S3E27 Branden Cobb How to build a marketplace

S3E27 – Branden Cobb – How to build a marketplace
Branden Cobb – How to build a marketplace. My next guest has over 15 years of marketing experience with an emphasis on building marketplace businesses. A marketplace is an application with two audiences on one platform. Some examples you may be familiar with include Zillow, Airbnb, Etsy, Groupon, and Ebay. This is not an easy business to start because you have to figure out what type of marketing and sales strategies attract each audience. In this episode, we talk about how to start a marketplace, how to bootstrap marketing, and how to balance growth between the two audiences. Please welcome Branden Cobb.

Payback Time Podcast

Payback Time is a podcast for investors. The goal of this podcast is to help make investing approachable and easy to understand. We will interview beginner and experienced investors and ask them to share stories on how they got started, what challenges they faced, what mistakes they made, and what strategy works for them today. The overall objective is to provide you with a roadmap that helps you become a better investor.

Key Timecodes

  • (00:53) – Show intro and background history
  • (01:38) – His definition of marketplace
  • (02:38) – Why he decided to focus on this business model
  • (03:33) – How he started with this business model
  • (06:13) – Deeper into his business model and lessons learned
  • (13:32) – Is he running ads to monetize or focusing on consumers?
  • (14:51) – Deeper into his takeaways and strategies
  • (16:42) – What are his strategies to get a viral effect
  • (21:02) – Is he working with venture capital or bootstrapped investors?
  • (23:12) – A bit about the scalability of that model
  • (24:47) – A key takeaway from the guest
  • (27:37) – What is the worst advice he ever received
  • (28:16) – What is the best advice he ever received
  • (29:44) – Guest contacts

Transcription

[00:00:03.860] – Intro
Hey, this is Sean Tepper, the host of Payback Time, an approachable and transparent podcast on business investing in finance. I like to bring our guests to hear authentic stories while giving you actionable takeaways you can use today. Let’s go. My next guest has over 15 years of marketing experience with an emphasis on building marketplace businesses. A marketplace is an application with two audiences on one platform. Some examples you may be familiar with include Zillow, Airbnb, ETSY, Kupon, and eBay. This is not an easy business to start because you have to figure out what types of marketing and sales strategies attract each audience. In this episode, we talk about how to start a marketplace, how to bootstrap marketing, and how to balance growth between the two audiences.
[00:00:51.850] – Sean
Please welcome Branden Cobb. Branden, welcome to the show.
[00:00:55.260] – Branden
Thank you so much. Appreciate you having me, Sean.
[00:00:57.580] – Sean
Yeah, thank you for joining us. Why don’t you kick us off and tell us about your background?
[00:01:02.380] – Branden
Sure. So I’ve been marketing for 15 years, both in house and out of house consulting, most recently consulting a handful of businesses. Very ROI focused. How do you get to profitability? And very ROI focused and how do you get to profitability is a lot of times about how much value you’re creating. And with how much value you’re creating, it’s about, in many cases for the clients that have been helping, getting to a bit of critical mass on a network effect or a dual marketplace. And so increasing the amount of people on both sides of the market there.
[00:01:38.190] – Sean
Right on. So I really like the marketplace model. It is not for the faint of heart, I would say it’s a harder model to create. I’ve attempted it in the past. I had a failure going back about 10 years ago as a Groupon competitor where you have your businesses, consumers on one platform. But before we really dive into the marketplace model, some of the success you’ve seen do’s and don’ts, all that good stuff, why don’t you give us your definition of a marketplace just for the audience’s context?
[00:02:05.840] – Branden
I would say a marketplace in most modern terms, tends to be online on a platform. But traditionally, it’s anywhere where two different groups of people meet with different needs that their needs somewhat work together so that the one side needs the other side’s needs. And there’s an exchange of services, goods, knowledge. There’s an exchange there. And there’s usually a need for each side’s, what they can provide to each other.
[00:02:38.160] – Sean
Sure. Well put. Why did you double down and decide to focus on the marketplace model?
