Marketplaces have typically been capital intensive to start. They required significant upfront investment in platform development costs, marketing, support, and operational capital.
I know this well. I’ve raised capital for multiple marketplaces over the years to build a team and a product, and then finally take the product to market. With this have come some failures and some successes. It has also brought me quite a bit of first-hand learning about the various ways to start, run, and scale marketplaces. I’m now the founder and run Studiotime, which is a bootstrap marketplace: we have never raised outside capital to run our business. Yet, Studiotime is now the largest online marketplace of music studios in the world.
After experiences both raising capital and bootstrapping, I have become a known advocate of the lean startup route. I took the idea for Studiotime to a live marketplace quickly and started generating revenue almost immediately. I recommend the same approach to all early-stage marketplace entrepreneurs.
In this article, I discuss the three main points of following the lean startup route: minimize the initial startup costs, maintain a minimal and sustainable monthly burn rate, and then thoroughly understand the business and the requirements of what you are building, along with the needed runway.
With the rise in popularity of no-code tools, platforms, and APIs, the traditional product development lifecycle can be significantly reduced. No-code tools can be leveraged to build initial products and marketplace MVPs (Minimum Viable Platform) at a fraction of the budget required to build them from scratch.
In my case when building Studiotime, I didn’t have any initial startup costs for my MVP aside from a few tool subscriptions. I chose to use Sharetribe’s hosted marketplace platform and customized it for my needs. I also leveraged other no-code tools like Instapage for building custom landing pages and Zapier for automating tasks to achieve the marketplace functionality I needed to launch.
In addition to minimizing the initial build costs, I recommend focusing on the launch, user acquisition strategies, and marketing on unpaid channels. This will likely involve some research so you get to understand where the ideal user for your marketplace platform exists online. In my case, these included startup launch platforms like Product Hunt, Indie Hackers, and BetaList as well as press and communities specific to my niche, the music industry.
I then focused all my efforts into getting visibility within these communities and in the press I knew would reach my target audience. Having a narrow focus helps, here, because it allows you to focus your marketing and awareness-building strategies to niche channels where getting visibility can be a little easier in the beginning.
This approach allowed me to invest my time, rather than capital, to launch and scale my marketplace business. In fact, all of my first $10k in revenue came through unpaid channels.
After launching with little to no costs, it’s very easy to take initial revenue generated and start spending with opportunities that might seem to have a high ROI. As a bootstrap marketplace though, it’s important to build as much revenue as possible, while keeping monthly expenses to a minimum.
Continuing to leverage low- and no-code tools and platforms will allow you to iterate. You can continue improving your marketplace product and experience as it starts to scale and generate more liquidity. These could be tools like Instapage for building and quickly iterating custom landing pages, Zapier for automating tasks (signup notifications, transaction state notifications, etc), Google Forms for collecting user information or requests through your site. There are lots of tools out there that require little to no technical skills. You can use sites like Makerpad or NoCode to find no-code tools for your needs.
It might be tempting to invest significant resources to acquire users through paid channels, improve a design element, launch a new feature that allows for more advanced functionality, or even scale the team. However, it’s important for bootstrap businesses, in particular, to keep track of your unit economics. You need to understand how to prioritize, roadmap, and always be conscious of your monthly expenses and burn rate.
With Studiotime, this meant prioritizing features that were requested by our paying customers (and critical to our core marketplace functionality). It also meant roadmapping others that might be “nice to have” for the future. We then allocated a portion of revenue to our product and development costs according to our prioritized roadmap.
Not only is revenue allocation for maximum ROI something that I prioritized with Studiotime, but something that other bootstrap founders will agree is critical.
I recommend tracking your product and development costs and all other financials of your bootstrap business using Google Sheets’ templates. List out all your revenue, expenses, and then also opportunities and their costs. Then, you can model potential costs, revenue opportunities, and ROI in a way that will help you better understand how to allocate your revenue to the most critical areas of your marketplace business.
Marketplaces create value by connecting two sides of a market and giving them a platform to interact. Thanks to network effects, the value-add continues to grow as the marketplace evolves. However, it’s not unusual that the early-stage marketplace entrepreneur finds the market presents other opportunities to grow and expand: new horizontals, new verticals, complimentary services, add-ons, international expansion, and so on. This makes running marketplaces a focus challenge – and one that is increasingly important for bootstrap marketplaces.
Given all these opportunities, it’s extremely important to really understand and define your business and it’s requirements.
One of the first steps in doing so would be defining your defensible value proposition. Think about the core value you provide, how you do so to both user groups, and how this correlates to being the best marketplace for your niche that you can be. With this understanding and mission, you can more easily identify your most important product, operational, scale, and other business requirements. It may seem trivial. But when you and your team have a clear, shared understanding about what your mission is, it will be much easier to prioritize work and turn down opportunities that would sidetrack your business.
I’ll give an example from my own experience. In the early days of Studiotime, we deviated from just being a marketplace to book music studios to also serving industry professionals like artists, producers, vocalists, and so on. This seemed like a natural extension and a good idea to grow our business at the time. However, it ended up consuming significant resources and time. It also led us to deviate from our core business model and distracted us from our mission. Soon after, we chose to abandon any marketplace extensions and focus on doing one thing really well: helping people book music studios.
Looking back at it now, it’s clear to see that it was a distraction. We spent considerable time and resources to develop, market, launch, support, and operate an opportunity that was not part of our core business. The investment required to build, launch, and then also kill off the integration of the sub-marketplace put us in a really bad position. We were operating almost in the red zone and had a very short runway.
Thankfully, we got back to our focused mission in time to recoup most of the lost costs.
At the end of the day, bootstrapping a marketplace is all about maintaining a low burn, generating revenue that surpasses your burn, and constantly increasing your runway so you can be in a better position as a revenue-generating business.
This is, of course, all easier said than done. but bootstrapping is an incredibly rewarding way to run a marketplace. It allows you to grow as you want. By not raising outside investment, you won’t end up being forced to chase growth and revenue metrics, expand into other markets to grow your market size or other factors that venture-backed businesses deal with. Instead, you and your team remain in charge of where you want to go with your marketplace.