Raad Ahmed
January 13, 2022

How To Overcome The Chicken-And-Egg Dilemma Of A Marketplace Startup

There’s an infamous dilemma that all marketplace founders face: Should they start with

supply or demand?

Uber faced this question in 2008. Initially, Uber’s founders designed it as a limo service.

Finding more demand in the non-luxury market, Uber pivoted to an app-based

replacement for cabs. By 2010, co-founder Travis Kalanick called the initial limo

idea “Hilarious.”

Uber started with demand. What if they’d started with supply? What if they’d bought

hundreds of limos and hired hundreds of drivers in anticipation of huge demand?

Like Kalanick said — hilarious.

My co-founders and I had a similar experience building Lawtrades. We started with one

concept that gave way to another, more scalable concept. We sought to understand who

our customers were and what they wanted — where demand was — and then found the

supply to fill it.

Marketplace startups’ fundamental value is creating economic opportunity — helping

users earn a living through their platform. Finding a bunch of sellers is useless if no

one buys their services.

There’s no universal solution to the supply vs. demand dilemma. But I believe the vast

majority of marketplace startups should start with demand.

Here’s how we managed to tip our marketplace and how you (as a founder) may want to,


1. Solve for demand

When Lawtrades first launched, we were selling to small-to-midsize businesses (SMBs).

The theory being, small companies can’t afford full-time lawyers, so we’ll give them

affordable part-time solutions.

Unfortunately, we found that churn for SMBs was really high. Retention was low,

and even while they used our platform, they didn’t spend enough money to fuel

legitimate growth.

Before our pivot, we saw that one customer was using the platform on an almost

daily basis. At first, we couldn’t understand why. After doing some digging, we

learned that he was General Counsel (GC) — meaning he ran all the legal

operations within his company.

A lightbulb flashed on.

GCs had near-constant demand for legal services — much more consistent than the

one-off needs of SMBs. Especially at fast-growing tech companies, they had more

need than they could hope to fill alone. GCs had a strong pain point. If we pivoted

to GCs, we could tap into demand that already existed and provide a much more

stable revenue stream for our supply side.

2. Build manually (at first)

Once we decided to target GCs, the next challenge was connecting them with

lawyers. We’d found a source of major demand — now we needed major supply.

At first, we built supply manually. Our small team stayed up all night finding lawyers

on LinkedIn and various niche job sites. We did all the headhunting, sourcing, and

vetting, then presented our customers with a handful of options.

Doing this manually at first allowed us to learn (a lot) about both our customers

and supply-side lawyers. Some customers were looking for part-time help, some

wanted full-time support, others needed project-based help. We took data points

for the most requested type of talent (which turned out to be flexible commercial

lawyers) and ramped up the supply of that exact persona.

When one GC had a good experience, they recommended us to their GC friends,

which meant we had to find even more supply. Thus, the cycle repeated. We got

back on LinkedIn,gathered a few new options, presented them to the GC, understood

their decision.

Completing this process manually meant many late nights. But after a few dozen

repetitions, we had a solid base of supply — hundreds of lawyers that practiced

commercial law in the San Francisco area.

This hands-on learning opportunity made us really good at matching and

ultimately enabled us to build a powerful matching engine into the product.

3. Build the product specifically for your super consumers

The more we grew into our base — fast-growing tech companies with small

legal teams — the more it fueled a viral loop of word-of-mouth. Brick by

brick, we built relationships with GCs in this market and ultimately attracted

big-name companies like Yelp, Doordash, and AngelList.

Those were our super consumers, and they had much higher usage of our

platform than SMBs because they were growing like crazy and needed extra

lift along the way. This meant we really only needed a few of them using the

platform to get it going instead of thousands of smaller customers.

4. Repeat: Iterate and improve the experience for both supply and demand sides of the marketplace

By now, we had product-market fit. Now was the time to seek capital that

would allow us to build a platform to scale the operation.

Many startups go wrong by seeking VC money before they have

product-market fit. Even if hey find investors, they’re not funding product

growth, they’re sinking funds into an unproven concept.

We used investment capital to build a system and a team around a concept

that was already working. Only now did we invest in major engineering, to

automate the search work we’d been doing manually and expand into

new markets.

In each new market, you’re always solving for demand and supply. The

solution is never identical: What worked for capturing San Francisco won’t

necessarily work for capturing Spain. But the advantage you have in each

new use case is a system to suss out the nature of demand and match

it with supply.

VC money also let us fund measures like cold outreach, SEO pages, and

free credits (thousands of dollars for new customers to spend on our

platform after signing up). By meticulously tracking the value of these

measures, we calculated a payback cycle, quantified ROI, and justified

further investment dollars.

Lawtrades couldn’t have grown with a demand-agnostic mindset. All of our growth

happened because we pivoted, started with demand, paid attention to nuanced ways of

delighting our customers, and then focused on helping our supply-side lawyers earn a

predictable source of income.

This last point is most crucial: Every step of the way, focus on relationships.

That goes for customers and vendors alike. I foresee the future of marketplaces

having a built-in social network element to keep people engaged beyond that initial

transaction. Whether that’s a Slack group, conferences, or community events,

marketplaces live or die by their users’ devotion. Reinvesting in community

strength is the best way to consolidate trust and commitment to the platform.