is what we came up with:
With a few simple pointers from Paul, the advert was written in two minutes and added to the noticeboard.
Later that afternoon, a local builder called and offered to visit in the morning. I decided to book him in. Because he was a customer of Paul’s, there was implicit security that I was using someone trustworthy and competent.
Running this type of business provides some advantages:
- Paul generates revenue from this marketplace in two ways. Firstly, through pints that builders buy him as a thank you for providing work. Secondly, by ensuring a constant stream of builders and customers come into his café to use the noticeboard. When people come in, they always buy something. It’s hard to quantify the marginal revenue, but it definitely increases sales.
- Paul can use his building knowledge to run the marketplace. Rather than clamber onto a roof and spend two hours in the rain, he is tucked away in the relative coziness of his café. His knowledge is useful in helping customers devise relevant adverts. He helps to make a judgement on the competence of a builder, which is done by asking a few questions.
- Paul doesn’t need any equipment or materials: no ladder, no tools and no cement. This means he has no cash tied up in materials or assets needed to deliver the work.
- Paul can process a lot of requests – far quicker than he could if he was completing the work himself. He is not responsible for the delivery of work and all the potential mistakes, disagreements and payment issues involved.
- Paul needs to keep matching buyers and sellers for the marketplace to work. If there is insufficient work for the sellers, he needs to keep them coming back to the marketplace until the work increases. Hopefully, his excellent bacon sandwiches will do the trick.
- He has limited control over the quality of the work. Yet buyers will likely blame him if the seller delivers a shoddy service.
- Sellers and buyers may cut him out of the deal. Once a buyer knows a good builder, they can go straight to them rather than through Paul.
Is this marketplace going to keep Paul in beer?
The acid test of whether Paul has a good marketplace business comes down to whether he can keep matching supply and demand. He will only succeed in doing this if the marketplace adds value to both parties and keeps them coming back.
Sellers are happy (for now)
Although the pub is a bit pricey (at £4.50 a pint and with a few games of pool thrown in, a night out might cost the builder £25), the builders are happy to take Paul out for a few beers.
Before doing so, the builder needs to ask himself whether it’s worth paying that for the work generated. Let’s say the average job Paul provides is £500. In that case, £25 is five percent of the job value. None of them is complaining at the moment – they are always asking Paul for more work. The convenience of the pre-vetted work is well worth the cost.
There is room to grow
Paul’s market is big enough; he lives in an area where the houses are old and need constant work. Also, the market of homeowners and local tradespeople has a lot of growth potential. Homeowners may have used more expensive brand-name suppliers to reduce risk, but now they’re comfortable going local. Paul has started this trend.
With Paul’s café in mind, we’re going to take a look at a blueprint for building a successful marketplace. Since it’s a difficult business model with many pitfalls, a disciplined approach is required to build a high-quality marketplace. Find out more by downloading The Marketplace Blueprint – your guide to understanding and building successful marketplaces.