[00:02:43.930] – Branden
Well, you know ow, so I had read this, probably a lot of your viewers have heard of Jim Collins, great business author, and he had written a book. It was a later portion of his series of The Good & Great series, and it was called Turning the Fly Wheel. And that turning the Fly Wheel, just building that. It’s all about building momentum. And the more momentum you get, the more you start to just build natural synergy. And so for me, I related that to a lot of what I was seeing in the workforce, and that the way to build that synergy, the way to build that momentum was by balancing the growth on both sides of the marketplace. So you need to… Neither side of the marketplace needs to become unbalanced. They need to grow together.
[00:03:30.940] – Sean
Sure. Absolutely. So why don’t you tell us about maybe a first project or business that you got started with in this space? Because you said you’ve been doing this about 15 years.
[00:03:42.600] – Branden
That’s right. Yeah. So first I’ll say I see the need for this basically everywhere in almost any business. I mean, if you think in just a traditional retail space, it’s how many suppliers you have and what you can supply to the consumers makes it more valuable for the consumers to come into the store. And the more consumers that come into the store, the more valuable it is for the suppliers to be wanting to work with you. When I started doing this consulting about a year and a half, two years ago, specifically just going and helping a lot of clients instead of working in house, one of the first companies I worked with was a venture capital backed startup named Simply Homes. I was coming out of the real estate industry doing marketing for a traditional brokerage. But Simply Homes was building this dual marketplace where there would be institutional investors coming in saying they needed, let’s say, like in Cincinnati, Ohio, maybe we get an order for 1,000 homes that they want to purchase. And then we would need to go find 1,000 home sellers. With this being said, it was a situation where a SaaS platform which was creating a valuation of the home value as well as how much repairs are needed.
[00:05:01.320] – Branden
Then once repairs are done, how much it could be turned around and flipped. So this is part of the value they’re creating for the investors to come in. But even with that technology of providing all the valuations, it’s no good if we don’t have the home sellers. So we need the home sellers to make the value for the investors coming in to achieve their goal. And then the more home sellers you have, the more you need home investors, because if you have people coming wanting to sell their home to you and you don’t have people to buy their home, then you’re no good either. So this was one of the first times I’ve seen this on the SaaS platform. A lot of times I did it out in the brick and mortar field. That is the same way back in traditional real estate, too, in the brokerage model. The more agents that have, the more valuable it is for clients to come work with you because there’s more relationships, more off market listings and different things agents toss around. And the more clients you have, the more it attracts more agents to come and work for your brokerage.
[00:06:03.330] – Branden
So I would say that was an interesting experience. And if you want, I can tell you how you can go about achieving getting people on both sides of that marketplace.
[00:06:14.200] – Sean
Yes, I would like to tell you a quick story here, a fun story in my regards, circling back to that lesson learned about 10 years ago. And then maybe you could pinpoint, and I know what I did wrong, but I’d love to hear your comments on it as well. So long story short, Groupon being a marketplace, you have your businesses, consumers on the same platform. Groupon takes 50 % usually at the time and prior. This was 2013, of course, but it’s 2010 through ’13 when they’re really thriving. But 50 % of the ticket sales. And you have a restaurant that they have really low profit margins, so they create a loss leader, in other words. They take a loss to bring people in, as you know, and then with the hopes that those people that come to a restaurant with the group on, they return thereafter, and of course, pay full price. And idea came up with a buddy of mine was, what if businesses took 100 % of the profits but paid a monthly subscription of 100 bucks? And we started talking to businesses and businesses were like, where can I sign or where can I sign up for this thing?
[00:07:18.600] – Sean
So we started selling this thing like hot cakes’s hand over fist to businesses. We’re going to run into the problem here in a second, so bear with me. But we got a two million dollar buyout offer, which we declined because we’re stupid and it probably wouldn’t have went anywhere. But when we launched, it was crickets. And the reason was we could not find a way to build the consumer base fast enough to satisfy the businesses. And we talked to venture capitalists, and the response was, Cool idea, but you’re like four years late to the party. The whole daily deal thing was starting to phase out. You probably remember Living Social and there are a bunch of knockoffs out there. But yeah, the big lesson learned was making sure you can build both audiences at once. I’d love to hear your thoughts on that. And two is market timing with every business idea. We’re just too late in this case. So I’ll stop there.
