Although Seamless/Grubhub is now better known for B2C services, when I came on in 2004 the business was exclusively B2B, which is what I focused on during my almost nine years there. My team signed up companies that ordered meals from local restaurants, representing the demand side of the marketplace. Another team assumed responsibility for signing up restaurants to provide food (the supply side).
Providing an efficiency solution to a two-sided marketplace is an advantageous business model that offers built-in protection from imitators. But on the sales side, building such marketplace is challenging.
Now at Transfix, where I’m the Head of Sales, we operate in a similar fashion. On one side we sign up shippers who have goods that need to be transported, and on the other side we have carriers who provide the trucking services. Shippers are the demand side and carriers are the supply side. Whether it’s food or freight, the basic business model is the same.
Getting this type of business off the ground and then to scale requires a lot of work and a sound strategy. Here are some of my recommendations.
The Chicken or Egg Problem
In most two-sided marketplaces, the supply side needs the demand side. No one on the supply side of the transaction wants to sign up without demand being in place, and the reverse is also true. At Transfix, we sign up shippers who want to ship goods. They have no reason to work with us unless we also have relationships with carriers (who employ truck drivers) who can fulfill that need.
On the flip side, carriers have no reason to partner with us unless we can connect them to shippers who will hire them for the job. At the beginning this creates a classic chicken or egg problem. We need carriers to sign up shippers and we need shippers to sign up carriers.
So, how can we solve this conundrum?
Start Building Up Trust on the Demand Side First
Early on it’s easy to overextend yourself. Starting off slowly is key. You need to build up both the demand and supply sides at a manageable rate.
Generally I recommend approaching the demand side first. Tell demand-side customers what you’re doing and ask for a small commitment. You don’t need to ship all of their goods right away. At this stage, be very transparent. If you don’t have supply lined up, you’ll need to ask your first customers to wait a little while before you get the marketplace off the ground. Don’t promise more than you can deliver. However, there is value in telling prospective customers that you can do A, B, and C for them right now and that D, E, and F are currently in development.
Leverage Your Marketplace to Increase Supply on Par with Demand
Once you have some demand lined up, you can then go to the supply side and tell them about your burgeoning marketplace. They are more likely to express interest if some demand is already in place. After you’ve acquired interest on both sides you can use that to ratchet up the business. Go back to shippers and ask them if they’re interested in shipping more goods with you. Then you can sign up more carriers and so on. As you acquire customers, make sure that you don’t massively increase supply without also increasing demand. The two sides need to be roughly commensurate in order to create a functional two-sided marketplace.
Having a firm understanding of your unique value proposition can help you greatly when approaching customers. At Transfix we’re improving on a business process that already exists: shipping goods from point A to point B. Our technology adds value to the process. Shippers can transport goods more cheaply and efficiently, while carriers can make more money for each job and avoid doing mundane tasks like faxing back a proof of delivery. When we explain that to prospective customers, we can effectively sell them on joining our marketplace.
How to Target Your First Customers
You should target early customers carefully. Although some marketplaces target small companies at the beginning, that’s not the only strategy. Transfix targets large companies, but we may start with small volumes within those accounts at first.
Industry norms will dictate your strategy. The shipping industry is organized by “lanes.” New York to Los Angeles is one lane, while Dallas to Houston is another. At the early stages of our business, Transfix selectively focuses on certain lanes. We target shippers who need to ship goods in these lanes and carriers who have the capacity to work the same lanes. So while we may work with a large national retailer, initially we’ll only handle a portion of their total shipping. As we expand our marketplace and prove our value, we expand those accounts.
Focus Your Expansion by Geography
Seamless concentrated on certain neighborhoods in the early days. Since restaurants only deliver food within a certain radius, it made sense to acquire both supply and demand within a neighborhood to get a robust marketplace going. Moving to a new neighborhood or lane requires building the marketplace from scratch to some extent. The difference is we now know that the model works and so replicating in a new neighborhood or lane is easier the second and third time.
Understanding the Role of Specialists within Your Team
Your sales team should be organized in accordance to the operations of the two-sided marketplace. Usually it makes sense for one team to handle demand and another team to work on supply. Within those teams, further specialization can sometimes—but not always—be useful.
When your team is small, avoid specialization. Early hires should be jack-of-all-trades who can sell to all targeted businesses. I look for grit and coachability during the hiring process.
As you expand, specialization becomes possible and important. So, Seamless might have one team member who specializes in selling to hedge funds, while another person sells to law firms. But the problem with specialization is that it works really well until it doesn’t. If a sales rep leaves, you may be left without the ability to sell to hedge funds until you replace that skillset on the team. Personally, I caution against over-specialization unless you have a larger team. If you do have a larger team and / or a varied audience of prospects, specialization can do wonders for your team’s’ performance because everyone can become an expert in their specialty.
Although creating a two-sided marketplace requires a lot of legwork and can be a delicate balancing act for a while, it’s a great business to be involved with. Because it takes so much time and effort to set up, it’s hard for a competitor to come in and gain market share if you’re doing it right. While every business has its own unique challenges to overcome, I hope my experiences can help you create an effective game plan to tackle yours with confidence!