Author Archives: Elan

Build A Marketplace Startup In 4 Phases

Over nearly a decade, I’ve had the opportunity to build one of the biggest privately held consumer marketplace businesses, as well as invest in, advise and learn from countless other marketplace operators and investors. From gig marketplaces for medical spas to real estate marketplaces in transportation. Here are my thoughts around order of operations for scaling a startup marketplace business.

There are four phases to scaling a marketplaces business, including:

  1. Wedge
  2. Flywheel
  3. Moat
  4. Expansion

1. Marketplace Wedge

Founding a marketplace business begins with a wedge. The wedge is a unique niche or insight overlooked by others enabling you to enter or create a market. For SpotHero, it was peer-to-peer parking near Wrigley Field. For Cameo, it was helping B-list celebrities monetize fan connections. For Uber, it was better use of black cars. For AirBnB, it was renting a mattress in someone’s apartment.

Every marketplace needs a wedge. Suppliers generally want a no-brainer value prop (e.g. low effort incremental revenue). Buyers want something unique enough that a sub-par software product for now is okay. If you have something that can improve the status quo by 10x, even if it isn’t there on day one, you are onto something.

During the wedge phase, focus on:

– Understanding your best customers

– Solving marketplace onboarding (chicken v egg)

– Validating unit economics

– Finding product-market fit

Until you nail the wedge, it is generally best to stay focused on one geography or one vertical.

2. Marketplace Flywheel

The Flywheel is about marketplace liquidity and accelerating growth via network effects.

Here is where you build your playbook to onboard supply, find customers, and expand. As you get more supply your conversion rate (CAC), repeat rate (LTV) and payback begin to improve. This virtuous cycle of more supply, more demand and better economics is the goal.

In a geo-local marketplace, you scale to new cities.

In a digital marketplace, you scale to new categories.

As you find your flywheel, you can raise capital, hand your playbook to smart folks, and let them run it to expand.

Expanding too soon (e.g. unit economics don’t work) can lead to value destruction. Expanding too late can mean being too late to build your moat.

As soon as you figure out your Flywheel Playbook, it is time to pour fuel on the fire. If your new markets are scaling faster than the first first market, you are on to something.

During the Flywheel Phase, focus on:

– Liquidity (right balance of supply/demand)

– Writing your expansion playbook

– Measuring network effects

– Report on improving economics & accelerating growth

– Raising capital to expand fast enough

3. Marketplace Moat

The Moat phase is about achieving scale. Many marketplaces are winner take all or winner take most. With scale comes new opportunity. During the Moat phase, you often try to own the entire vertical and/or horizontal stack while taking advantage of your network effects and scale. You can focus on being the linchpin for suppliers and default solution for your buyers.

In this phase, you focus on:

1. Focus on locking in market share

2. Building or partnering fill any product gaps

3. Optimizing pricing and lifetime values

4. Improving margins and operating leverage

5. Using scale to focus on M&A

4. Marketplace Expansion

The expansion stage is where it gets interesting. You’ve won your market, but to ensure long-term success you need to expand TAM or LTV. You need to be able to reach for a higher north star.

Once you have line of sight to a moat in your core market, what is next? You can add services, markets, or business lines. What else would existing customers buy? What tools do suppliers need? What core competencies do you have that you can spin out into a new offering?

For example, Uber launched Uber Eats with its network of drivers.

AirBnB started Experiences to give travelers things to do. Amazon turned its internal cloud hosting services into a business for others to use.

The expansion stage can be a challenge because at this point you have a big business and building upon it can feel like the highest short term ROI. Your are now judged on financial performance, not just vision. In addition, you’ve probably hired talent that is great at optimizing and may have lost some of the early talent that prefers to start and build things. But for long term success you need to seed smaller projects that leverage your strengths to enable future growth. Find a way to continue to innovate and allocate resources to new bets.

In this phase, you focus on:

1. Owning your category (e.g. Facebook re Social Apps)

2. Adding new services for existing customers (e.g. AirBnB re experiences)

3. Building more tools for suppliers (e.g. Shopify re seller tools)

4. Spinning out new business lines (e.g. Amazon re AWS)

Some of the biggest businesses in the world are marketplace businesses. They all started with a narrow focus (wedge), expanded upon their strengths (flywheel), grew into a market dominant position (moat) and eventually layered in new lines of business (expansion). When studying those businesses, look at how they started not just where they are today.

The order of operations matters.

Startup Executive Meeting Agendas

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Who is the most underrated person in the room? Often the one who takes the notes.

