Mastering Marketplace Dynamics: Insights from Lyft's Former VP of Product

Building and scaling a successful marketplace business presents unique challenges compared to traditional companies. Ben Laier, former VP of Product at Lyft, shares invaluable insights from his experience growing one of the largest ride-sharing marketplaces in the world.

Focus on the Hardest Side Pre-Product Market Fit

When starting a marketplace, many founders get distracted by complex marketplace dynamics before achieving product-market fit. Laier advises focusing on growing one side of the marketplace initially:

"If you don't have product market fit and if you don't have a good enough growth strategy for at least one side of your marketplace, just forget about all this marketplace stuff right focus on this core exchange of value go deep with one side of the marketplace and see if you can rely on some crutch some hack for the other side for the time being."

He recommends picking the hardest side to grow, which is typically supply in about 80-90% of cases. For example:

• Thumbtack focused on growing demand (homeowners needing services) initially, as finding service professionals was easier
• Lyft and Uber focused heavily on driver acquisition early on
• Airbnb concentrated on getting hosts and inventory before worrying about travelers

Some clever tactics for jumpstarting supply growth include:

• Leveraging existing channels like Craigslist to find initial supply
• Building value-added services to attract and retain suppliers
• Converting demand into supply (e.g. encouraging riders to become drivers)
• Creating referral and mentorship programs

Manage Marketplace Liquidity

Once you achieve initial product-market fit, Laier emphasizes the critical importance of managing marketplace liquidity:

"To me liquidity is how marketplaces win right it's it's this measure of your ability to match buyers and sellers efficiently right it's it's how quickly and efficiently people can find what they're looking for on your platform."

He recommends tracking two key metrics:

1. Fill rate - For users with intent, what percentage convert to a transaction? This measures overall marketplace health.

2. Market health metric - A leading indicator that predicts fill rate. For Lyft, this was driver ETA. They found that if the closest driver was within 3 minutes, users were highly likely to book a ride.

Focusing on improving these metrics, especially by increasing supply density in key markets, is crucial for marketplace success.

Balance Quality and Growth

Marketplaces face an inherent challenge in maintaining quality while pursuing rapid growth, since they don't directly control their supply. Laier advises:

"Provide guard rails for what a good experience is in your marketplace set a clear bar for quality and provide the right coaching uh and tools for supply to be successful and then take a step back and see where the gaps are and invest more in hands-on tactics just to close those gaps more specifically."

Some strategies for maintaining quality include:

• Implementing review systems
• Providing coaching and tools to help suppliers meet quality standards
• Investing in more hands-on quality control for problem areas

Laier cites the talent marketplace Top as an example of a company that maintains extremely high quality through rigorous vetting and ongoing support of their freelancers.

Leverage Your Community

One of Lyft's most successful strategies for competing with Uber despite having far fewer resources was leveraging their driver community. They created a mentorship program where top-rated drivers would onboard new drivers:

"We would pay our best drivers $35 per mentor session and a mentor session was essentially replacing this onboarding flow so it was basically another driver looking at your vehicle uh the check all your documents take photos of your driver's license and all that stuff and take you on the short right along."

This approach had multiple benefits:

• It was much more scalable than opening physical offices in new markets
• Mentor drivers acted as brand evangelists and shared insider tips
• It created a sense of community and career progression for top drivers
• New drivers received more authentic and practical guidance

Lyft expanded on this concept by also having experienced drivers call potential applicants who had dropped out of the sign-up funnel, further leveraging their community to drive growth.

Avoid Common Pitfalls

Laier highlighted several common reasons marketplaces fail:

1. Failing to achieve sufficient liquidity/density, especially in early markets

2. Ignoring one side of the marketplace for too long (often the supply side)

3. Not being intentional about quality standards

4. Trying to control supply too tightly, which can backfire (e.g. Thumbtack's attempt to sell bookings rather than leads)

5. Fragmenting the marketplace unnecessarily (e.g. Sidecar allowing too many user preferences)

Insights on European vs US Product Management

Having worked in both the US and France, Laier shared some interesting observations on the differences in product management and startup culture:

• European markets tend to be less liquid, with people changing jobs less frequently
• There's often less autonomy and ownership given to product managers in Europe
• Equity is typically a much smaller part of compensation and less valued by employees
• European startups often need to focus more on business models earlier due to different funding environments
• There's more of a business-centric rather than tech-centric approach in many European companies

For European companies looking to adopt more US-style practices, Laier recommends:

• Educating employees on the value of equity
• Creating more autonomous, outcome-focused product teams
• Fostering a greater sense of ownership throughout the organization

Conclusion

Building a successful marketplace requires navigating unique challenges around growth, liquidity, and quality. By focusing on the hardest side to grow pre-product market fit, obsessing over liquidity metrics as you scale, maintaining quality standards, and leveraging your community, marketplace founders can set themselves up for success in this challenging but potentially highly rewarding business model.

Laier's experiences at Lyft and insights into both US and European product management provide a valuable playbook for marketplace entrepreneurs and product leaders looking to build the next generation of transformative two-sided platforms.

Article created from: https://www.youtube.com/watch?v=CYwgStMln6U