NFX's framework for evaluating marketplace startups reveals why founders typically overestimate their chances. The key is balancing supply and demand homogeneity: too uniform or too diverse both fail, as seen in labor marketplaces. Uber and Didi show what works.
So as far as like when it comes to, you know, evaluating marketplaces, you've actually, you know, shared a post as far as like the NFX kind of marketplace scorecard and they could probably be an entire kind of group chat, you know, just discussing that. But, you know, what are some, I would say like some of the specific things that kind of stand out now maybe that you look for when you're evaluating marketplaces?
First of all, with the scorecard, realize that when you go through the scorecard, you're going to score yourself like 22 or 23 out of 26.
just not true.
Almost every founder I've seen scores themselves like 22 or 23 out of 26. And this is like 1,200 different marketplace founders have all scored themselves almost 100%. And you have to be a little more honest with yourself about where you are at with the scorecard. I will score you differently, most likely. So that's one thing to know about Scorecard. The second thing that may or may not be in there, I can't really remember, is one thing we've realized is that heterogeneity and homogeneity, where you are on that spectrum, is very important. If you are too homogeneous, like an Uber, where every rider pretty much wants the same thing and every driver pretty much does the same thing, it's very difficult To win unless you just have overwhelming firepower, which is what Uber did and sort of nature of Travis and his approach. And that time when there was zero interest rates and the ability to raise money was so unique that they've managed to build business, which is now only 13 years in, beginning to have a quarter of profitability. And on the other hand, and so it's very, very difficult. So everybody else has died. Right? Think about it. Like you have Didi and you have Uber and everybody else is done. And then on the other hand, if you have too much heterogeneity, you have too many different types of demand from the supply side, too many or too many different types of product, too much. It's usually a demand side problem where the needs of like, like a lot of people who try to create marketplace or marketing services, labor marketplaces, right? So people doing, you know, brochures, people doing websites, people doing design, people doing copy. A lot of people have tried to build that marketplace, and in the end it fails because of the heterogeneity of the demand side. It's just too much heterogeneity, and so it doesn't coalesce into a real marketplace. And so there's some sort of Goldilocks zone in the middle between those 2 things that we should all be looking for, where there's enough heterogeneity so that you need a marketplace, But there's enough homogeneity so it's not an infinitely sized concept set and therefore it never coalesces.
So anyway, that's one thing that we've learned to understand more recently when looking at companies.