[00:08:13.770] – Branden
Yeah. Well, you know, the thing is, you did have a great poll for the businesses there, it sounds like, because that’s a great deal. And the fact of the matter is, if you got a lot of consumers joining the platform, eventually you could raise that price to the businesses. And it wouldn’t have to be 100. It could have been a couple of hundred. But you can’t do that until you have the consumer. So the way I look at how you balance going up like a feesaw back and forth, back and forth is going to be number one, you need to figure out how much it needs to cost. Not how much does it cost? How much is it going to need to cost for you to acquire a consumer or a supplier, somebody on either side of the equation. So customer acquisition costs of CAC. And to do that, I’m going to look at when a transaction occurs on your platform, what price do you get as a company? What revenue do you bring in from that? And then now minus the cost to produce your product or your service. And that can be both your fixed and variable costs.
[00:09:28.530] – Branden
Or in some situations, I’ll just look at the variable cost knowing that any profit I’m getting above the variable cost is going to start paying down the fixed cost. Then take the revenue amount that’s going to come from a successful transaction and minus the cost that is required to produce that service. That’s your potential profit before deducting the CAC, the customer acquisition cost. That CAC needs to be below that potential profit number to allow better than a break even or loss. When you talked about how on that platform, some businesses would be willing on the traditional group on platform, they’ll lose 50 % but they’re doing it as that loss leader to then later try to retain the customer. For me, I don’t like to… Yes, with venture capital and different things, you could build up your audience on both sides at a major loss with hope that later you’re able to flip it to profit. I like to do it in a more steady way where I like to profit from day one. When I’m saying about the, Okay, this is how much revenue is going to come in from a successful transaction for you.
[00:10:49.790] – Branden
Now you know how much you have for CAC once you know your costs and everything. All I look at is how do I make that CAC be achievable and earn one dollar? Just one dollar. And then as long as you’re able to start bringing in customers at one dollar, then you can start to optimize that after there. So once the different campaigns, the different ways of generating those leads are done, then you are able to continue to optimize and bring that CAC down and build that margin. As that margin grows and as that profit is occurring, any type of profit there, I’m reinvesting in more and more ads or more and more of the campaign until I’m hitting… I’ll go all the way until I’m hitting diminishing returns there. Once I start hitting diminishing returns, then you got to look at either new channels where you can achieve, again, that initial CAC that is going to be just below your break even, or new locations. You got to spread out and look for new areas that you can achieve consumers. What this means is it’s a slower build. It’s a slower build on both sides of the marketplace.
[00:12:07.560] – Branden
However, what that also means is you do it and this CAC could be on either side of the marketplace. You could have the CAC on the consumer side, or like for me, let’s say on the Simpli homes, you could have the CAC on the home seller side or you can have the CAC on the investor side. But nevertheless, you never grow one side too big. You continue to go back and forth, back and forth. And yes, you may have a small marketplace. A small marketplace by itself is not bad as long as it’s profitable. What to me would be worse is to build a big marketplace that is not profitable and then come to find out later you’re never able to make it profitable. So I would rather build a small marketplace and continue. And then it starts compounding because then once you tch, it’s just like any other compounding feature that as more and more people start joining both sides, then there’s more referrals, more recommendations, more word of mouth, and that profits growing. So the amount you’re reinvesting, the amount that you’re continuing to grow at it, you’re growing it at a compounding rate.
[00:13:18.260] – Branden
But this is how I like to do it. This is how I advise businesses. Don’t dig that deep hole that then you may or may not get out of. And also on the marketplace, you got to keep it even on both sides or it will never really make sense.
[00:13:32.320] – Sean
I love that. This is a good take away for the audience. A nice, steady, slow and steady process on both sides. I like your teeter totter analogy there. You got, for example, a business and consumers all in one platform is grow them slowly and don’t get too out of hand on each side. Yeah, we were way off balance with our model, get in all the businesses, but not enough consumer. So that was one big mistake. But in your case, you mentioned ads. Are you running ads to monitor a CAC on both, let’s say, a business and consumer side, or do you treat it like… What we did back then 10 years ago is do a more sales approach. You had a salesperson selling the businesses and then try to run the ads to bring in the consumers. What are your thoughts on that?
