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The Chicken & Egg Problem

Marketplaces tend to be tougher to build as they face the chicken and egg problem, and are often winner-takes-all.

The Chicken and Egg Problem Refers to Demand and Supply – In order to get Customers, you first need a lot of Professionals, but in order to Get a Lot of Good Professionals, you first Need Customers.

Chicken-and-egg-resized-600

Chicken and Egg Problem for Marketplaces

In addition, Marketplaces are usually Winner – Takes – All , meaning that the Leader Captures 80% of the Market while the Rest of the Market Shares the remaining 20% – Some good Examples of that include eBay and AirBnB.

We talk a lot about the Challenges of building a Marketplace at our Strategy Meetings, but one point always comes up Strongly. Rapid Growth.

Rapid Growth can help you overcome the Cold Start Problem, and reach Critical as soon as possible.

For that Reason the AtYourService Business Model was built in a way that:

maximizes Growth for Jobs and Professionals
promotes rapid expansion into a wide range of Services
ensures that Critical Mass is reached as soon as possible
while maintaining a very strong revenue model with high profitability.

How did our Business Model enable this Rapid Growth?
Well Firstly, it’s Free.

Signing Up, Posting a Job, and Submitting an Offer is Free. In addition, Early Professionals received a 12 month free Trial to our Pro Version which really helped us go.

Secondly, there is no Commission!

This made it easier to build supply as it removed an important objection we expected many Professionals to have.

Since we now had a Mechanism to attract Professionals we choose to expand into a huge range of categories (over 100 on month 1).

Because we offered services in such a broad range of Categories, it was easier for us to attract Customers because simply the odds of a visitor on AtYourService needing any of our 100 services were higher.

We also expected repeat use by Customers to be very high – which would help us gain more traction (was one of the reasons we chose our Revenue Model) but that was not confirmed.

Don’t know if we missed something here (which means opportunity for future growth) or that we were a bit too ambitious with our expectations, but Repeat Use is a key aspect in building a Marketplace.

Finally, a good by product of focusing on the supply side, is that as we gathered a lot of Professionals, they understood How AtYourService worked and they became Customers in other Categories – and high value customers as they knew and understood the system.

Lack of commission rocks
The Lack of Commission has another very important Side effect – it allows for the Payment to be made directly by the Customer to the Professional.

Direct Payments are very important because they allow us to Bypass an enormous amount of Technical and Legal complexity that is necessary when escrowing Payments.

In addition, policing a commission system, requires you to validate the Agreed prices, and prevent Customers and Professionals from bypassing the system, something that requires significant resources. The lack of Commission enables us to Maintain a very lean Cost Structure and to Focus on our Core Competencies, which are Creating and Growing the Markets.

This points is very important for International Growth, and our Model was built with that in mind.

I think we have a very Lean Model, that cannot be easily Disrupted by Competitors, but can Disrupt Competitors in their Markets when we decide to enter.

Building a Marketplace without commission allows us to bypass an enormous amount of legal and technical complexity

Building Demand side
Using Metrics for Pirates when building a Marketplace

I will speak much less about building the demand side because – well – our efforts here are highly visible. In order of importance we used the following techniques:

Excellent Customer Service to encourage word of mouth
From day 1 this was very high in our list and we always wanted to give the customer a wow experience. Much tougher to do in year 1, much easier to do now.

Find the Elephants and ride them
As we said in our first presentation in Open Coffee Cyprus, one of the jobs of an early day startups is to look for the elephants, and when they do – find a way to ride them :)

What are elephants? Elephants are big opportunities that might be just sitting in plain site and no one exploited.

The key here is that the online landscape is constantly changing. Con-stan-tly

For example, we started with Facebook as our main distribution channel in 2012. (There is a great graph that shows just how big this decline here but I wasn’t able to find it now)

When trying to grow fast, always keep an eye open for elephants

For the first few months, we were the only ones:

promoting an animation video in Cyprus
With bright colours and cool shit
With a startup from Cyprus for Cyprus.

A few months later , the organic distribution of Facebook dropped by 90% (Yes 90%). You don’t realize it in one day, but when you do you know it’s time for a plan B.

Our Elephants include:

Focusing on unemployed people to get huge boosts in traffic
Doing the first lifecycle email system in Cyprus and sending lots of really targeted emails first
And later, building the best or some of the best Paid Advertising Campaigns both in Facebook and Google in Cyprus, which brings me to

Paid Advertising

A lot of people really ignore this channel. They think that everything will go viral.

