Ten Thoughts on Getting Started
Before founding Asymmetric, I co-founded and ran Catalant Technologies...
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Since the late 1990s, B2C marketplaces (eBay, StubHub, Uber, Airbnb) have exploded in popularity. B2B marketplaces have trailed behind despite B2B eCommerce being valued at $15 trillion - more than five times that of the B2C market. At Asymmetric, we’ve witnessed a substantial proliferation of B2B businesses using a marketplace platform to disrupt antiquated industries. While we are big fans of the business model, it may not be the best fit for every sector. There are certainly nuances depending on product type (goods vs. services) and transaction complexity (high friction vs. turnkey), but we’ve laid our take on 4 characteristics common amongst industries well-suited for marketplace disruption below:
1. Burning Reason to Adopt
Relative to B2C, B2B marketplaces tend to manage more complicated buying processes that involve a greater number of steps and parties. As a result, new players frequently face resistance from multiple internal angles. Certain market participants, notably suppliers, may be perfectly happy with a status quo that fosters pricing opacity and relationship-based differentiation. Intermediaries may exist in the form of brokers and/or consultants who make a living off navigating the murky waters. Shining a bright, pareto-efficient light means facing increased competition and diminished pricing power. As such, new marketplaces need a highly compelling onboarding wedge - something that solves for an urgent enough pain point that a segment of participants get pushed over the inertia tipping point.
2. Fragmented Supply
Fragmented industries often suffer from high search costs and a lack of transparency. This leads to large inefficiencies as both sides spend time and money trying to get matched with the right counterparty. Marketplaces cut out much of the yield loss within buyer/seller discovery by aggregating supply and demand on one platform. These platforms are especially powerful when they layer on a highly fragmented supply base and/or enable the growth/optimization of an otherwise scarce supply base. This is because fragmented supply usually means intense competition amongst sellers, leading to quick adoption of best practices to stay competitive. If sellers see an increase in demand after joining a marketplace, their competitors will quickly follow suit, leading to virality and efficient scaling. At a certain point, not being on the marketplace will be a structural disadvantage, essentially forcing late adopters to join or go out of business.
3. Recurring and Diversified Demand
A marketplace’s end goal should be to maximize utility provided to sellers and buyers. While there are many ways to build for this, certain sectors are structurally set up for faster, larger value realization. A marketplace model will often save the most time and money in verticals where a business not only repurchases frequently, but also purchases from different suppliers every time. Value is reinforced each and every time a transaction with a new supplier is completed. On the supply side, these marketplaces also drive greater value as suppliers reach parts of the market that were previously unaddressable due to relationship and/or resource constraints. A diversity of engagements means that the marketplace continuously provides incremental value, which in turn mitigates disintermediation risk.
4. Aligned Incentives for All
Finally, it is important to have aligned incentives such that most (if not all) participants in the ecosystem benefit from the introduction of a marketplace. When evaluating marketplaces, we often ask ourselves: What does the current value chain look like? Who would be disadvantaged if this company were to succeed? Many markets have entrenched middlemen (mainly brokers, distributors, and consultants) who might feel threatened by, and push against, adoption. While this does not mean a marketplace can’t succeed, it does create additional scaling headwinds. In such industries, we often find that new entrants achieve success by creatively finding ways to enable intermediaries, rather than fully displace them, thereby turning key participants into marketplace accelerants vs. detractors.
Now that we have identified some of the recurring traits seen in successful B2B markets, let’s walk through 3 foundational mindsets we have seen successful founders embody in order to crack the cold start problem:
At Asymmetric, we are both encouraged by and excited about the rise in B2B marketplaces. We hope these thoughts can serve as an introductory framework to those similarly compelled. We have linked below several other resources we have found helpful as we have iterated our thinking on the space. We feel fortunate to have met so many wildly talented founders building marketplaces of all stripes - should you or someone you know want to chat about B2B marketplaces, please don’t hesitate to reach out.
(Image Source: Shutterstock)
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