[00:14:20.850] – Branden
Yeah, it can be either or. You really just need to look at who your target is on both sides of that marketplace and what’s going to work best for achieving the reach and the trust and winning the hearts and minds of the audience on each side. So you may run an ad campaign on the consumer side, but you may run a sales more of a business development relationship campaign on the business side.
[00:14:50.720] – Sean
Sure. Okay. No, that makes sense. And now I’d like to talk a little bit about your experience with Jim Collins, big inspiration as well. When I read Good & Great about a decade ago, I was like, Okay, the flywheel was like this visual strategy to see that inflection point in a business that really goes to a whole new level. Do you have any takeaways or strategies or anything that you’ve seen with the business you help when they hit that inflection point on either the business or the consumer side?
[00:15:24.020] – Branden
Yeah, I would say now when you start getting that momentum and you start achieving that scale, that’s not a time to slow down. That’s a time to keep… That’s where I’m saying it compounds. You need to keep reinvesting the profit. I’m not trying to squeeze out a lot of profit during that period. I’m reinvesting almost all that profit. Never reinvesting to a point where you’re back in debt again, but reinvesting back down to close to a break even amount, yes. Continuing to compound, what I would say, though, is you will hit a point where there’s the potential joiners or members of the market on both sides will start to run out or you will start to at least receive diminishing returns on both. At that point, that’s where I’m saying you can enter new locations, expand your marketplace wider, or you can try to see if there’s another channel to try to figure out achieving that. But ultimately, a market some markets will cap out. And when they cap out, I think the goal would be just maintain and retain and go start another market, start creating another flywheel then.
[00:16:42.960] – Sean
I’d like to talk about because we had a lot of bootstrappers on this podcast, they might not have the ad spent to bring in consumers and businesses, especially both. Do you have any strategies that anybody can use on the consumer side to create some viral effect where you’ve got a person buying and they’re sharing it with their friends and then they share it with their friends and some strategy that does that?
[00:17:06.900] – Branden
Yeah. I think you can give away… You think about what can you give away beyond monetary means to encourage, I guess, influencer relationships? So the people out there spreading the word and posting about it. So depending on your product or service, you can give them the free product or service. I heard a thing, I was listening to a book the other day about when Bitcoin was just starting. And we probably, some of us have heard of the idea that somebody bought a couple of pizzas, I think, from Papa John’s or something for several thousand bitcoins, or I don’t know what the amount was, but quite a few bitcoins. And the purpose was people were starting to, at that point, earn Bitcoin, I guess you could say, but it was worth nothing because it had never been used in a transaction before. So it was by the way of saying, okay, it didn’t matter what the value was, just finding a way to use it in a transaction. Somebody took a risk like, Okay, this is probably worth nothing, but I’ll give you a couple of pieces for these bitcoins. The fact that it starts to be used in one transaction creates where others will herd or follow or see that social proof there that it’s something to engage with.
[00:18:28.480] – Branden
Where I’m going with this is, on your platform, you may give a free subscription to somebody for two years, and that subscription may be worth nothing. But if they’re posting about it and other people start seeing social proof of it, then that subscription is going to start to become more and more valuable as more and more people join. So just give away what you can there, knowing you may be giving away what later is very valuable but right now has no value. But that’s an alternative to money, though, on your marketplace. Does that make sense?
[00:19:03.110] – Sean
It does. What I’m extracting from your tips there is I find it a little easier there to create a viral effect on the consumer side because they can share it with their friends and maybe by sharing, they unlock maybe an extra discount or maybe additional extended membership, whether it’s by month or by year. Something that incentivizes them to create this viral effect. That’s the same strategy you can apply to B2C SaaS, which is our model at Tykr. But that’s where things can get really fun if it’s something that people are motivated to share with their friends, and then you watch that domino, it’s a great visual I like to look at. It’s like they just keep falling and everybody’s coming to your platform.
