How to gain traction in two sided markets

Written on 4th January, 2013

Startup ideas that involve two sided markets are notoriously difficult to get off the ground. It’s the age-old chicken and egg problem. You need lots of buyers for the sellers to be interested, and you need lots of sellers for the buyers to be interested. The same goes for the recruitment space, and many other verticals too.

I myself have failed in a two sided market, where I once tried to build a product which would kill the business card. It would only work if everyone used the product and exchanged their business cards using my platform. Or so I thought.

While I don’t have any direct personal experience of solving the two sided market problem, I have now been involved in startups for quite some time and have helped over 100 people through 1:1 Skype calls and coffee meetings, and gaining traction in a network effects startup is a challenge that comes frequently. Here are the two ways I would go about building traction for a product in a two sided market:

Go super niche

The first thing I would advise is to think about just how narrow you could go with the first iteration of your product. The more niche you go, the smaller the market becomes. The smaller the market, the easier it is to gain a critical mass within that market and become the defacto product for the audience.

In addition, the smaller and more focused you make the market, the more you can do specific things which will make your product the better option than any others. I think there is a reason Facebook did so well in the early days when it only supported Harvard and other colleges. Zuckerberg mentioned in an early interview that by staying more focused they could provide more value:

There was a level of service that we could provide when we were just at Harvard that we can’t provide for all the colleges, and there’s a level of service that we can provide when we’re a college network which we couldnt provide if we went to other types of things.

I would encourage you to think “what can I do to provide value for a much smaller niche market that might not necessarily scale?”. This means to provide value very specific to that niche market, that might not apply to other markets you later want to support. That’s an interesting thing I’ve learned: methods you use early to gain traction don’t need to be able to scale as you grow.

Usually a great plan is to go truly niche by picking a specific location as well as specific use case, then expand outwards. Chris Dixon has a great article on using this method, he calls it the bowling pin strategy. For example, Facebook focused on Harvard, and students. Yelp on San Francisco and dining out. Think about what’s the best focus for your idea.

Have a single player mode

The other great way to gain traction when getting started with an idea in a two sided market, is to essentially avoid the “two sides” aspect all together. While it is very powerful to have network effects at a later stage and can help trigger fast growth, in the beginning attracting both sides is a tough problem to solve.

In my experience, I’ve seen that most ideas have one side which has many problems and could actually benefit from a “tool” of some sort in addition to the benefits that are provided with the other side of the market. The idea is that the features which involve both sides of the market (for example, repinning, commenting and browsing others’ pins on Pinterest) are the "multiplayer mode" of the product. If you can also provide a “single player mode” (for example, creating your own personal pinboard of great pictures you find and want to save) then this can be very powerful for gaining the initial traction when the userbase is small.

I’ve observed that often founders have not considered that they could provide a tool for one side of the market and this could give them a way to get the product off the ground, while still retaining the multiplayer aspect for later benefit.

Are you building a startup which inherently has network effects and the challenge of the chicken and egg problem to gain traction? Have you thought about these two techniques? I’d love your thoughts on the topic.

Photo credit: Simply Boaz