Getting a marketplace off the ground is akin to jumping out of a plane and building the parachute on the way down. It requires you to get two sides to show up at once, in the right ratios, and then to transact (and repeat).

This precarious situation is also commonly called the Chicken or the Egg problem.

Today’s post uncovers tactics that real companies used to solve the Chicken or the Egg problem. We provide 14 tactical tips below, using examples from real companies.

Founder, chasing chickens

But before we dive in, here are three (somewhat counterintuitive) guiding principles for starting a marketplace that you should first consider to smooth the runway for takeoff:

  1. Go after the harder side first

  2. Start small, within a niche

  3. Gravitate towards things that don’t scale

This post relies heavily on an excellent convo I had with James Currier, Founding Partner at NFX, on network effects and marketplace businesses.

Go after the harder side first

Figure out if you are a demand side or supply side marketplace. Every marketplace has an inherent tilt to it.

At the end of the day, you are whatever the harder side is, which is the direction you’ll have to lean towards in order to keep the sea-saw you’re building off the ground.

For most marketplaces, if you aggregate the harder side, the other side will eventually show up because the option you are providing is just that much better than existing options.

  • For Airbnb this was the supply side - getting home owners to allow random people to stay in their houses.

  • For Rover this was the demand side - allowing strangers to walk their dogs.

The majority of the time the harder side is the supply side, but that’s not always the case.

Start small, within a niche

❝

"I know you want the whole market, and you've pitched your VCs and employees that you're going for this giant market, and you'll be a billionaire someday...

But that's the convertible...

And you actually have to build a skateboard to begin with...

You have to love the skateboard..."

-James Currier, NFX

When you're building a marketplace, starting small is not only the right thing to do - it's necessary.

Instead of going after the entire tours and activities market, you may start with Scuba diving for people over 65.

This specific “SKU” becomes your “white hot center” which everything else will bleed out from.

From there, you may move into other activities for people over 65, or attract younger people who also like to scuba dive. It’s a natural progression into other tangential areas once you get movement from your white hot center.

Here are some examples of starting small:

  • eBay started with Pez Dispensers and expanded into Beanie Babies

  • Uber started with black cars and expanded into normal cars, helicopters, SUVs

  • GOAT started with shoes and expanded into clothing, baseball cards, watches

  • Amazon started with books and expanded into… everything

Do things that don’t scale

There’s a term for this - Flintstoning: To people on the outside, it looks like you are driving a fully operational car. But under the surface, your feet are quickly moving to make it go.

  • DoorDash manually uploaded menus from restaurants (without their permission) and when an order was placed, they would then call it in themselves, go get the food, and deliver it without the restaurant knowing it was going on

  • The founder of Zappos, an online shoe and clothing retailer, started by posting pictures of shoes from local stores on his website without actually having the inventory. When an order was placed, he would buy the shoes from the store and ship them to the customer. This allowed Zappos to test the market without a significant initial investment in inventory.

  • Groupon initially functioned without an automated system for handling deals and vouchers. The company's employees would manually generate PDF vouchers and email them to customers after a deal was purchased. This labor-intensive process was crucial for proving the concept before investing in a more scalable solution.

Here are 15 tactics to crack the Chicken or the Egg problem.

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