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Let’s talk about two-sided markets

What is a two-sided market? It is one in which you act as the intermediary between 2 distinct groups who must come together, that is, neither can exist alone. For example, Uber is the intermediary between Drivers and Riders. Most Ecommerce platforms are two-sided, they connect merchants to buyers.

Well, there is something you should know; they are notoriously hard to pull off. 

First challenge, who do you bring to the platform first? No, you can’t bring both to the platform together. One group has to wait for the other. Uber had drivers on the road, before the launched to riders. Imagine they launched to both groups at the same time, that would have been silly. Yet, that is what I have seen startups do over and over. 

Say you correctly identify the side to bring on first. How do you convince that side you are worth taking a chance on? How do you convince them to wait, while you go bring the other side? Uber did this by giving drivers a guaranteed income of 100,000 Naira per week, irrespective of the number of rides they took, as long as they were online for certain hours. I think they did this for a few months.

Now, say you figured out a way to make the first group trust in your capacity to deliver, and you get them to stay committed to the platform; you now need to go talk to the other group and convinced them that the first group is in fact already waiting for them. That all they need to do is sign up to your platform. Usually, the second group is the one with the money to spend, so you have to be really convincing.

If by some miracle or sheer determination, you get the second group to come in, just in time, before the first group abandons the platform; you now need to make sure both groups are engaging in a lot of transactions. Few transactions, and you don’t make enough commissions to sustain the continuous marketing and operations the platform requires. You need a lot of transactions to survive. It is at this point you feel you are in a great position to raise money from investors.

Then comes the final challenge, you need to figure out how to embark on a time consuming fund raising process without any drop in traction (traction is measured in transaction growth). Remember, if your number of transactions drop, that potential investor will raise an eyebrow, and probably ask you to come back in a few months when your numbers pick up again. But you don’t have a few months.

Still feeling confident? I hope not.

By now you should have figured you need a truck load of money to build a technology business that targets a two-sided market. Or do you?

Well, there is another way. And it starts with choosing a very small market. Don’t connect all the electronics sellers in Lagos to Buyers in Lagos; connect all the electronic sellers on Allen Avenue, to buyers in Ikeja. If you are going to give yourself a fighting chance, there is no other way but to choose a really small market. Let it be so small, your friends laugh at your lack of ambition.

After you do this, your next move will be dependent on your market and context. And I am willing to have a chat with you about this. The Airbnb story should be good inspiration. They picked a small market and targeted specific events – basically they would wait for events or conferences that are guaranteed to draw enough crowd that the hotels in their area will be overbooked. And then they try to capture that extra demand. 

Think about it, Airbnb, the company now worth billion of dollars, started by going to events where people were likely to be stranded because of no available hotels, and convincing them to try their Air Bed n Breakfast. And they did this for two years before they had their big break.

Point is, if your big idea is a two-sided market, you’ve got your work cut out for you. You are going to need all the money you can get, and you are going to need all the support you can get. Feel free to get in touch with me, it is likely I know someone who has tried to do something similar. That experience, would be worth the person’s weight in gold.

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