What's Next: Spin, little marketplace flywheel, spin!

February 8th, 2019: the most memorable day of my career. I plunged into the crazy world of entrepreneurship, founding RMW Commerce Consulting. Since that day, I've made over 6,000 new industry friends and partnered with companies across the entire eCommerce ecosystem. I think this eCommerce thing has legs. 

 Who knew a product guy could start a consulting firm?  Thank you for being on this journey with me, and I genuinely appreciate all the support!

5 minute read

What has you talking...

It always surprises me how polarizing eBay is.  I would think people stopped caring, but no.  You do care, you really do!  "eBay shutting down Managed Fulfillment" got 46 comments on LinkedIn - one of the highest in the past month.  Thanks to Bob Davidson, Rob Dunkel, "eBay historian" Tim Reilly, and Mark Waverek for your insights.

You launched a marketplace, ugggghhhh...now what?

Casper shocked the world by showing how terrible a DNVB could be.  This failed IPO only adds more luster to the idea of an inventory-free direct-to-consumer alternative.  That's right, a marketplace.  People see the success of Amazon, thredUp, and StockX and want to replicate it.  More and more, marketplace business models are becoming the antidote to declining investor interest in "traditional" DNVBs.

Getting that patented marketplace flywheel spinning requires the right outlook. Here are a few notes to keep in your back pocket on your journey:

1. Get the Board on board. 

Financial sponsorship is central to everything you do.  When the money runs out, the party is over.  Build a realistic P&L outlining all your costs, vendors, marketing, site build-out, customer service, the whole 9 yards. 

Think carefully about your revenue ramp and what contributes to it.  For instance, it will take longer to recruit sellers than you think. 

Finally, keep your Board engaged by establishing regular check-in points to ensure they feel like they are steering the ship with you, rather than criticizing your performance from afar.

2. A tale of two organizations. 

Your organization, goals, team, and compensation can't conflict.  When someone asks me to assess why their marketplace isn't growing, the first thing I want to know is the teams involved and their goals.  They are almost always misaligned.  

The merchandising organization is resistant because they don't get credit for those sales.  The CMO is mad because they don't feel the sellers are on brand (how did all these shadows get on my site imagery?) and has no incentive to promote the inventory.  The list goes on.

Your buyers only care about high-quality products and a fantastic experience.  Shouldn't that be your only goal?

3. Are you focused on the right metrics?  

When you only book commissions as revenue, it's easy for merchandisers to throw shade because the third-party seller (3P) transaction amount is lower revenue than your warehouse (1P) products.  You have to remember: revenue is only one part of the equation. 

What is the margin and other costs associated with 1P goods? Don't let revenue be the only metric your teams are focused on when it comes to your performance tracking and bonus plans.  It's the fastest way to have your marketplace get pushed aside and not scale.

4. You get a SKU, and you get a SKU, and you get a SKU. 

Get my Oprah joke?  Shouldn't a marketplace increase your selection, and shouldn't more selection lead to more sales?

NO.

If that selection is the same offered by Walmart, Amazon, eBay, Groupon Goods (R.I.P), you just added a ton of useless products to your site, congratulations!  The key message?  All selection is not created equal.  Have a point of view for what selection adds value for your buyers and will help you reach new audiences.

5. Why should a seller care?

Many organizations have a Field of Dreams mentality: If you build the marketplace, sellers will come. It's not true. You must show them what's in it for them. There are only three reasons your sellers will care:

• Your site's audience matches their target audience and doesn't overlap with other channels they are already on.

• You can show them a path to sales success.

• They believe in your vision for some other reason (e.g., mutual competitor, sustainability, or background).

And it needs to be easy. The more data you require from your sellers, the more hurdles you put in their way. Aim to get them on board in 2-4 weeks.

6. Buyers need to see you as unique, exciting, and engaging.

Before you take that step to build a marketplace, the buyer value proposition should be strong.  Have a purpose that is solving a real problem for your customers.  If your site is not growing, revisit this immediately.  Rising CAC without LTV is one of the big reasons a marketplace doesn't scale and then fails.

A few ideas (from your customer's POV):

• Surprise and delight. Discover new and unique brands. Introduce me to products that I didn't know that I needed, but now I want.

• Trust. I trust you. Introduce me to brands that are trustworthy and become staples in my shopping.

• Help me. Introduce new products at the right moments in my life, so you fit into my thinking and buying process.

What's Next

One of the original goals of a marketplace is to ensure a consistent and growing supply.  Ultimately, this makes each seller replaceable. 

This lack of partnership can't, and won't, last forever. 

The best marketplaces going forward are the ones that allow sellers to build their  brand, while at the same time helping the retailer's site.  

Support your seller with all sorts of marketing, fulfillment, and other services to help them attract customers and provide fantastic service to your buyers.  

If you're interested in more marketplace strategy topics, check out my blog.

Because we're all thinking about it ...

My heart goes out to those affected by Covid-19.

That said, this will affect retail.  You cannot put your head in the sand regarding your portfolio.

Do weddings, events, and other public places influence your category?  I can't help but think that luxury, and companies like Rent the Runway will take a hit over the next 6 months.

Other categories, however, in particular, grocery, will dramatically accelerate their shift to digital delivery.  Consumer behavior will not "snap-back" to pre-virus levels after using Amazon Prime Now every week for the next six months.  More on this on LinkedIn as well.

Next time,

Rick