[00:19:45.120] – Branden
Well, and I think if that’s the case, so you start getting people on that one side, then now you can, just like in your case where you created the Groupon type thing, and you had so many businesses wanting to do it, but you had not the consumers, you could take, Hey, we’ve got all these great businesses. Come here and you have to make an attractive offer for the consumers to come in and know that there’s a lot of value here as a consumer if you join this. And so for you, let’s say like a Tykr, you’re getting people to join. The more you get people to join, what that’s going to allow you to do is create more features, add new features and more value to the consumers. And I mean, Netflix, same way, right? More subscribers, more money to invest and more content. So you’re taking the… Maybe on that side, you’ve got a lot of consumers joining the platform, and now you can go back and approach investors and say why there’s a lot of value now. And so you’re just you’re leveraging and basically negotiation between both sides. And you’re trying to play up the value of the other side when pitching to the opposite side and then try to get more from the opposite side at that point.
[00:21:02.960] – Sean
Sure. Okay. Now, in your case, are you working with a lot of venture capital backed marketplaces or have you worked with some bootstrapped marketplaces?
[00:21:11.700] – Branden
Yeah, both. I also worked with a family that owned a factory. They’d been producing for 20 years private label. They wanted to build some brands where they would own the brand that’s going to market instead of selling to a well established brand. That’s a well financed private family, but it’s still nevertheless a private family that is bootstrapping their own launch of their brands and different things.
[00:21:45.800] – Sean
They’ve got it. It sounds like a revenue stream from their main business that can fund the marketplace initiative.
[00:21:52.290] – Branden
But let’s make it more like to the lower, to somebody that’s maybe not in that financial position. That’s where I’m saying from the beginning of this podcast, when I was like, Okay, well, make it a small marketplace. You don’t have to have a lot of money to go get. If it’s 10 on one side of the marketplace and one or 10 members on the other side of the marketplace, that may not take a lot of money. It probably at that point doesn’t bring in a lot of money either. But if you take that approach, I was saying it’s not going to be at a loss. It’s going to be at a break even or slightly profit based. But the point is then you keep growing it. It’s not a get rich quick. You may not get rich off one marketplace. You may have to have 20 different spinning plates or something, 20 different fly wheels going, 20 different markets going. But you may have to have your main job in your building this marketplace on the side, but that marketplace will start compounding through time if you take this slow and steady approach. And that’s going to eventually get to where maybe it will be fully sustainable where you don’t need to focus on anything else because it is bringing in so much once it compounds up to that point.
[00:23:11.600] – Sean
Yeah, right on. It is a really solid business model. I know I was talking to somebody about B2B, you’ve got B2C SaaS, but an incredible business model is a marketplace. If you can really get it running and you’re just facilitating, you’ve got the tech, you’ve got the platform, and you let those two audiences grow and you’re taking a part of the transaction fee in most cases, it is really a scalable business model. It’s something special. It just takes some work to get there.
[00:23:39.590] – Branden
Yeah. So what are you earning from that transaction fee and how can you create a transaction for less than that transaction fee?
[00:23:48.740] – Sean
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[00:24:56.420] – Branden
Make it user friendly, make it ake it very easy to understand, not too technical, not too complex. Make the barriers to entry very low for both sides. There are elements of where you may attract, let’s say, on the side where I’m talking about like home investors, if you make it where we’re not accepting a home investor for less than… Somebody who wants to buy 500 homes or something, you’re eliminating all the people like myself or somebody who may want to come in and invest on like 1 to 10 homes as an individual, but you’re not an institutional person. So you’re making the barriers the entry higher. But as a result, in that case, you’re with exclusivity. I mean, you’re making it an attractive thing to the big players at that point. So you got to decide who you want. Do you want to make the barriers the entry very low on one or both sides? That’s all just a positioning play. But I would say in general, it just needs to be user friendly and you need to make it doable. The target market on each side, there has to be enough target market on each side who can reasonably enter the marketplace.