Over the years, I’ve tweaked my approach to meeting minutes after running hundreds of executive team meetings and feel like I’ve finally got the hang of it.

The note taker is critical in that they play historian, documenting key takeaways and assigning next steps that shape the company’s decision making process. This is an underrated superpower and as such how you do it matters more than people think.

While a basic bulleted outline works, having a more uniform framework can be even more effective at driving alignment as it creates clarity, consistency and accountability.

Here’s how I like to keep notes for recurring executive meetings:

  1. Set the page to landscape (sideways) so that you maximize room on each line
  2. Create a table with four columns: date, agenda, key takeaways and next steps
  3. Change the background color top row and bold the font
  4. On row two, include an example template so the font, bullets, etc
  5. On row three, input the meeting date, agenda items, key takeaways and next steps
  6. Agenda items can list the topic and optionally the presenter
  7. Key takeaways should include key takeaways so that folks who miss can catch up and folks in the meeting can refer back at a later date
  8. Any additional sources can be linked to from this section
  9. In the action items, list any next steps as a SMART ask detailing who will do exactly what by when
  10. If you use Google Docs, you can “tag” or assign next steps to the right person

Here’s an example template which you are welcome to copy/modify:

The Annual Plan

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As your startup grows, you’ll begin to plan further out.

One day, you’ll look out and realize dozens or even hundreds of people work at your startup. Whether they say it or not, they are looking to you to understand why their work matters, how they should focus their time and what you want them to accomplish.

The annual plan is a tool for communicating your expectations for the year ahead. Often, it will look something like this:

  • Letter To Team
  • Where We’ve Been
  • Where We Are
  • Where We’re Going

Letter To Team

Write a short note. Outline your excitement for the year ahead, give context on the plan and set expectations for your team. Showing some gratitude would be nice too.

Where We’ve Been

Quickly recap the year you’ve wrapped up. Why’d you start the company, what the team accomplished, and what you’ve learned. This is important, especially for folks new team members who may appreciate some historical context.

Where We Are

Outline the trends in your ecosystem. What are the tailwinds helping your business and the headwinds you may fact on your journey. You could use a framework such as Porter’s Five Forces or a SWOT analysis to talk about whats happening in your industry. Use this to set the stage for what is happening in the ecosystem around you.

Where We’re Going

This will be the meatiest section. You may wish to include the following sections:

  • Summary 3 to 5 year vision
  • Rally cry or theme for the year ahead
  • Company goals, perhaps using a framework such as OKRs
  • High-level financial plan or target
  • High-level plans by team
  • A “not to do” list
  • An FAQ section

Of course, an annual plan isn’t write for everyone. In an uncertain environment, you may chose to operate with a rolling plan that looks 3 to 18 months out. In an environment requiring a longer term view, you may wish to consider a more detailed 3 year plan so that you aren’t short-sighted (e.g. underspend on marketing) or missing multi-year projects to achieve your vision.

Once you’ve set a vision, outlined goals and detailed plans, be sure you set a cadence and framework for monitoring your progress to that plan.

Lastly, the only thing you know about your plan is you won’t hit it. May be better, may be worse. Either way, documenting and communicating your plan is a critical skill to the set vision, rally your team, and invest resources in the year ahead.

Happy New Year.

Startup Marketing Plan

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It’s time to start marketing. Where do you get started? Ask yourself, the following questions:

1. What is the company goal?

2. How will the marketing team set objectives to support that goal?

3. Which marketing strategies will best drive those objectives forward?

4. What tactics should we execute for that strategy?

Ideally, the company has one primary company goal. For each relevant goal, you’ll want one to a few objectives. For each objectives, one to a few strategies. For each strategy, one to a few tactics.

Here’s an example of what the startup marketing plan might look like:

With this template, yo do the following. State a) the company goal, b) the marketing department objectives, c) the strategies each team in the department may support and d) the tactics the individual contributors will execute upon.

Your final framework might be a more detailed version of something like this:

This is called a GOST framework, standing for Goals, Objectives, Strategies and Tactics. Whether you don’t know where to get started, need a way to manage up, or wish to create clarity for your team, the GOST framework is a great way frame your plan.

Startup Marketing Budget Frameworks

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To scale startup marketing, you’ll need to set a marketing budget, invest those dollars and report on results. You’ll wonder how much to spend, which channels to invest in and how to measure performance.

