Breaking the Chicken and Egg: How to Bootstrap a Double-Sided Marketplace

Yesterday I profiled Etsy, one of the more prominent and interesting double-sided marketplaces that has taken off in recent years.

Marketplaces are probably my favorite business model. When they work, they're incredible.

They are asset-light, have high margins, strong cash flow, and are fueled by network effects. Once the flywheel is spinning, it is very hard to stop. The problem is the flywheel weighs about 1,000 metric tons.

Years ago, as I was starting my farm management software company, Harvest Profit, I attended a "building software as a non-technical founder" workshop. Almost everybody else at that seminar was in pursuit of a marketplace business model.

I wish I could remember the exact video, but I had watched something on YouTube that explained the difficulty of starting a double-sided marketplace, and it made complete sense to me.

Over the last 10-15 years, I've simply dismissed the idea of starting a double-sided marketplace. I want to build fun tools with a small team and a small amount of capital. That's not very conducive to starting a double-sided marketplace, but it's about time that I revisit my bias against them.

Let's dive in. I've done some research over the past few days to update my thinking on this business model.

The core issue is simple:

• Buyers don't show up without sellers.

• Sellers don't show up without buyers.

• You're stuck pushing both sides uphill at the same time.

Most marketplace startups die here. They never get enough activity on either side to make the thing feel alive.

The companies that break through tend to find something that works. They use deliberate, often scrappy tactics to manufacture early momentum until network effects can take over.

Pick One Side and Go

The most common mistake is trying to grow both sides at once. You spread yourself thin and end up with a mediocre experience for everyone. Instead, figure out which side is harder to get (usually supply) and focus all your energy there first.

Uber figured this out early. Drivers were the constraint. Once they had enough drivers in a city to guarantee short wait times, riders followed naturally. The demand side was actually easier once supply was solid.

Outdoorsy, the RV rental marketplace, had the same experience. Getting RV owners to list their vehicles was the hard part. Once they figured that out, renters came at five times the pace and at a fraction of the cost.

It’s OK to Start Small

Almost every successful marketplace started in a tight niche before expanding.

When you launch in one neighborhood or one category, you can achieve "liquidity" (enough activity to make the experience feel “alive”) with far fewer users than if you tried to serve everyone everywhere.

Lyft launched in San Francisco only Craigslist started there for nine years before expanding.

The playbook is consistent: dominate a small pond before jumping into the ocean.

Specific Tactics That Actually Work

Here are concrete approaches that have worked for real companies:

• Build a tool first, then add the marketplace. OpenTable started as scheduling software for restaurants. Once restaurants depended on the tool, OpenTable had the leverage to bring in diners. StyleSeat did the same for hairdressers. Free booking software got stylists hooked before customers ever entered the picture.

• Be the supply yourself initially. Zappos famously fulfilled orders by hand in its early days. Someone would literally drive to the shoe store, buy the shoes, and ship them to the customer. This let them prove demand existed without needing supplier relationships yet.

• Seed the supply side with aggregated data. Yelp created pages for local businesses before those businesses ever signed up. Indeed did the same for job listings. The marketplace looked full from day one, even though real engagement came later.

• Pay to acquire your hardest side. Uber gave drivers guaranteed hourly rates in new markets regardless of how many rides they completed. This removed the risk of joining an unproven platform. It's expensive, but it works.

• Find a market where buyers are also sellers. This was Etsy’s cheat code (see below) and it’s a unique attribute of my niche, farming. If the same person operates on both sides of your marketplace, you only need to recruit one audience, not two.

• Land an anchor tenant. One big-name supplier can signal credibility to everyone else. It's the same logic as a shopping mall signing an anchor store. Once one major brand commits, smaller players feel safer joining.

What Made Etsy Work

let's go back to yesterday's report, Etsy.

Etsy's early success came from a clever insight: the people most likely to buy handmade goods were often the same people who made them. Crafters buy from other crafters. This meant Etsy could recruit one community that would serve both sides of the marketplace simultaneously.

This insight is obvious in hindsight, but it's quite profound when you think about it. I'm honestly intrigued about trying to find other businesses where both sides of the market contain the same people.

in the industry where I've gained a lot of personal traction, agriculture, there are quite a few similarities to Etsy. The supply and demand side of the market are often the same people.

Back to Etsy….they also launched with minimal fees (free at first) and partnered strategically with existing craft forums like Craftster, where their target audience was already hanging out. By embedding themselves in a tight-knit community rather than trying to create demand from scratch, they achieved initial liquidity without spending much money.

Unscalable is okay

Here's the thing nobody wants to hear: none of these tactics scale. That's ok.

The goal is to do whatever it takes to create enough activity that network effects can start to kick in. The key is that you get the flywheel spinning. That's all that matters.

It’s ok to cold-email suppliers personally to onboard your first users. You can bribe your friends to put listings on your marketplace or you manually match buyers and sellers before any software exists.

From the stories I've read, the key to success is doing the unscalable longer than what most people are comfortable with.

I have a strong interest in a particular double-sided marketplace that I'm going to work on this year. Well, I have too many damn ideas, so maybe it'll be next year. But I'll share my learnings here (hint: it’s a job board).

With that, I’ll see you tomorrow!

Nick