The Sharing Economy or the “Secret Sauce” to Building a Two-Sided Marketplace
Marie Le Page

Marie Le Page, UK CEO of LivingPackets, new European express delivery startup, shares the lessons she has learnt on her journey as the CEO of a sharing-economy business

Technology-driven, the concept of the sharing economy has become one of the most exciting developments in the last five years. Estimated to grow to $335bn-worth by 2025, this peer-to-peer based activity of obtaining, giving, or sharing access to goods and services is quickly expanding into new horizons and new marketplaces. On a global scale, the sharing economy model is facilitating the digital revolution in many otherwise conservative industries and is introducing a fairer and greener approach to conducting business.

It is not surprising that so many startups today build their businesses around the sharing economy principles, each hoping to disrupt their respective industry and become the next indispensable ‘matchmaking’ platform.

Sharing Lessons is Vital for “Sharing Economy” Success

This is when the biggest challenge presents itself: how does one actually build up a two-sided marketplace, matching supply and demand?

Every time we demo our product or attend somebody’s else demo, the same questions come up: How do you create both the supply and the demand simultaneously? Where do you start? What tools do you use to scale the business? How do you build a trustworthy relationship between the supply and the demand so that people are prepared to take a measured risk to use your platform?

The “secret sauce” to making this work is often closely guarded by startup founders - and I do not blame them. However, I also think it is important to share lessons we learn on our journeys: isn’t ‘sharing’ the essence of the sharing economy, after all?

Below are some takeaways from my own journey to building a two-sided marketplace with LivingPackets.

What are the main challenges of building a startup in the sharing economy?

A young startup based on a two-sided marketplace model struggles with the chicken-and-egg problem: the service it offers isn’t valuable until it has acquired a large enough base of loyal users on both sides.

If there are buyers but few sellers, the buyers leave. And the value increases as the platform grows to match the demand on each side.

Typical challenges are:

1. Creating demand
2. Creating supply
3. Scaling the business and both sides of the marketplace concurrently, making sure that both sides grow at the same pace.
4. Reaching critical mass
5. Creating a Network, crucial element in our digital world. This is when a product or a service becomes more valuable as more and more people use it. The more users there are on one side of the marketplace, the greater the value of the services they receive from the other side, and vice versa. And obviously the word of mouth is a key element of growing this network.

The answer to the question ‘Which side, supply or demand, buyers or suppliers, do you build first?’ really depends on your business. And sometimes, the company has to find a way to grow one of the two sides artificially. In our world, a word of mouth is a deal-maker or a deal-breaker, and it travels at the speed of light. Whichever side you develop first, just make sure that anyone starting to use it receives a top-notch service. If needed, you can ‘fake’ the other side until it grows organically, driven by the other side.

What channels do you use to reach out to the target audiences - customers & service providers?

In today’s world of choices and information abundance, those who can capture the attention will win.

If you have limited resources and need to choose one efficient and cost-effective channel, I would strongly advise to go to social media first. Interestingly, Instagram is beginning to get noticeably more consumer traction than any other social channel at the moment. Direct interaction and engagement with your audience online is crucial to attract them and keep them interested. Be creative in your approach too!

Your marketing strategy needs to target both supply and demand equally, or you’ll end up with one side growing quicker than the other, leading to a shortfall on the other side.

As you scale your business or have a B2B marketplace, you will need to diversify your tools ‘from a range of digital channels to direct marketing, live events, event organisers […] and a handful of collaborative partnerships’, adds Toby Heelis, CEO of Eventopedia, a marketing and sales SaaS platform that enables hotels and venues to target event organisers and increase booking enquiry conversions.

Use as many channels as necessary to capture and retain your target audience, with the right mix of content, interaction and engagement, highlighting benefits of your marketplace for each side. If your business is based on the sharing economy, your success – or failure - will depend entirely on your acquired “community” and its willingness to use your interface.

What incentives do you use to build the initial critical mass of supply and demand?

It’s never easy to convince people to start using a new service. In fact, inertia is the biggest obstacle to a new market entry or growth. People don’t like changing their old habits.

One strategy is to launch your service at the time when you know that the industry, in which you operate, will likely to be facing a shortfall.

Users will be more likely to take the risk of a new solution if i) nothing else is available and ii) your solution provides a faster, more convenient and cost-effective service than the current offer, without compromising safety. For example, you can time the launch of your new delivery service during a peak holiday time, such as end-of-year holidays, when established transport and logistics companies are struggling with volume. Similarly, you can launch an accommodation marketplace during a very popular conference when hotels struggle to accommodate all the demand.

From a sales viewpoint, you can:

- Offer a free taster - I would advise giving a taste of your services first, then charge for it;
- Highlight key business benefits - for example, ‘time-saving and productivity boost’, says Toby Heelis of Eventopedia;
- Offer different levels of subscription and services - that drive your customers down the sales funnel such as ‘a freemium business model for basic service to a more sophisticated premium subscription for added services’, Heelis adds.

How do you deal with the issues of safety and trust to re-assure both market sides?

As Rachel Botsman highlights so well in one of her books, the currency of the new economy is trust. Technology is changing the way we interact with institutions and with one another, driving a huge shift in patterns of trust. Leveraging social trust to build your marketplace is crucial, and a word of mouth is today the most powerful tool to develop - or destroy - your business.

Once that basic trust is built, everything is possible in principle - from allowing a stranger to sleep in your bed when you’re not home to jumping into a car of a complete stranger.

That is why trust is one of the critical elements that you need to spend time and capital to build. Crucially, make sure that you have as part of your business:
1. Detailed registration process
2. Thorough background checks and authorisation process
3. Rating systems for both sides, supply and demand

Airbnb, for example, addressed problems of trust with good quality photographs from renters and pre-vetted credit cards from travellers.

What practical advice would you give to fellow entrepreneurs?

1. Don’t be too hasty and strike the right balance between both sides […] When demand-side users join a marketplace, supply-side users are encouraged to participate, which - in turn - encourages more demand-side users, and encourages higher-quality supply-side interest’, says Toby Heelis
2. Fake it until you make it - the company has to find a way to grow one of the two sides artificially
3. Target well and think small
4. Strike the right balance between speed of delivery, cost and quality of service. The winner is the one that can provide the fastest, best or most economical service
5. Launch during a period when you know traditional providers of your service will be struggling (and therefore market players will be more open to a newcomer)
6. Implement relevant marketing strategies to retain suppliers and keep buyers
7. Whatever side you choose to artificially grow, restrict it to a very specific ‘niche audience or market’ where you can control it and deliver on that promise
8. Focus on finding the “ideal” customer
9. Create a better user experience to enable the important ‘network effect’ to grow and to spread it through ‘a word of mouth’. When users like your service, they do your marketing for you!