The chicken-and-egg problem is a familiar challenge that marketplace founders must grapple with from the outset. To put it in a tangible context, consider a farmer’s market: for it to thrive, you need both suppliers (the farmers selling fresh produce) and customers (the shoppers looking to buy). This delicate balance is essential – without ample participation from both sides, the market cannot function effectively.
Understanding the Marketplace Paradox
If there is no demand – no customers – farmers have little incentive to wake up at 4 AM to set up their stalls. Conversely, if there are no farmers, customers have no reason to visit the market. As the founder of an online marketplace, you’ll encounter these same issues, and overcoming them is typically one of the first hurdles you’ll face.
Do you find the riders first, or the drivers? The hosts, or the guests? This stalemate can stall your marketplace before it even gets off the ground.
Strategy 1: Treat the Start as One-Sided
It’s tempting to launch with a fully-fledged, two-sided marketplace and devise elaborate marketing strategies to attract both suppliers and customers simultaneously. However, this approach often leads to spreading your efforts too thin, making it difficult to gain traction on either front.
Instead, cheat. Turn your two-sided problem into a one-sided one.
The “Single-Player Mode”
Build a tool that is valuable for one side of the market even if the other side doesn’t exist yet.
- OpenTable: Before it was a reservation site for diners, it was purely a table management software for restaurants. Restaurants bought it because it helped them replace their pen-and-paper logbooks. Once OpenTable had thousands of restaurants using their software, they flipped the switch and opened the consumer-facing booking site. They solved supply first by providing utility unrelated to demand.
- Square: Started by giving merchants a cool, accessible way to accept credit cards. They didn’t need a consumer app to make that valuable.
The “Concierge MVP”
You can also fake the supply side manually to test demand.
- DoorDash: The founders didn’t start by signing up restaurants. They found PDF menus of local Palo Alto restaurants, put them on a simple static website, and waited. When an order came in, they went to the restaurant, bought the food as a regular customer, and delivered it themselves. The restaurants didn’t even know they were on DoorDash. This allowed them to validate demand without needing to solve the grueling supply negotiation problem first.
Strategy 2: Constrain the Marketplace
One of the biggest mistakes new founders make is trying to be “The Uber for Everything” or “The Global Marketplace for X”. When you are small, broad is bad. You need density.
Geographically
Uber didn’t launch in 50 cities. They launched in San Francisco. They focused all their supply acquisition and rider marketing on a few square miles. This ensured that when a rider opened the app in SF, there was a car nearby. If they had spread those same drivers across the whole US, no one would have ever gotten a ride, and the app would have died.
Categorically
Amazon didn’t start as “The Everything Store”. It started as “The World’s Biggest Bookstore”. Books were easy to source, easy to ship, and non-perishable. Only after they dominated books did they move to CDs, then electronics, and eventually everything else.
Lesson: Pick a niche – whether it’s a specific city or a specific vertical – and win it completely before expanding. Liquidity is local.
Strategy 3: Focus on Supply First
For most marketplaces, supply is the harder side to crack, but also the most valuable. If you have the best supply, demand will often follow.
Why Suppliers First?
- Inventory is Content: Every new supplier listing is a new page on your site. Google indexes these pages, which drives organic traffic (SEO).
- Suppliers Bring Their Own Audience: A yoga teacher joining your platform might bring their existing students with them.
- Patience: Suppliers are businesses. They understand that it takes time to build a customer base and are often willing to list their services for free in hopes of future sales, whereas buyers have zero patience for an empty shelf.
Case Study: MentorCruise’s Early Suppliers
For MentorCruise, I recognized the importance of onboarding mentors who had the power to attract students.
- Targeted Outreach: I didn’t just blast emails. I hand-picked engineers at Google, Twitter, and Netflix.
- The Pitch: “I’m building a platform to help you monetize your mentorship. You keep 100% of your rate (initially).”
- The Result: 12 high-profile mentors joined. Because they were well-known, students started searching for them, found MentorCruise, and the flywheel started spinning.
This “supply-first” approach allowed us to launch with a credible catalog, even if the catalog was small.
Strategy 4: Subsidize One Side
If you have funding, you can pay one side to show up. This is risky and capital-intensive, but it works if you need to jumpstart liquidity quickly.
- Uber: Paid drivers hourly guarantees to sit in their cars even if they didn’t get rides. This ensured that if a rider did open the app, a car was there.
- ClassPass: Bought bulk classes from gyms to fill their inventory, reselling them to users often at a loss initially to build the user base.
This creates artificial liquidity. You are paying to fake a functioning market until the organic volume takes over.
