One of the main reasons why online markets fail is because they take too broad an approach. Instead of trying to become the next Amazon, it's better to find a niche and focus on that. Additionally, many markets don't have a clearly defined revenue model, which makes it difficult for them to scale.
The lack of budget is also a major issue for market projects. Developing an ordinary online market system from scratch requires a significant 6-digit amount, and that's not including marketing expenses and procurement of suppliers.
Developing a fixed long-term strategy is also not a good idea in this rapidly changing landscape. Companies that try to do both, which is often the case for companies with a strong physical business, often fail.
Another issue is that markets with a lower transaction size face the risk of an unsustainable unitary economy because repeated transactions are required to break even in customer acquisition spend.
Fortunately, there are ways to create an effective marketplace while avoiding mistakes made by previous entrepreneurs. For example, the clothing exchange market ThredUP focused first on all types of clothing, but only experienced great growth after the decision to focus solely on children's clothing.
A robust marketplace software is also essential for any online marketplace. It should be powerful enough to meet the broad requirements of a multi-vendor business and flexible enough to meet future or changing needs.
Finally, it's important to consider the size and frequency of transactions when creating a market. People at a16z have previously tried to rank markets based on these factors in order to determine their scalability and defensibility.
By understanding why most marketplaces fail and taking steps to avoid these mistakes, entrepreneurs can increase their chances of success.
