As a fresh entrepreneur of an up-and-coming company, the last thing you’d want is to start your online marketplace only for it to fail to gain any traction and close up shop shortly after.
In a two-sided marketplace, success rides on the shared value between the customer and supplier. While it’s easier said than done, the culprits behind marketplace failure can be any combination of no market need, unsustainable business models, lousy marketing or more.
But when done right, a marketplace can make your business soar. It boasts low operational costs compared to traditional e-commerce stores, has massive potential to scale, and strong network effects that, by nature, discourages competition.
Former strategic innovator of Starbucks, Venture Capitalist, and now CEO of GoFetch, Mike Sherman, knows a thing or two about building marketplaces. Based in Vancouver, GoFetch is a tech company that offers accessible and affordable modern pet care through monthly memberships.
As a lifelong pet parent of cats and dogs, Mike grew frustrated with limited after-hours pet care and sought to develop an everyday solution with his co-founder and Chief Veterinary Officer, Dr. Adam Little.
Thanks to his pedigree as a VC and angel investor and time working closely with early-stage, high-growth companies, Mike shares his unique insights on what it takes to create a thriving two-sided marketplace.
1. Define market opportunity and research your target market
The first step to building a marketplace is doing your homework. There’s no shortcut around market research, and doing a poor job is the number one reason why startups fail.
As a founder, you need to size up the industry you’re trying to disrupt. This involves understanding your users’ needs, leveraging your competitors’ weaknesses, and defining any niches in your target market.
While it may feel counterintuitive for first-time entrepreneurs to cut their prospective customer segments in half–or more–narrowing down your focus is crucial to reap long-term success.
Take it from Mike, who learned the hard way: “We had a phase in the company early on where we grew too fast. We were ahead of the game but hadn’t secured product-market fit. Now, when we scale, we’re very user-focused with our research, prototyping, and testing.”
In Canada, the veterinary and pet care industry is valued at approximately 10 billion dollars and particularly poised for disruption. With systems and processes that lag a generation or two behind, it’s a beacon for innovators itching to crack it open and reimagine what it could be.
GoFetch’s strategy focuses on improving access and affordability around everyday preventative pet care. Over the last few decades and especially throughout COVID-19, the companionship between humans and pets has grown tremendously. Mike’s team identified higher expectations of the services required by both pet owners and veterinary clinics.
“The thing is, pet owners often seek emergency care when their pets get sick, but it’s usually the wrong place to take them,” says Mike. “Emergency clinics are expensive and stressful, and 80 percent of the time, pets can wait to see their primary care veterinarian the next day. Our 24/7 vet support allows our members easy access to veterinary experts to help them make the right decisions in those critical times”
Unlike other industries, the veterinary market remarkably consists of 80 percent independently owned clinics. Veterinarians enter the medical practice because of their love for caring for pets. However, they face the complexities of running a full-scale business, everything from managing walk-in visits and emergency surgeries to handling the marketing, technology, and administration.
“We saw an opportunity to elevate the offerings of these independent businesses by leveraging a tech platform that reduces their work and increases their efficiency so that they can provide even greater experiences to pet owners.”
2. When and how to build a subscription pricing model
Next to building stuff that no one needs, running out of cash can rob you of the startup successes you had in mind. It’s not enough to deliver your product to the right people who need it, but you also need a revolving door of revenue to make your business profitable.
Commission, freemium, and listing fees are just a few of the pricing models on the table for entrepreneurs. However, subscription models are a popular choice for monetizing marketplaces since they keep users consistently engaged with service bundles at valuable discounts.
You don’t have to look far to know they work: think of your meal kit delivery service, ClassPass, and Spotify plan. Subscriptions are everywhere, but not all models are made equal. Much of your membership model will depend on your value proposition’s strength to both customers and suppliers.
Until GoFetch, the only membership models in the veterinary space were provided by the minority of independent and corporate vet practices. Historically, these subscriptions are complex and administrative-heavy, which is why independent clinics don’t typically opt for them. However, vet clinics see 40–60 percent of clients signing up when preventative care bundles are offered.
“That’s why we leverage our technology to loop in things like industry rebates, rewards, and integrations with insurance and payment plans that clinics traditionally have trouble offering themselves,” says Mike.
“Subscriptions are a powerful model that provides us with pet owner acquisition, vet clinic buy-in, and gives each the overlapping support they’re missing if they were to operate alone. It’s a strong platform that delivers the most value to each party and fuels a consistent revenue stream to us and the clinics.”
Often what ends up being the tricky part about subscription models is determining the right price point. If you price too high, it can send your customers packing. If you price too low, customers may question the quality of the service or, worse, start an uproar when you raise the prices later on.
With GoFetch, it was simple. They opted for the most affordable monthly rate, one that essentially pays for itself but still takes care of their own operational needs. Further down the line, they plan to introduce a free tier and launch additional paid subscriptions.
