How marketplaces win: Liquidity, growth levers, quality, and more | Benjamin Lauzier (Lyft, Thumbtack, Reforge)
Ben Lazier, former VP of Product and Growth at Thumbtack and Lyft, shares expert insights on building and scaling marketplace businesses. He covers strategies for pre-product market fit, managing liquidity, avoiding common pitfalls, and leveraging clever growth tactics like Lyft's mentor program, alongside observations on the European tech market.
Deep Dive Analysis
13 Topic Outline
Defining a Marketplace Business Model
Biggest Struggles in Building a Marketplace
Strategies for Growing Marketplace Supply Early On
Understanding and Measuring Marketplace Liquidity
Identifying Product-Market Fit in Marketplaces
Evaluating if a Marketplace Model is Right for an Idea
Common Pitfalls and Reasons Marketplaces Fail
Managed Marketplaces and Quality Control Strategies
Lyft's Rental Car Initiative to Boost Supply
Lyft's Driver Mentorship and Ambassador Programs
Strategic Differences Between Lyft and Uber
Cultural Differences in Tech: Europe vs. U.S.
Building a Health Advocacy Platform (Nurra)
7 Key Concepts
Marketplace Business
A business model involving two or more distinct sides that provide value to each other, with an intermediary facilitating their exchange of value. The intermediary's involvement can vary, defining how 'managed' the marketplace is.
Managed Marketplace
A marketplace where the intermediary platform significantly shapes the transaction and exchange of value between buyers and sellers. This contrasts with unmanaged marketplaces (like Craigslist) where the platform is very hands-off.
Marketplace Liquidity
A measure of a marketplace's ability to efficiently match buyers and sellers, indicating how quickly and effectively people can find what they're looking for. It represents the overlap between what supply wants to sell and what demand wants to buy.
Market Health Metric
A proxy metric that serves as the best predictor of a marketplace's liquidity. For example, for ride-sharing, Estimated Time of Arrival (ETA) is a market health metric that predicts whether a user will book a ride.
Two-Sided Product Market Fit
In a marketplace, product market fit needs to be achieved on both the demand side and the supply side. A compelling value proposition is required for both groups of users to ensure the marketplace's success and sustainability.
Supply Fragmentation (Negative Impact)
Giving users too many granular filtering options (e.g., specific car models or features for a ride-share) can inadvertently fragment the available supply. This reduces the efficiency of matchmaking and negatively impacts service level agreements (SLAs) like wait times.
Equity Value in France
In France, equity is generally perceived as much less meaningful compared to the U.S. It's often considered a nice bonus rather than a significant token of ownership or a promise of future wealth, typically representing less than 10% of total compensation for exec roles.
10 Questions Answered
A marketplace business connects two or more distinct parties (buyers and sellers) who provide value to each other, with the company acting as an intermediary to facilitate that exchange. The company does not own the supply.
Pre-product market fit, founders often get distracted by complex marketplace dynamics instead of focusing on the core exchange of value and establishing a reliable growth strategy for at least one side of the marketplace, usually the hardest side (supply).
Generally, focus on the hardest side to grow, which is typically the supply side (e.g., drivers for Lyft, homes for Airbnb). Once you have awesome supply, demand is often easier to attract. You can use 'crutches' or 'hacks' like leveraging existing platforms (e.g., Craigslist) for the easier side temporarily.
Product market fit in a marketplace is independent of its dynamics and should be measured traditionally for both sides. You need a compelling value proposition for both suppliers and demand, often assessed by asking users how disappointed they would be if the product disappeared.
Good indicators include high fragmentation of both buyers and sellers, a relatively uniform set of needs among users (commoditizable supply), and a high barrier or complexity in matchmaking or vetting that the marketplace can simplify.
Marketplaces often fail due to a lack of liquidity (failing to kick off the flywheel), ignoring one side of the marketplace (operating as a one-sided business for too long), or failing to maintain intentional quality standards, leading to a poor user experience.
Instead of direct control, marketplaces should provide guardrails for good experiences, set clear quality bars, and offer coaching and tools for supply to succeed. They can also invest in surgical, hands-on tactics for specific gaps, like Lyft's rental car initiative to control vehicle quality and increase supply.
Lyft leveraged its strong brand and community of drivers by building a self-onboarding supply engine, including mentor and recruiter programs. These programs allowed them to onboard drivers at a fraction of the cost and speed of Uber, utilizing their best drivers as evangelists and trainers.
In France, the job market is less liquid, leading to less autonomy and ownership for PMs, more micromanagement, and a greater focus on business over tech. Equity is also less meaningful as compensation. In the U.S., there's more ownership, accountability, and a tech/product-centric view, with equity often forming a large part of compensation.
Lyft's vision was deeply anchored in people transportation and reinventing public transport, leading them to avoid diversifying into areas like food delivery or parcel services. This strategic focus, particularly on shared rides, made them vulnerable during events like COVID-19 when demand for rides plummeted, while Uber's diversified logistics platform allowed it to rebound more quickly.
17 Actionable Insights
1. Prioritize Core Value Pre-PMF
If you don’t have product market fit, ignore complex marketplace dynamics. Focus on the core exchange of value and a strong growth strategy for one side of the marketplace, using a ‘crutch’ (like Craigslist) for the other side to validate your product first.
2. Acquire Hardest Marketplace Side First
When starting a marketplace, identify and focus on acquiring the ‘hardest side’ first, which is typically supply (e.g., drivers, homes, professionals), because having awesome supply makes attracting demand significantly easier.
