Varun, who runs Headout, shares five tips for marketplace founders: solve the hardest problem first, nail supply and product before scaling, avoid discounting that kills margins, use healthy margins to fund marketing, and build a full-stack offering for a stronger moat.
Chapters
you know, do you have any kind of like tips that you'd like to share with us maybe for early-stage marketplace founders before we wrap up?
So I actually was thinking about this before our chat as well, and I've got about 5 things that I want to share based on my experiences. I think the first thing, which is a mistake that we made for the first 2 years, was that we tried to solve the easier problems first. We tried to do the low-hanging fruits first, and in a marketplace I feel like that's a recipe for disaster. I think you should pick the hardest, most friction-filled problem statement there is that's plaguing your marketplace and solve for that first and everything else later. So I would suggest that for marketplace founders, one should always flip the whole equation on its head and look for what's the most complicated, most complex, most annoying problem statement and solve for that first. Second, um, and this is a repetition of the kind of discussions that we talked about earlier as well, where I would always recommend founders to nail the supply and the product experience. And if you do nail that, then demand exists as long as the market that you're operating for has a large enough TAM and, and is a problem statement that affects a good number of people. If your solution works, they will come to you. I'm not saying that you don't have to solve for distribution, of course you do, but solving for distribution without having this core, uh, proposition sorted is, is a very inefficient way to, to build things. Uh, third would be, and this is not obvious, but one of the issues that I faced was that when we were trying to increase sales on Headout, we used to always try and figure out what's the best way to reduce pricing, right? We felt like if we were able to provide the same experience at a lower price point, customers would buy with us more, and that would give us the growth that we're looking for. We could not have been more wrong, uh, and here's why. When we were trying to reduce prices, if the price reduction was a function of a actual fundamental change that we did to the supply stack which led to efficiencies which then led to a price reduction, that's great, not a problem. But if you're reducing price in the form of discounts and, you know, coupon codes and things like that, you are essentially limiting your take rate or your margin, right? And what that did for us, and I think what that does for a lot of marketplaces is that when you don't have that margin, you aren't able to make money off of the marketing spends that you are accruing. And if you don't have that, then growth in itself becomes a very expensive proposition, and you are almost limited to grow with the capital that you have available with you, which is not a great place to be in for obvious reasons. So I think it's not intuitive, but I think people should experiment— marketplace founders should experiment with not discounting or not reducing pricing, um, having healthy take rates or having healthy margins, and figuring out ways to use the healthy margins to make good money, to be able to use that money to again reinvest it back in marketing, which is then a good way to grow. Because if you have more money to put into marketing, you can increase your top of the funnel, you can get more customers through the door, and you can increase your, uh, your sales, your orders, or whatever KPI that you're tracking, right? But if you don't have that positive loop, then growth becomes problematic. The first few months will look great, but your bottom line will not support that growth. And at some point in time, your growth will then become slower and slower because you need to put more and more capital to be able to sort of grow. And that's not an ideal position to be in, right? So I think don't default to discounting is like a huge takeaway. That I would share from our experience because we did that for the first 2 years and it was one of the dumbest things that we have done in running Headout. The last thing would be that I think marketplaces today have the scope to be more full-stack in nature because the problem statements that we have are not limited to just matchmaking but are of a deeper nature where the fundamental unit of the experience or the supply needs to be altered or reimagined. So I would encourage marketplace founders to think about the entire stack, everything from the way that supply is set up to the way that customer fulfills, you know, their wants, their desires, their needs, and see how you can create a marketplace which captures more of that stack. Because with capital available in abundance today, it's getting easier and easier to disrupt when you just have the basic aggregation layer. But if you have— if you've got a deeper layer where you've got this entire stack which you own, which is like proprietary to you in terms of the complexity of the tasks that you've taken on board, it's much harder to disrupt you and it's a significantly better moat. So I would encourage marketplace founders to think of full stack as a way to build moats because Capital today is just too easily available for demand or basic supply to just be the only thing that you can rely on.