As you scale, the next level marketing budget challenges you’ll face may be how to:

  • Hit user acquisition targets while also justifying spend that doesn’t work yet
  • Unlock new channels as your most profitable channels hit a ceiling
  • Grow when marginal spend isn’t profitable, but blended LTV:CAC is good
  • Measure attribution without the expertise or bandwidth to perfect your data
  • Win the market when a competitor is outspending you

Here are guidelines to frame your thinking around marketing budget decisions as you scale.

Marketing Budget Framework From ScaleYourStartup.com

Define your spend by working media, non-working media and payroll

Divide your marketing budget into a) working media, b) non-working media and c) payroll.

Working media is money you spend on advertising. Non-working media is money you spend on non-advertising activities (e.g. software, SWAG, etc). Payroll is the fixed cost of your marketing team.

Working media is more variable and more scalable. You need to count this against your customer acquisition costs. Breaking out non-working media helps you isolate other investments on your CAC. Ad spend can be scaled up or down without the other budgets. Including operating expenses in your CAC calculation skews thing wrong way.

Bucket your working media into performance, test and brand spend

Within your working media, bucket your spend into performance, test and brand marketing. The performance bucket should include the majority of your spend. This includes the highest spend channels and those that work. The test bucket should include channels where you are still experimenting. These are channels where you are not spending quite as much and the spend isn’t ROI positive quite yet. The brand marketing budget may be harder to measure at startup scale.

When you report on CAC you may look at it a few ways. Performance only, all working media, fully-burdened including ALL marketing expenses. Depending on your audience, you may want to share different numbers.

Invest into ROI positive channels, but test new channels too

If you only invest in profitable channels, you risk hitting a ceiling. How do you invest resources against channels that aren’t quite working yet? Set a thesis, understand why you think the spend will work and why it isn’t yet, and begin testing.

Have you not optimized acquisition on this media source yet? Is your funnel still broken but you need the traffic to test improvements? Do you expect CACs will never be lower and your LTVs may rise over time? Do you have a marketplace business where demand also helps grow supply? Are you in a race for marketshare against a competitor?

If you have a valid thesis, set some parameters around how much or until when you’ll spend. If you don’t, kill the spend and use the cash for something else.

Level of brand investment depends on how important brand is to winning

If you are a performance marketer, you may shy away from brand spend. Push yourself to consider where this investment may help.

If you are a brand marketer, you may spend too much here and should cut back. Push yourself to measure ROI.

Investing in brand enables you to build awareness. Over time, this should improve organic acquisition costs, lifetime value and referrals. Some startups generate viral growth with minimal performance marketing spend. Other startups are in competitive spaces and brand is the primary differentiator. For most tech startups, brand is about the product experience. There are many good reasons to invest in brand. Know why you are doing it and pick a number that feels right for you.

Stack rank your marketing channels; focus marginal ROI not blended

When allocating budget, you should stack rank your channels based on LTV, CAC, payback and volume. Any channel that hits your LTV:CAC and payback targets, you should spend on. The one exception may be if the opportunity cost of your time isn’t worth the incremental volume.

Marginal returns may go down, but if organic is high enough on a blended basis your ROI thresholds may look okay. In a cash constrained environment, if marginal spend isn’t ROI positive you may want to pull back. In some cases your paid spend lifts your organic acquisition, and as such you can continue to spend.

Attribution won’t be perfect; keep it simple and layer in complexity later

Attribution is science, but there is some art too.

You may start off with one or two data sources. Google Analytics, promo codes, or a post-purchase survey are all a good place to start. You can then build a model and triangulate the data points you can capture.

Llast touch attribution will tend to favor demand capture channels such as SEM and SEO. First touch or a mixed model will tell a better story around awareness channels. A short attribution window forces you to optimize the bottom of the funnel. A longer window may enable you to go up funnel. It is a judgement call with tradeoffs. Make the best guess you can, run with it. Evolve the model as your spend scales and the tradeoffs become more material.

When the competition is outspending you, pick a niche to win

There are a few rules of thumb for thinking about this.

In a winner take all market, you may need to raise money and spend more to fuel your growth engine. If you don’t spend, you lose. If you do spend, you might lose.

In a market with room for more than one player, then you should consider what game you want to play. Can you:

  • focus on one geography, vertical or other area you can dominate with less cash?
  • tell a story about the health of your business?
  • position yourself as an attractive number two for someone to acquire?

Startups will often spread themselves too thin. With less cash, pick a niche where you can be #1 at, run the business well, and have some patience.

In summary

There are no “right” answers. There are rules of thumb, and the best companies usually break them and create their own rulebook.