Which came first, the chicken or the egg? This philosophical question has left people scratching their heads for centuries. However, did you know you can apply the dilemma to the world of business too?
In the world of startups, the chicken and egg problem refers to the struggle of attracting buyers and sellers to an app, platform, or marketplace at the same time.
For example, imagine you’re launching an online marketplace, and you need both buyers and sellers to make your business idea a success.
The problem lies in the fact that sellers won’t sign up without a solid buyer base to sell to, and buyers won’t use your marketplace if there are no high-quality sellers to buy from. As a result, you can struggle to get the users you need to ensure growth and revenue.
High-profile companies like Uber, Etsy and PayPal all experienced the chicken and egg problem when they started and overcame it. And the good news is, your business can too.
So, how do you go about solving the chicken and egg problem? Let’s take a look.
1. Take advantage of existing partnerships
An easy way to encourage buyers and sellers to sign up with your business is to leverage an existing partnership you have with another company. For example, if you operate a payment processor, you can partner with eCommerce platforms and online marketplaces to gain access to a brand-new base of customers and store owners.
In the early days, YouTube signed deals with music labels to host music videos on the platform. This attracted visitors to the platform and encouraged content creators to set up an account.
2. Offer incentives to users
When you’re struggling to entice buyers or sellers to signup, offering benefits can motivate them to come on board.
This happened to Uber when it was starting out – it couldn’t find the drivers needed to offer rides to customers. The ride-sharing app started offering bonuses for drivers that completed a set number of rides a day, drawing more customers in as a result.
3. Build trust as soon as possible
Customers don’t just want a fast, efficient service or value for money from your business – they want a system they can depend on. You can encourage buyers and sellers to sign up by being trustworthy.
How can you build trust? By implementing transparent policies, establishing secure payment systems, and providing solid review and rating functionality. Airbnb initially struggled to find buyers and sellers, so it implemented customer verification and host guarantees to make users feel more comfortable.
4. Find customers that double up as buyers and sellers
By prioritising the customers that use your business to sell and to buy, you can quickly solve the chicken and marketplace conundrum.
This is what Etsy did when it was starting out. Its market research showed that people who sold handcrafted goods were also more likely to buy them – so the marketplace focused on appealing to this target audience.
5. Focus on a specific location
This option may seem counterproductive at first glance; after all, surely the wider you cast your net, the more people will sign up? However, focusing on a specific city, town, or region makes it easier to market your business and raise awareness.
Many businesses started off in one single market before expanding. As an example, Uber focused on San Francisco, Etsy prioritised Brooklyn, and Airbnb targeted New York City.
6. Build a community of fans
Customers want to be part of something. Building a community of dedicated buyers and users can be a great way to encourage more people to sign up for your business.
This is the strategy Yelp adopted in its early days and continues to use to this day – holding parties for reviewers and venues. As a result, attendees learn more about the brand and the benefits of getting involved.
7. Do one thing and do it well
When building your business, it’s better to focus on one single value proposition rather than try and be all things to all people. This allows you to refine your marketing, gives your business purpose, makes you stand out from your competitors, and encourages buyers and sellers to sign up.
When it first started, Fiverr set its pricing so all services cost five dollars. This meant customers knew exactly what to expect from the brand and how they could benefit.
8. Fake it until you make it
Our last suggestion is not the most ethical one on this list, but it has worked for real-life businesses in the past! By faking popularity, you can entice buyers and sellers to use your app or platform.
In the early days, PayPal built a bot that acted as a human, buying items on eBay and offering to pay using PayPal – showing that the payment system had value. Similarly, Reddit created fake accounts to ask interesting questions, encouraging people to sign up and answer them.
Is it better to build both sides of the business at the same time, or focus on one side?
The honest answer is that it depends. While building both sides of the business simultaneously can lead to more balanced growth, it can mean investing more resources, which you may not have when you’re just starting out.
Focusing on one side of the time can be beneficial as you can use that growth to develop a value proposition to attract users on the other side. However, it does mean you grow more slowly.
The best thing to do is to look at the market, the nature of your business, and your target audience. This will help you make the right decision for your company.
Which strategies in this article will you use to encourage buyers and sellers to sign up for your business?
Top comments (1)
Even if you have the best flow for solving Chicken & Egg problem, you need to have clear Acceptance Criteria to get to the market. What is the acceptance criteria, we've described here