Lessons learnt from building and exiting

Apostolos ApostolakisJune 12, 2017

A marketplace is in general a lucrative business model because it is characterized by network effects that create defensibility for an established incumbent. Once one has solved the supply and demand side in a marketplace (has achieved liquidity as we call it) the business grows more easily and it is hard for a new entrant to replicate that growth.

This is also evident by the high and increasing market caps of large players like Justeat and Grubhub and also by the prospective listing of Delivery hero.

Having been a marketplace lover personally at first and now at VentureFriends, we constantly discuss with our startups in that space, what they need to consider and how to act in order to grow fast, expand internationally and outgrow completion.

As a co-founder of I would like to share the important lessons learnt throughout that successful journey that led to the sale of the company to Delivery Hero so that I potentially help founders who are facing similar questions.

The main idea is to determine the key success factors and then look for competition gaps. If significant gaps exist then the chance of success of your new market entry is higher.

The existence of competition does not mean that it is too late to enter a market. In our case when we launched in 2011 there were 2 competitors in that market both of them growing steadily on a monthly basis. However, they had ignored 3 major key success factors that apply in many marketplaces.

The first success factor is supply.

For a marketplace to be the top-of-mind destination for the customer, supply needs to be not just adequate but rather exhaustive.

In the food delivery business that means having a significant number of restaurants from all different cuisines in all geographical areas (cities and suburbs). Competition in our case had a limited number of restaurants and was lacking representation of specific cuisines.

Another point to keep in mind when thinking of supply is the distinction between distinct/branded or homogeneous supply. If the merchants on the supply side have a brand then it is important to include as many as possible of them in the marketplace. That makes building the supply side more difficult but also more defensible. As an example, let’s think of or They both build their supply side with restaurants some of which already have brand awareness and a customer base followership. In order to have a solid product offering, those companies need to add if not all at least as many as possible restaurants for the customer.

On the other hand, let’s consider Nannuka or Douleutaras or Taxibeat. In their case, those companies can bring onboard any nanny or home technician, or taxi driver as long as those professionals are reliable. The supply side of the marketplaces in the second case is easier to build granted of course that there are merchants who have the professionalism required :). In any case, building a solid supply side in the second case does not require startups to bring every single merchant on board.

Coming back to the case of e-food, in 2011 there was a clear gap in the supply side of competitors both in terms of number of delivery restaurants as well as in terms of specific notable and highly sought after ones. jumped in and within a few months on-boarded brands like pizza Fan, pizza hut, dominos, Goodys as well as a high number of restaurants per area and type of cuisine.

A second key success factor in many marketplaces is organic search traffic or SEO.

Typically, a marketplace is disrupting the traditional online directory business that attracts customer queries seeking an answer. Before the advent of marketplaces, most people would run a search on Google where the first search result was a directory page providing the professional’s details. Then the marketplace startup enters the market and due to its better product offering (full merchant profile, pictures, ratings) gradually displaces the directory from the first search results on Google. That displacement can be expedited if there is extra focus is given on the onsite and offsite SEO of the web property of a startup.

If search traffic in a category is significant it is imperative for a marketplace startup to focus on SEO from day 1 given that SEO work takes time to show results.

Also don’t just use your intuition or personal experience re how you search for a service, but rather look at the numbers. As an example, I didn't expect that people were looking for doctor specialties in their area on Google, however it turns out there were more than 1 million monthly searches in Greece and Doctoranytime , in the same way like Docplanner in Europe, built a brand by capturing a significant share of those searches and converting them to happy customers.

Coming back to the food delivery marketplace, contrary to competitors, e-food invested heavily upfront on SEO and as soon as 2 years after launch was ranking in top 3 positions in many relevant keywords getting more than 200k of organic search visits per month.

Finally, another key success factor is the product and user experience.

User experience means a great interface at whatever medium the customer is using to interact with the brand. So both on the web as well as on the native mobile app, the flow should be intuitive and easy. Furthermore, in the food delivery business, the customer is typically on the go or on the couch and therefore mobile experience plays a very important role. We have seen that users using mobile apps have twice the lifetime value compared to users using the web. That was the last significant gap competition had left open for After our launch and for another year competition had no mobile app while e-food were having 20% of total orders coming from the apps.

The combination of those gaps and the space provided for 2 years gave e-food a significant advantage and moat. Therefore even when in an unexpected turn Clickdelivery, the main competitor, was acquired and had access to significant capital the tide could not turn. In fierce competition and while in the same period Clickdelivery was spending every month 2–3 times more on marketing than e-food was, the difference in market share remained constant. Network effects were in place and e-food kept its leader position. Our belief that we could retain our leader position despite having less available capital for marketing was why we stayed firm and continued our course when right after the Clickdelivery buyout, we were approached and offered to sell at a discount to our expectations. We had a strong belief that our leadership position could not be easily threatened and that is why we sold one year after that first offer at a significantly higher price.

The takeaway should be clear for founders when considering a sale to a larger international competitor. Is the position in their market defensible? Have they covered all the gaps that a new entrant could exploit? If the answer is yes then there is no need to feel threatened by the higher capital availability of a new entrant.

The leader defensibility is why we at VentureFriends like (among other things like SaaS and tech startups) marketplaces and are happy to support globally ambitious teams who have the vision and feel the urgency to disrupt legacy sectors by providing liquidity, transparency, and better service.

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