I have one thing to say to them. It won’t :) Actually paying for advertisement and promoting the right stuff at the right people at the right time is a big component of virality in 2015

There are only a few Scalable customer Acquisition Channels – the article says it much better than me

I am quite confident (and open to show our work) that we have some of the best campaigns in Cyprus (Best = Most effective) and that they can easily scale and improve in larger Markets.

To be fair, Customer Acquisition Costs in Cyprus are still very very low, which means that you get so much more out of your budget

Fun Fact: It costs more than 4 times to get the same click in Greece and 10-15 times in UK and US.

One important element here is that the landscape is again always changing, which means that you must be willing to throw all the work u ve been doing until now, and start fresh when Facebook or Google introduce a killer new feature (very often).

PR

PR was never too high on our list, but as we moved forward we saw that it was quite effective not in bringing new customers in, but helping us build a strong brand and changing the perception of people.

If you want to do PR for your startup, you should start by reading this guide,

Ok so I said this wouldn’t be long, but I lied. Well I thought it wouldn’t but I got excited :)

These are just a few of the tools we used to grow our demand side, but at the same time they are the most important and scalable ones.

Sorely missing from the above is SEO, and that’s because we only started working seriously on SEO over the last year (yeah, we `re stupid, feel free to tell us that in the comments:) )

My Personal View

The above are the tools we used to overcome the Chicken and Egg problem. They are necessary, and without the proper tools you can never achieve anything.

But then again, you already knew that. Probably the real secret behind everything is that:

We never gave up

Like really never. Christophoros wrote an amazing article about being a cockroach that sums it up. Sure there are Professionals that signed up and “got it” after receiving the first email, but the truth for the majority is quite different.

Especially for “big name” Professionals and Companies we very often had to try to get them on board.

There is one specific company that we tried to onboard from very early.

The first time we called them they were laughing and pointed out like 100 mistakes we were doing
So we fixed them and called them back a few months later – they pointed out another 100 mistakes
Same process again – still laughing , still saying we re just kids, still not signing up, but not as strong as earlier
So we contacted them again a few months later telling them whats new…
Ok you get the picture. After 10 or 15 attempts they are happily offering their great services on our platform :)

never ever give up

Should you do the same for everyone? Hell no, there is no time.

What we actually did, is when we heard a no from someone we just moved on and found someone else.

BUT you should be able to do it if and when is needed. You simply must never give up.

If you never go away you`ll tire them at some point and you `ll win :)

Which brings me to a very important point.

Creating and exiting a Successful startup takes 7 years on average

Be mentally, and financially prepared for that. When I was talking to the M&A Manager of the Styria Group in Austria – the Largest media group which have their own version of AtYourService in a few countries, he told me that it takes them at least 5 years to become profitable in a new Market.

So one of the reasons we were able to do it is because:

We knew it wouldn’t be easy
We had the funds to last – we Burned €220k of capital to date and we are still not profitable.
And that’s probably another good bit of advice I can give to early stage startups. You really can’t predict the amount of money you `ll need, and while burning 200-300k might seem absurd now, once you get traction it might seem like funny money.

In fact, we had this discussion last Saturday (after a few drinks) with Andrew from Funifi, and it’s very nice to see that their experiences have lead to the same conclusion.

So let’s make this actionable. When raising money in a seed round, raise much more than you think you need.

Raising 800k is not twice as difficult as raising 400k, but will give you many more opportunities to save your startup when things don’t pan out exactly as expected.

Conclusion
I have soooooo much more to say but this is already too long. The only other bit of advice that I can add to this is that if you are to do this you should find a way to start every day with a smile, and enjoy every day.

Startups are not a shortcut to success or being a millionaire – lots of studies have proved that the best way to make more money is work for a large company.

They are definitely not the easy road to anything as well – they are definitely tougher :)

However, startups give you an opportunity “to create”. To create something out of nothing, to make your mark on society, to see what you `ve built and realize that it `s not perfect (and yikes, you are not perfect as well) and be humbled by it.

At the same time startups give you the opportunity to make your mark on the world. If that’s your cup of tea, then welcome to our world – and you`ll like it here

When building your startup, remember to enjoy every day

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