3. Balance supply and demand: keeping the network effect alive
This is the most critical factor that keeps your marketplace running smoothly and, by far, the most challenging. It can be a slippery slope anytime a business makes a profit from someone else’s output, but the key lies in accentuating the value you deliver on both sides.
To attract high-quality suppliers, especially in the initial stages, you need to have a strong value proposition that offsets or outweighs the cost of investing time and energy into your marketplace. This means you need to answer the question, “What’s in it for them?”
“In any two-sided marketplace, trust is key,” says Mike. “You have to be clear on who you serve, and for us, it starts with the pet and their best interests. That’s something that pet owners and vets can generally agree on. But what follows is a hierarchy…”
After considering what’s best for pets, GoFetch’s approach prioritizes members, clinics, and then industry partners. Rather than providing clinic partners with the tools to carry out individual services, their philosophy is to equip them with integrated, ready-to-fire solutions.
In practice, it’s much easier for entrepreneurs to satisfy the suppliers in their marketplace while building out a customer base than it is to do the opposite. Making customers wait for a service that’s not yet available or doesn’t meet their expectations can quickly burn bridges.
At the same time, initial demand is crucial to keep suppliers invested in the marketplace long enough for the network effect to take hold. This is best achieved with key differentiators such as brand loyalty or proprietary technology.
“Lots of people sell software to vets which they need to implement, manage, and market themselves,” continues Mike. “We take all that activity and automate it through our platform, so vets can have a much more positive impact in their results and reduce their level of effort in clinics.”
“On the customer side, we reduce the stress of pet ownership and make what can often be an opaque and confusing journey of having a pet an easier one. We give them the resources to make better decisions and make sure it’s affordable.”
4. Determine essential features for your MVP
When you introduce a product to your marketplace, the first iteration should solve your target market’s existing problem and carry out the basic functions.
For their MVP, GoFetch prioritized 24/7 vet support where pet owners could seek professional help conveniently. This was the first line of triage in getting pets the fundamental early detection and preventative care they need, which complemented the direct and comprehensive care during an emergency.
“Then we focused on earning our members savings,” adds Mike. “We offered rewards for everyday care that our veterinary partners supplied. Members received five percent off every vet expense, which was a compelling return on investment for the initial five dollars per month they’d spend on their membership. It paid for itself and earned our members hundreds of dollars in savings.”
But members weren’t the only ones who reaped big savings. GoFetch saved their clinic partners over 100,000 dollars in ad-hoc discounts that they weren’t tracking the impacts of. Moving these partners to their rewards platform gave them greater visibility and direct causation between the incentives and increase in care clinics can provide.
5. Leverage tech to launch new products and features
Building a thriving marketplace relies on a technology stack that can incorporate the right automation and analytics to support your growth. As the network effect kicks in, you can keep the momentum going by leveraging your technology to expand your product offerings.
GoFetch plans to launch additional tiers in the spring and summer of 2021, including a free tier that earns pet owners automated rewards and a paid comprehensive wellness plan for those who want full coverage, from unlimited access to office visits to vaccinations and diagnostics.
“Our comprehensive subscription will be curated towards the life stage and species of your pet whether you have a puppy or senior dog, a kitten or adult cat,” says Mike.
But that’s not all. As business evolves, Mike heeds the necessity of remaining flexible and listening to your users’ needs both on the demand and supply sides, no matter what stage your marketplace is in.
With COVID, GoFetch enabled vets to provide virtual consults directly with their clients on their platform using video calls. These paid consultations come in handy when a higher level of care is required and when pet parents can’t access the vet clinic.
In addition, Mike’s team expressed plans for a donations feature on the app. When pet owners don’t want a rebate they’ve earned, they will soon have the choice to donate their funds to a pet in need who otherwise may not be able to afford proper care.
The bottom line
- Research your industry and target audience: What makes you different? Who’s your competition? What are the problems and your solutions?
- Determine your subscription model: When does it make sense to offer subscriptions? How much will you charge in fees and how often?
- Balance supply and demand: How do you attract suppliers and generate demand? What are your value propositions for each party?
- Identify your MVP features: What are the core features that make your product function?
- Continue building your marketplace: What features or products can you add to expand your service offerings?
No startup is immune to setbacks. However, marketplace platforms best satisfy consumer needs by maximizing satisfaction at minimal costs. As you deal with the changing and often complex needs of users and suppliers, your business can activate a virtuous cycle that increases customers and liquidity.
GoFetch’s low-cost entry into delivering value-based business has led them to experience early product traction, rapid growth, and market success over the last three years. By addressing these questions at each stage, you’ll be well on your way to building a robust two-sided marketplace.
Learn more about modern and affordable pet care solutions at GoFetch.