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How to Start Up: a two-sided online marketplace

  1. Frugl
    Christian Annesley

    Christian Annesley Contributor Full Member

    Posts: 3 Likes: 1
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    In association with .UK

    The next installment of our How to Start Up series looks at how to make headway in the challenging world of two-sided online marketplaces.

    It’s no secret that building a marketplace startup is hard – really hard. The model works well at scale –  think eBay or Uber. But getting to that viable scale is another story as two-sided marketplaces need both buyers and sellers to thrive.

    It means it is generally a challenge that takes time and UK Business Forums caught up with Suzanne Noble of the cheaper-London online marketplace Frugl to explore some of the challenges involved.

    Why create Frugl?

    “My journey with Frugl goes goes back to 2009, during a period when I used to travel frequently to New York,” says Noble. “While there I regularly used a website that informed me about fun things that were cheap in NYC. It got me thinking about transplanting the opportunity to a London context, as the owners of the NY site didn’t want to scale it to other cities.”

    For a few years Noble sat on the idea while continuing to run her successful PR agency, but she took the plunge with the project in 2012 when her children had grown up and left home and a property move released some capital to give her the scope to launch it.

    “I felt it was now or never. I am in my 50s and have a feel for technology and tech opportunities. It was exciting to have a go.”

    The first step

    Frugl was launched In March 2012 with a simple, mobile-friendly website.

    “At launch it was a daily diary of inexpensive things to do in London – daily events and also a map of free resources in the capital, like museums and art galleries and so on.”

    It didn’t cost Noble much to get Frugl live – just a few hundred pounds for support with development plus her input time – but even in this cut-down form it gathered momentum and got noticed.

    “And I got approached by an enthusiastic developer who weighed in for free, which was terrific. But I also had an sense that things were rapidly moving to mobile, and what we needed was to build an iOS app.”

    Phase two – grants, loans, development

    In 2013, Noble secured a grant from Innovate UK and a Virgin StartUp loan in 2014 to build the app and an automation engine to identify content opportunities on the web, augmenting the hand-picked curation of events and offers Frugl had solely relied upon to that point.

    “We call it ‘Beagle’ because it sniffs out all the best content quickly, enabling us to grow our audience and find out what they like and dislike, using an analytics tool that has been baked into our app. It has also helped us to build relationships with potential partners, making it easier in time to monetise the business,” she says.

    Noble also got her recently graduated son involved in the content curation work, and applied her expertise in PR when the apped-and-automated version of Frugl went live, picking up positive coverage in the London Metro and the Evening Standard among others.

    “We started winning awards, too, and seeing thousands of app downloads,” says Noble.

    Monetising a marketplace

    The work Noble put in from launch means that since late 2014 Frugl has had in place the essential commercial model of a two-sided marketplace: an audience and a mechanism to monetise the activities of that audience. But the question today is whether the audience is large enough and remaining engaged long enough to make the model work.

    “It’s an ongoing challenge, for sure,” she admits. “You need deep pockets to sustain any momentum you build, and to keep curating and developing effectively.

    “Our platform now is a true marketplace, allowing promoters to deal direct through the site to drive traffic and earn revenues. But there is a way to travel for Frugl to be a commercial success. You probably need at least 100,000 engaged users to make the model work, and we are less than half way as things stand.”

    More money, another push

    To drive the next phase of Frugl’s evolution, Nobel raised £72,500 in 2015 through the pro-female angel investment group, Angel Academe, plugging into its 2015 mentoring programme, Entrepreneur Academe.

    The investment has given Frugl the funding needed for further platform development and to start to scale it beyond a London offer to take in Edinburgh’s 2016 arts festival and festival fringe.

    “We have not have not cracked it commercially yet, but we are getting closer,” says Noble.  “Tech development is an expensive business, even if you know who to reach out to and on what terms, as I mostly do.

    “One challenge with our scaling is that Frugl started in London, which is such a massive and complex market. It’s exciting to tackle, but arguably it might have been easier to start with a smaller city like Birmingham. We have made great headway without the deep pockets of some competitors, which makes me proud, but there is clearly a way to travel.”

    Today, Frugl has a few designers involved and is readying for another relaunch later this summer and pick up another wave of users.

    “I have a competitive advantage with my PR background. We have got to 25,000 users without any marketing spend, but it’s still a space that needs marketing expertise.

    “I know we cannot continue to acquire users for free: we need to do Facebook ads and user pay-per-click and work at our SEO – and it all has costs attached. Then beyond that you need to ensure users are genuinely engaged.”

    Looking to the future

    Noble says the potential to scale Frugl is one of the dimensions that drives her on.

    “The tech really does enable us to take Frugl anywhere you need someone on the ground with local knowhow and to bring in partners.”

    She also says it has been harder to grow the business than it might have been because of being an older woman.

    “It’s definitely a barrier to raising investment. I have had to deal with a lot of ageism and sexism along the way. It’s a depressing fact that only 6% of VCs are women and only a fraction of investment goes to women. Partly that’s because women don’t have the networks, and you cannot put in a cold call to meet with an investor: you need an introduction. In that respect, it helps to have worked in the City, and it’s proven by the fact that many of those fronting invested startups are former investment bankers. “

    Despite the warning, though, Noble isn’t about to give up. She’s is channelling her  frustration into determined action and Frugl’s journey towards commercial viability continues.

    Four ways to build an online marketplace

    1. Be committed: To establish both buyer and seller communities takes time – very often years. The network effects really kick in when there is enough content to encourage buyers to return and the sellers soon get more engaged. But it can be hard, so stay focused on the core proposition. And investors must be prepared to stay patient, too.

    2. Keep costs low: Because two-sided marketplace take time to build, that means only spending when necessary in order to lengthen the runway. And money cannot buy speed when it comes to building out a marketplace. Noble has followed this route and shied away from employing a big team or other overheads. Most marketplace businesses only need two functions early on: curating and delivering content, and building the buyer and seller communities.

    3. Stay focused: With limited resources it is best to narrow the focus of your business efforts. In most cases, marketplace businesses need to build traction in smaller verticals before expanding their reach into bigger markets. Or in the case of geographical markets, a marketplace should establish one location (in Frugl’s case, London) before expanding into others. Expanding outwards from the niche often happens organically.

    4. Love your users: Cement the experience for early adopters first. By engaging them and catering to their needs you increase the likelihood of the word spreading and taking things in time to a bigger market.

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