We're living in turbulent times, as the global economy seems to be headed towards recession. An economic downturn brings both challenges and opportunities for those building marketplace businesses.
If you're considering launching a marketplace business, now is a great time to do it. If you're already running a marketplace, you should prepare for what's ahead. In this article, I offer some advice for both situations.
Recession is a time of creative destruction. Consumers’ spending habits change, businesses that don't have a solid foundation go bankrupt, and many people are looking for new sources of income.
All these changes provide opportunities for new businesses. In fact, many people argue that the best time to start a business is during a downturn. It's also true that many of the most successful startups were created during downturns.
When you start looking at the current situation through this lens, you start noticing promising marketplace opportunities everywhere. Let's look at some of them.
During a recession, people favor a low price over factors like quality or convenience more than usual. That means it's a great time to launch a marketplace that helps people save money. Rental marketplaces and marketplaces that make it easy to buy and sell pre-owned goods can capitalize on this trend.
This particular recession is partly fueled by inflation, which brings its own set of opportunities. Whenever you see the price of a commodity increase, think about the opportunities it enables.
Gas prices are going up. It might be a great time to start a carpooling marketplace.
Food prices are going up. How about a marketplace that allows consumers to buy affordable leftover food from restaurants or supermarkets?
Electric car prices are going up. Perhaps more people would be happy to rent one from their neighbor instead of owning one.
Clothing prices are going up. A perfect time for launching a thrift marketplace.
Traveling is more expensive. How about a marketplace offering virtual tours at popular tourist attractions?
When economic times become more uncertain, a growing number of people will be searching for additional sources of income. This is a great opportunity for many peer-to-peer marketplace ideas, in particular. Especially those that also offer something that the demand side is looking for during a downturn.
All the ideas listed above are examples of marketplaces that both help customers save money and allow providers to make extra money. Here are some other marketplace ideas that could work really well in a downturn:
The previously listed examples were mostly about peer-to-peer marketplaces. However, many of the similar arguments apply to Business-to-Business too. As companies consider how to cut costs, marketplaces can step in to help.
Some B2B marketplace business ideas for a recession:
During a recession, many companies look to get rid of expensive outsourcing agreements with big agencies. This is a great opportunity for marketplaces to step in and offer the same services cheaper through independent contractors.
For example, Sharetribe customer Paperound helps companies hire from a pool of vetted university students and save money by outsourcing tasks like social media management, market research, user testing, and administrative work.
If you're already running a marketplace business, the economic outlook might be scary. However, if you play your cards right, you can emerge from this period stronger than you were before it.
If in any way possible, bootstrap your marketplace. In 2022, that is easier and more economically feasible than ever.
Modern software tools like ours at Sharetribe let you launch a professional marketplace on a shoestring budget. And with plenty of growth channels available that don’t require any other investment than your time, you can generate traction without significant spending.
If you've raised funding for your marketplace, now is the time to stop considering the next funding round as your most important milestone. Focus instead on getting to break-even.
Many of the best investors have issued dire warnings about the difficulty of future fundraises. This means that the best strategy is to maximize your runway, ideally reaching break even, even if that means growing slower than you're used to for a while.
If you're running a bigger marketplace organization, check out Trulia founder Pete Flint’s comprehensive guide for surviving and thriving in a downturn.
As I wrote earlier in a post about how marketplace startups can survive the pandemic, it's important to remember that if you're struggling, your providers are struggling too. Now is the time to strengthen your relationships with them and figure out ways to help each other.
Recession is also a great time to build new supply. If your potential providers are seeing their sales dwindle, they will have more time in their hands and be eager to try out new marketing channels.
Does your business model let your customers save and providers earn extra cash? If it does, you’re all good.
Not all marketplace business models have this component, though. For example, if your business aggregates product retailers to an Amazon-like marketplace, your sales will likely follow the current trend of e-commerce sales cooling off.
If your marketplace is like Amazon, consider if you can adjust your concept to make it more recession-proof. Could you introduce a peer-to-peer element to your business? Can you enable the retailers to also use your marketplace for recommerce, instead of new products? Are there rental models you could experiment with?
In times like these, your providers might be more open to such new ideas, too.
While recessions are a challenge for any business, they also offer tremendous opportunities for marketplaces. New and established platforms that help customers save money and create additional revenue streams for their providers are especially well-positioned to benefit from a downturn.
If your marketplace doesn't belong in this group, you should work closely with your suppliers to figure out a survival strategy, potentially changing your business model to make it more recession-proof.
If you're launching a new business, try to bootstrap it if you can. If you've already raised funding, focus on reaching profitability, even if that means slower growth. As Y-Combinator advised its founders, “You can often pick up significant market share in an economic downturn by just staying alive.”