A year or so ago we signed up for a bunch of free Cycle Alert tags. They’re RFID tags you attach to your bike that ping a sensor in the cab of suitably equipped vehicles, warning the driver that a cyclist is nearby. We even did some truly adorkable PR to go with it. If we ignore the subtle whiff of victim-blaming it’s a nice idea; after all, who doesn’t want to be safer on their bike?
Twelve months on though, and it’s all fallen a bit flat.
Why? Because not enough cyclists have the tags on their bikes and not enough vehicles have the sensors installed. Like so many businesses the Cycle Alert model is predicated on making both ends of a market simultaneously, and therein lie some serious problems.
Your business is a different beast
Around half the start-ups that reach out to us for help have a business model that relies on taking a percentage from transactions occurring on their platform. The idea might be a new twist on recruitment services, or fashion retail, or services for motor tuning enthusiasts; who knows? But they share that same problem. Without vacancies on the site why would I upload my CV? Without CVs on the site why would I post my advert or pay a fee to search? Without beautiful shoes on the site why would I visit? Without shoppers why would I upload my beautiful shoes?
This isn’t to say that applications that rely on making a market are bad ideas, but they need treating quite differently. If your business is a straight product build you can pretty safely build an MVP (for your personal definition of M, V and P, obviously) and start marketing the hell out of it, but a marketplace of any sort needs more careful planning; it’s a marathon, not a sprint, and founders – and their funders – need to plan their resources accordingly.
What is your focus and what should be your focus?
There are a few things we see over and over again with this type of business idea. First up, founders regularly focus on trying to attract both classes of users at the same time. After all, you need both to start making money, don’t you? This can have a bunch of effects, but the two that are absolutely certain are that user numbers won’t grow as fast as you hoped and that you find yourself spread too thin.
At this stage more often than not our advice is to focus on one class of users and build secondary features that draw them to the platform before the marketplace is up and running. In the recruitment example get candidates on board with a great CV builder. Or get the recruiters on board by offering great APIs to publish to all the other job boards. One way or another you’ve got to get a critical mass of one side to attract the other and get the transactions flowing.
It can feel completely arse about face – and expensive – to be building features that aren’t core to your main offering, but unlike a product build you need a critical mass before you can start generating revenue. Like I said, it’s a marathon, not a sprint, and you need to look after your resources accordingly.
Are you doing the last things first?
Secondly, founders can’t help but want to build the core offering straight away. If the business model is selling premium listings for shoes then – obviously, right? – we need to build all the controls and widgets for uploading, managing and billing those listings… Haven’t we? Right?
Well. Not necessarily. See my point above. You need to phase your delivery, and when looked at through the lens of generating critical mass those widgets probably aren’t necessary yet. I know that you’ve got a limited budget and once the product is “finished” it’s those widgets that will be the core of you making money, but if you haven’t got anyone to use them yet perhaps the budget is better spent getting users on the site some other way?
A corollary to this is that, insensitive as I’m about to sound, it’s important to make sure your site is attractive when it’s empty. If your logged-out homepage is an infinite scrolling mosaic of tiles, each made up of images uploaded by your eager users, it’s going to look awful bare on day one. Getting the first dancer onto the dancefloor is your most important job; leave worrying about the layout of the bar until after you’ve got people dancing.
Don’t underestimate. It’s never as simple as you think
Thirdly, and lastly for this post, is the biggy. Everyone we’ve ever met has underestimated what it will take to get to critical mass. They underestimate the time, the money, and the sheer volume of changes they’ll need to make along the way.
I’ve said “marathon not a sprint” a couple of times already, so I won’t labour the point… But. Well, you know… Just make sure you’ve got access to more than you’re currently planning to spend.
Your goal here is critical mass, so alongside user acquisition your focus has to be on user retention and reducing churn.
Make sure you’re swimming in analytics, analytics, analytics. These will tell you what your users are doing and give you real insights into what’s driving uptake (and drop off). And be responsive to your users’ behaviour; be willing to change the offering mid flight.
Finally, make sure you’ve got the marketing budget to keep plugging away. You’re going to need it.
We’ve got a ton of experience helping web businesses get from first idea to funding and sale, and we work in every which way, from short term advisory roles through to providing an entire team. If any of what I’ve said above rings true give us a bell; find out how we can help your business take off.