Marketplaces

Marketplaces are roughly 2x as hard as non-marketplace businesses because you must find product-market fit for both supply and demand.

The five most common reasons marketplaces fail are lack of demand-side PMF, lack of supply-side PMF, lack of liquidity, bad unit economics, and scaling too fast.

Marketplaces beat non-marketplace alternatives on demand by delivering a much cheaper product, a much better product via exclusive supply, or a much better experience via aggregating disaggregated supply.

There is generally one fatal issue that kills a marketplace rather than a combination of equal factors.

Take rate is determined by the formula: Convenience + Demand - Competition, where platforms generally charge 5-15% and marketplaces charge 10-50%.

In winner-take-all markets, charging a lower take rate often beats a higher one because higher fees create friction and opportunity for competitors.

Most marketplaces fail not because of marketplace-specific issues but because of fundamental business problems like not building something people want, too small a market, or inability to acquire users.

To evaluate a marketplace idea, first assess seven business fundamentals (PMF, market, timing, distribution, team, moat, business model) and then seven marketplace-specific factors (demand PMF, supply PMF, scalability with quality, frequency/AOV, platform stickiness, repeat need, fragmentation).

Magical growth loops where existing users recruit new users come in four types: supply driving demand, demand driving supply, demand driving demand (virality), and supply driving supply.

DoorDash, Cameo, and Faire found that recruiting supply effectively drives demand for free because supply has a natural motivation to bring customers to the platform.