Casey Winters argues the SaaS-first approach to building marketplaces has largely failed over the past decade. The strategy targets low-frequency actions, lacks focus, and delivers limited value, producing at best a mediocre SaaS business. Founders should prioritize the marketplace value proposition from the start and treat SaaS as a supporting function instead.
in here. I had a question that was added to a Google Doc and it's a few founders actually asked somewhat related questions, but, you know, the kind of like SaaS-first approach to starting a marketplace. So, you know, building like a tool for the supply side and then trying to move into, you know, layering on kind of demand and becoming a marketplace is becoming popular. Of course, we've also seen on like the other side, you know, do you see that kind of like SaaS-first kind of approach working well? And what do you, I guess, like, are there any good examples of, you know, when it has?
Absolutely not. I do not see SaaS-first working well. I think when you look at that approach, which I think was probably popularized by James Currier when he wrote about market networks, whatever that was, like a decade ago, I think it's largely been a disaster. I don't think there's any really big winners after a decade of that thesis being out there for a few reasons. One, you tend to target low-frequency actions. 2, you tend to lack focus. 3, you tend to not add much value. And what that means is you are a mediocre SaaS business at best. I think one of the things you want to be focused on in thinking through this is generally you're focused on like SaaS to marketplace in some way because you're not sure you can unlock liquidity by just connecting buyers and sellers straight up. Either you can't get the supply because you're not creating enough value or things like that. So then you gotta ask the question like, does a marketplace really exist here? In a lot of cases, the answer is like, no. But let's say the marketplace does exist, then you have to anchor in the company. The marketplace value prop is the primary value prop for everyone inside the company, for everyone outside the company, and that you are building SaaS to reduce the friction of creating successful matching and therefore transactions. So I remember having this conversation with Max at their Oh geez, this is probably like 2018. And it was like, we're like, hey, it's not SaaS to marketplace, it's marketplace to SaaS every time. Like get the marketplace value prop right. And if you need SaaS to kind of pull in more people, increase frequency, whatever, improve your customer acquisition, yeah, go for it. But building a SaaS business and then this whole like, oh, well step 2, I'm gonna become a marketplace. Like, I think that that thesis is bullshit. I'm not saying it's impossible. I'm saying the chances of you getting it right are like, you're basically picking like harder than like building a consumer social network to scale from a product market fit perspective is trying to like execute on that thesis. Doesn't mean there won't be people that do it correctly. I think there's some where it's like jury's out, they might make it. But no, like, Proven winners at this point. So I think there's a few reasons that's worth going through as to why that's generally a bad idea. One, you need to go get product market fit for SaaS. And yes, getting product market fit for SaaS is a lot easier than product market fit for marketplaces. Tends to happen quicker. The playbook is more developed, all that kind of stuff. But once you find product market fit for SaaS, you then got to go scale the product market fit because you're probably still going to say, well, now that I have product market fit for SaaS, I still need way more customers on the supply side for that before I can kind of sell them this marketplace value prop. And then you find yourself running a SaaS business for like 7 years and then you're like, cool, now's the time for it to become a marketplace. And now you have like 300 employees that only understand SaaS, short-term goals that are still optimized around the SaaS business. And so then you're like, well, what I'm gonna do is I'm gonna create this GM structure for consumer. And I'm gonna carve these people off and then they're not gonna be distracted by the core SaaS business needs. And then 3 months they get reorged back to some SaaS metric misses goal and you need everyone all hands on deck to get back to that goal. And that, so that team never has the runway to go build what many times is gonna be like 3 years worth of consumer product. So It's a rough one for me. I'm not a big fan. I think the way to do it is like everyone you onboard that's building a SaaS business, you have to tell them basically the SaaS business we're building ain't shit. It only matters if it helps the marketplace model. So everyone that's building SaaS short-term, which is really long-term, it's gonna be like 5+ years. he's doing it for this marketplace holy grail. They're not getting distracted by thinking supply is their main customer because it isn't. Demand is the main customer. This is just like a really long sequence. I think people will get better at this, but all of that first generation, like you go inside the company and then you see that like no one at the company understands marketplaces. It's just a SaaS business telling a VC story that's eventually gonna become a marketplace. That's like not gonna unlock, right? So again, second generation is probably going to be better, but like, talk about trying to build a business on hard mode. Like, I, yeah, I hate it.
No, marketplaces are hard enough, right? Why make it harder?
So yeah, it's like, go build a consumer social business if you're a masochist. Like, it's probably easier than this.