3. Prioritize Marketplace Liquidity
Post-product market fit, prioritize marketplace liquidity, defined as your ability to efficiently match buyers and sellers. This is a direct multiplier on your marketplace’s efficiency, the center of its vision, and the ultimate engagement loop.
4. Track Predictive Market Health Metric
To manage liquidity, define a ‘market health metric’ that acts as the best predictor of your liquidity (e.g., ETAs for ride-sharing). This metric is more actionable for teams to work against, helping to reduce the impact of exogenous factors and focus efforts on key levers like supply.
5. Empower Marketplace Supply
Instead of strict control, empower your marketplace supply by providing guardrails for a good experience, setting a clear bar for quality, and offering coaching and tools for success. Then, invest in hands-on tactics to close specific gaps, rather than trying to control every aspect.
6. Leverage Mentor Onboarding Program
Implement a mentor program where your best supply (e.g., top drivers) onboard new supply, paying them for sessions. This method is highly scalable, cost-efficient, leverages evangelists to share valuable local tips and social proof, and significantly boosts new supply activation and retention.
7. Utilize Supply for Recruitment
Extend the mentor program by creating ‘recruiters’ from your best supply to follow up with new supply stuck in the onboarding funnel. These recruiters, equipped with a mini-sales dashboard, can call and text leads, often outperforming trained sales staff due to their peer-to-peer approach, and help smooth supply/demand fluctuations.
8. Seek High Market Fragmentation
A strong signal for a good marketplace idea is high fragmentation, meaning a long tail of buyers and sellers without a few big players controlling the market. This allows the marketplace to provide significant value through aggregation.
9. Ensure Uniform User Needs
Look for marketplace opportunities where there’s a relatively uniform set of needs, allowing supply to be commoditized to some extent. Highly diverse or specific needs among supply can make matching and managing quality very difficult.
10. Address High Matchmaking Barrier
A good marketplace idea thrives where there’s a high barrier in matchmaking or creation, meaning people struggle to find and vet each other. The higher this barrier, the bigger the opportunity for the marketplace to simplify the exchange of value.
11. Avoid Excessive User Filtering
Resist the urge to give users excessive control or filtering options (e.g., specific car models or driver ages), even if requested. Such hyper-fragmentation of supply can drastically hurt marketplace service level agreements (SLAs) and overall health.
12. Use Smart Ranking, Not Filtering
When users express preferences for specific features (e.g., a smoke machine for a DJ), make these preferences affect ranking rather than acting as strict filters. This prevents carving out a large portion of available supply, as users often don’t consider such preferences deal-breakers.
13. Avoid Marketplace Liquidity Failure
Marketplaces commonly fail due to insufficient liquidity, meaning they cannot kick off the flywheel or build enough density to provide a good experience for both sides. This often leads to running out of time or money without a clear diagnostic framework.
14. Don’t Ignore One Marketplace Side
Marketplaces often fail by operating too long as one-sided businesses, focusing solely on demand acquisition and neglecting the needs of their supply side. This oversight can lead to network effects dying down and a crisis when sellers leave en masse.
15. Be Intentional About Quality
Marketplaces fail when they lack intentionality about the quality they aim to provide. Constantly lowering the bar for supply to increase volume can degrade the user experience and erode trust, leading to a ‘shitty’ perception of the platform.
16. Educate on Equity Value (Europe)
In European tech, where equity is often undervalued, founders should invest in educating employees about the true value of their equity. Connect it to the business’s story and future trajectory to cultivate a stronger sense of ownership and motivation.
17. Foster Ownership-Driven Teams (Europe)
To improve product team effectiveness in Europe, develop teams that revolve around clear ownership and accountability for a specific slice of the business. Grant them the autonomy and leeway to thrive, moving beyond a feature-team mentality.
5 Key Quotes
If you don't have product market fit, if you don't have a good enough growth strategy for at least one side of your marketplace, just forget about all this marketplace stuff.
Ben Lauzier
Liquidity is how marketplaces win.
Ben Lauzier
I'm a huge believer in market forces and empowerment. So provide guardrails for what a good experience is in your marketplace, set a clear bar for quality and provide the right coaching and tools for supply to be successful.
Ben Lauzier
Entrepreneurship has been a very humbling journey. I think that the zero to one, is, is way harder than anything else I've done so far.
Ben Lauzier
The mountains are calling and I must go.
Ben Lauzier
2 Protocols
Lyft's Self-Onboarding Supply Engine (Mentor Program)
Ben Lauzier- Identify and rigorously vet 10-20 top drivers in a new market to become 'mentors'.
- Pay mentors $35 per session to conduct the final onboarding step for new drivers.
- Mentors perform visual car inspections, quick test drives, light training, and document checks.
- Mentors share personal tips on when and where to drive, acting as brand evangelists and providing social proof.
- Scale by having these initial mentors onboard subsequent new drivers, allowing the small core team to move to other markets.
Lyft's Driver Recruiter Program
Ben Lauzier- Identify drivers who dropped off in the onboarding funnel (e.g., didn't enter SSN or correct info).
- Empower existing top drivers to become 'recruiters' by giving them access to a mini sales dashboard on their phone.
- Recruiters claim leads (dropped-off applicants) and call/text them to assist with completing their application.
- Pay recruiters $20 per person they convert to activation.
- This program allows drivers to earn money during low-demand times, smoothing out supply and demand fluctuations.