Marketplace Trends

How to Succeed as a Marketplace: Lessons From a Marketplace Expert

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Head of Marketing
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Whether you are adding marketplace capabilities alongside your existing ecommerce business or are already operating a standalone marketplace, there are some multi-vendor marketplace best practices you need to consider. Nautical Commerce Founder & CEO, Ryan Lee, a commerce and fintech expert, shared lessons for marketplace success alongside Bobbie Ttooulis from Global Freight Solutions at Tamebay Live

The Intersection of Commerce, Fintech, and Logistics 

A lot of folks think marketplaces are simply an evolution of an ecommerce store. While marketplaces do have commerce components, that is not the full story. Not only do marketplaces have to remove the friction to buy, they also have to remove the friction to sell.  

This friction to sell requires marketplaces to operate at the intersection of commerce, fintech, and logistics. The marketplace has to make payments out to their vendors, perform know-you-vendor (KYV) checks, manage SLAs, ensure taxes are filed correctly as well as handle the logistics of working with warehouses, staff, order and inventory systems that are not their own. 

A graph comparing marketplace and traditional ecommerce stores
Some major differences between marketplaces and traditional ecommerce stores

The differences between marketplaces and traditional ecommerce stores are vital to understand when launching and scaling an online marketplace. Just like traditional ecommerce stores, marketplaces are expected to deliver an exceptional buying experience and handle customer service, even though the facilitation requirements are much more complex. There is also a major regulatory burden that comes along with operating a marketplace. 

With this understanding of marketplace requirements in mind, we can dive into the top three lessons to building a successful marketplace. 

Lesson #1: Buy, Don’t Build

As a marketplace expert, Ryan Lee has spent years with marketplace operators from startups to the biggest companies in the world. In his conversations, he learned that all marketplace workflows are essentially the same. You have to:

  1. Onboard sellers to curate your vendor network
  2. List the products or services offered by your sellers
  3. Facilitate the sale
  4. Settle transactions and make payments to your vendors 

Sometimes, marketplace operators believe that they need to build their own technology because their marketplace is especially unique. If your marketplace workflow doesn’t follow the onboard vendors →  list products/services →  facilitate a sale → settle transactions flow mentioned above, then perhaps you’re right. But for the vast majority of marketplaces, tech is not your differentiator - your product offerings, your customer service, and the way you have curated your catalog are the true differentiating factors. 

In order to launch a successful marketplace, you have to validate your ideas and get it in front of your customers. By using a multi-vendor marketplace platform to launch your marketplace, you can compress your time to market and gather learnings faster.

A lot of organizations that embark upon a marketplace journey end up spending much more time and money on their build as they had originally planned. This is because they haven’t accounted for the fintech and logistics aspects associated with running a successful marketplace. You have to include taxes, payouts, payment orchestration, cost arbitrage, and contract management in your marketplace build (to name just a few). After the up-front costs to build, there is also the ongoing cost to maintain the technology. 

Lesson #2: Meet Sellers Where They Are

One of the keys to becoming a successful marketplace is enabling sellers and suppliers to seamlessly join your marketplace, list products easily, and ultimately make sales. In order to do this, your marketplace should enable sellers to integrate their preferred order management system (OMS), inventory management system, product catalog, shipping providers, and other ecommerce tools directly into your platform.  

Making it easy for vendors to sell doesn’t mean that you skip things like validation or qualification for sellers. Curating your catalog and ensuring you have the right vendors on your marketplace is vital, but you need to make receiving orders, fulfillment, and delivery seamless. 

Lesson #3: Stay Compliant 

The fintech requirements of a marketplace are much greater than those of a traditional ecommerce store, and cannot be underestimated. As the Merchant of Record (MoR), marketplaces are responsible for the actions of the sellers on their marketplace. They have know-your-vendor (KYV) requirements and need to conduct extra due diligence on sellers before allowing them in the marketplace ecosystem. This additional effort has caused many payment service providers to back away from supporting marketplace transactions. 

Additionally, there has been a bevy of legislative activity that has made it difficult for marketplaces to operate and stay compliant. For example, in 2018 the Wayfair Sales Tax Case allowed states to require out-of-state sellers to remit sales tax to in-state consumers even if the seller had no presence in the state. The individual tax withholding requirements for marketplace sellers can be overwhelming to manage. 

You need to operationalize your marketplace fintech and compliance. There are companies like Avalara and Stripe Connect that can help with taxes, validation, fintech, and other necessary marketplace functions. But, the more apps you add to your marketplace, the more maintenance you will have to do. With a multi-vendor marketplace platform like Nautical, you can add as many apps to supplement your marketplace as you’d like without having to maintain the connections.

Launch Your Marketplace Today  

Many companies think that launching a marketplace is a herculean effort, but it doesn’t have to be. Getting in front of your customers quickly is the most important piece to validating your marketplace. Don’t be afraid to start small. Amazon started as a bookstore that utilized dropshipping before it evolved into the behemoth it is today. 

If your strength is a marquee brand, try layering in influencer sites. If that’s a success, augment your catalog with complementary brands. You don’t need artificial intelligence or supply chain automation to make it happen. In your concept phase, you need to get to economic value as quickly as possible to get learnings. 

Additionally, becoming a marketplace can be an evolution. You don’t have to replace your core commerce systems to leverage the marketplace model. Nautical Commerce allows companies to augment their ecommerce systems with marketplace capabilities without going through what might otherwise have been a difficult digital transformation. 

If you’re interested in launching a marketplace alongside your existing business or building one from scratch, reach out to the marketplace experts at Nautical Commerce today! 

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