[00:26:10.540] – Sean
Got it. Right on. All right. Well, thank you for the context on Building a Marketplace. What I’d like to do next is jump into the rapid fire round where we get to find out who Brandon really is. If you can, try to answer each question in 15 seconds or less. You ready? Sounds good.
[00:26:26.110] – Branden
All right.
[00:26:26.470] – Sean
What is your favorite podcast?
[00:26:28.580] – Branden
I like the Russell Brunson podcast. He’s the founder of ClickF unnels. A lot of great stuff there. I think also understanding… One thing I find interesting is he sometimes puts people, a person, as the face of the business, and that is the main character of the business. If you listen into that podcast, you’ll probably understand more of that.
[00:26:49.760] – Sean
Very familiar. What is a recent book you read and would recommend?
[00:26:55.270] – Branden
There’s Harvard Business Review. They have a must Read series. And so there’s one kit that goes over business in general. It’s basically like a mini MBA. It’s all facets of business. But then they have specialties. So I finished that first one and now I’ve been reading into their sales and marketing series.
[00:27:19.090] – Sean
Got it. All right, movie question. What is your favorite movie?
[00:27:23.280] – Branden
Rudy, Football movie.
[00:27:25.760] – Sean
Very familiar. Sean Astin.
[00:27:28.040] – Branden
Yeah, Sean Astin. Because I like the underdog stories. So it’s that persistence and drive to keep going.
[00:27:35.470] – Sean
Yeah, it’s a great movie. Love it. All right, a few business questions. What is the worst advice you ever received?
[00:27:42.320] – Branden
Worst advice I ever received is probably to not go back to school. I went back and did my MBA. It was like, Don’t keep learning. But I know what they were meaning. It was like, just get the work experience because work experience is just as valuable. It’s all about, though, just continuing to learn. So it doesn’t matter where you learn or how you learn. It’s just the idea. Don’t ever take advice that you should stop learning, though. It’s just how you learn is up to you.
[00:28:14.420] – Sean
Yeah, absolutely. I agree. All right, flip through equation here. What is the best advice you ever received?
[00:28:21.460] – Branden
Probably just understanding that life’s a marathon. It’s not a short sprint. So you got to got to be resilient and you got to be long term focused. I think it was Anthony Robbins, Tony Robbins, who said a lot of people overestimate what they can do in the short term, but underestimate what they can do in the long term.
[00:28:46.250] – Sean
Yeah, absolutely. I agree with that. All right, and the time machine question, if you could go back in time to give your younger self advice, what age would you visit and what would you say?
[00:28:57.540] – Branden
I would go back to probably just the period of completing high school and entering college because you pick a major, you do all these things that do internships, and then you graduate and you start out in the working force. And you think that life is only going in one direction, and you don’t really understand that it’s going to pivot in many ways, and that all things work for good and all things. You may not see it at the point in time, what you’re doing, how it’s going to play into as a strength for you later. But years down the line, you can find value from any experience. I guess that would be it. It’s just find value in every experience. Right on.
[00:29:45.080] – Sean
All right. And where can the audience reach you? Well, you can.
[00:29:49.140] – Branden
Find me on LinkedIn. That’s the main platform I’m on. My name is spelled B rand, D, Ian. So Brandon Cobs, and then C O, B, B. Or you can reach out to me to me at Brandon@marketingexec. Us. I’d be happy to answer any questions you have or give you a consultation if you need. Cool.
[00:30:08.540] – Sean
All right. Well, thanks for your time, Brandon. Thank you.
[00:30:10.690] – Branden
Very much. Appreciate you having me on. All right.
[00:30:12.790] – Sean
See.
[00:30:13.040] – Branden
You.
[00:30:14.660] – Sean
Hey, I’d like to say thank you for checking out this podcast. I know there’s a lot of other podcasts you could be listening to, so thanks for spending some time with me. Also, if you have a moment, could you please head over to Apple podcast and leave a review? The more reviews we get, the more Apple will share this podcast with the world. So thanks for doing that. And last thing, if you do hear any stocks mentioned on this podcast, please keep in mind this podcast is for entertainment purposes only. Please do not make a buy or sell decision based solely on what you hear. All right, thanks for your time. Talk to you later. See you.