Building a marketplace startup is hard. The challenge lies in having to develop two distinct customer sets, all while doing the million other things it takes to get a startup off the ground. Getting to product-market fit is hard enough with one customer, but keeping in balance both sides of a marketplace business isn't for the weak of heart. But build up a critical mass of both supply and demand, and you can tip the marketplace and see rapid growth and an incredible business.

A key question marketplace startups must answer early on is whether to launch locally or nationally. On one hand, a local approach gives a company deep market penetration in one area and enables them to thoroughly understand how to meet customer needs and scale by maintaining focus. It can then become a race to replicate and expand the proven model as quickly as possible. With a national approach, a startup can access broader channels to acquire customers, such as partnerships, organic search, and social.

How should an entrepreneur choose the right launch strategy to get their customer flywheel turning? There are clear advantages and disadvantages to both a local or national rollout. Below are six factors that startups can use to determine which launch is right for their business.

Reasons to Launch Locally

1. You're offering a physical service

Uber and Lyft are examples of two successful companies that combined a marketplace platform with a physical service. In addition to offering a mobile platform for booking and paying for a taxi, these companies hire and employ drivers in every location that they operate in. Because local regulations are different from region to region and these companies need employees on the ground, it's smart to launch market by market in order foster loyalty from their customers, maintain quality of the service, and comply with the region's laws.

2.The market is new or underdeveloped

It can be extremely expensive and time consuming to try to develop a marketplace that doesn't exist or is not yet mature. Plain and simple: some areas of the country aren't ready for your product. Ask yourself, is it really worth dedicating your company's resources to a market that isn't prepared for your service or offering? The more risk around the existence of demand in your marketplace, the more important it is to start local. By focusing on a single region, it allows the startup to learn and iterate slowly until it finds the right fit and audience for its product.

3. You're still testing

If you haven't run minimum viable products and haven't engaged deeply with customers, start local. The idea of starting local when launching new ideas or products harkens to the lean methodology, where you test new products at a small scale, iterate quickly, and scale with deep customer understanding. After you've proven a model that works locally, you can then begin the process of ramping the program to replicate it at scale.

Reasons to Launch Nationally

1. You start with nationwide supply

Many marketplaces start with supply. Some get unique access to nationwide (or worldwide) supply. At my latest startup, Porch.com, we launched a service that connects homeowners and home professionals with a unique ability to find the right match by aggregating data about professionals. Based on our offering, we didn't need employees or managers on the ground in physical locations in order to serve our customers. We had a nationwide asset in our data; through this, it was obvious to make the service available across the country. Similarly, if your startup is launching a marketplace that operates independent of location, rolling out nationally can allow you to reach that wide audience of users quickly.

2. You have nationwide distribution

Do you have definitive and proven channels for reaching your target markets across the country? Do you have access to large partners that can provide you consumers across the country? If so, accelerating through the learning phase and launching nationwide to make full use of these opportunities is smart. Often, the demand side of the marketplace is more challenging than the supply side and if you have unique advantages to access consumers, don't miss out. At Porch, we have close partnerships with Lowe's, Realtor.com, and others. By having relationships with large, well-established companies, a startup like Porch can quickly reach a large audience with the backing of an established brand.

3. Your company foundation is strong

A successful national rollout can put an enormous strain on a business from both a people and operations standpoint. You need to have a rock-solid business foundation, leadership team, and infrastructure that's capable of keeping the company moving in the right direction on the long road to success. Additionally, your company should have sufficient funding to be able to sustain the growth needed to support a large influx of customers quickly.

Give your company an advantage by starting out on the right foot. The road to success for a marketplace startup is a marathon, not a sprint. So evaluate the unique needs and offering of your business and launch confidently with the right strategy for you.

Published on: Aug 13, 2014