Strategy 5: Piggyback on Existing Networks
Find where your users are already hanging out and siphon them to your platform.
- Airbnb: Famously reverse-engineered Craigslist. When a host posted on Airbnb, they offered a one-click feature to cross-post that listing to Craigslist. When users clicked the Craigslist ad, they were redirected to Airbnb. They leveraged Craigslist’s massive liquidity to build their own.
- Etsy: Targeted sellers at craft fairs and in knitting forums. They went to where the artisans were already gathering.
The “Bowling Pin” Strategy
Geoffrey Moore famously described the “Bowling Pin” strategy for crossing the chasm, and it applies perfectly to marketplaces. Imagine your market as a set of bowling pins.
- Pin #1: Your initial niche (e.g., “Book rentals for Harvard students”).
- Pin #2: The adjacent niche (e.g., “Book rentals for MIT students”).
- Pin #3: A new category for the same audience (e.g., “Tutor finding for Harvard students”).
Don’t try to knock down all pins at once. Focus all your energy on Pin #1 until it falls. Once you capture Harvard Book Rentals, you have the infrastructure, the brand trust, and the user base to easily knock over Pin #2.
Trying to launch “Global Student Services” on day one is like throwing a marble at the pins. Launching “Harvard Book Rentals” is like throwing a bowling ball at the lead pin. The momentum carries you forward.
Doing Things That Don’t Scale
In the early days, your biggest advantage is that you are small. You can do things that big competitors can’t.
- Manual Matching: If your search algorithm is bad, act as a concierge. If a user searches for “Piano Teacher” and finds nothing, email them personally: “Hey, I saw you were looking for a teacher. I know someone great who isn’t on the site yet, let me introduce you.”
- Photography: Airbnb founders went to hosts’ houses in New York to take professional photos for free. It made the site look trustworthy and helped listings sell.
- Onboarding: Call every single new user. Welcome them. Ask them what they need. This feedback loop is invaluable.
You can automate these things later. For now, be the grease in the gears.
The White-Glove Onboarding
Going deeper into “doing things that don’t scale”, consider offering White-Glove Onboarding for your first 50 suppliers.
Don’t just send them a link to a sign-up form.
- Schedule a Zoom call.
- Interview them to write their bio for them.
- Upload their photos yourself.
- Set their pricing based on your market research.
Why? Because your early suppliers are likely busy and skeptical. By doing the heavy lifting, you remove friction. Plus, the quality of these “hand-crafted” profiles will be 10x better than what they would have done themselves, setting a high quality bar for future organic sign-ups.
Community-Led Growth
Another powerful lever is building a community before the marketplace.
Product Hunt started as an email list. Stack Overflow started as a blog (Coding Horror).
If you can build a Slack group, a Discord server, or a subreddit where your target audience hangs out to discuss their problems, you have a captive audience. When you launch your marketplace, you aren’t launching to crickets; you are launching to a room full of friends who trust you.
Fake It ‘Til You Make It (Ethically)
There is a fine line between “Concierge MVP” and deception.
- Ethical: Listing items from other sites but clearly stating “We will buy this for you”. (e.g. a personal shopper service).
- Unethical: Creating fake profiles with stock photos to make the site look busy.
Be careful. Trust is hard to gain and easy to lose. If a user books a “fake” supplier and gets cancelled on, they will never come back. It is better to have 10 real, responsive suppliers than 100 fake ones.
Conclusion
The chicken-and-egg problem is a significant hurdle in building a successful marketplace, but it doesn’t have to be insurmountable. By starting one-sided, focusing on suppliers first, and gradually transitioning to a two-sided platform, you can build a solid foundation for growth.
Remember, starting one-sided isn’t a limitation – it’s a strategic choice that allows you to validate your concept, refine your offerings, and build momentum. Suppliers can become powerful ambassadors, helping you attract customers organically. When you’re ready to scale, careful planning and preparation will ease the transition and set you up for long-term success.
Building a marketplace is a marathon, not a sprint. Solve the chicken-and-egg problem one match at a time.
How Twosided Can Help You Validate Your Market
Overcoming the chicken-and-egg problem is all about monitoring your Supply-Demand Ratios. You need to know when you have “enough” supply to turn on the marketing hose for demand.
Twosided helps you track these critical early-stage metrics:
- Search-to-Fill Rate: Are your early users finding what they search for?
- Supplier Liquidity: Are your first 10 suppliers actually getting bookings, or are they churning because it’s a ghost town?
- Geographic Density: See exactly where your supply and demand are clustering on a map.
Don’t launch in the dark. Use data to know exactly when your flywheel is ready to spin. Get started with Twosided for free.