Lessons learned from building a freelance marketplace
Over the past few months, I’ve had a half-dozen conversations with founders thinking about (or in the early stages of building) freelance talent marketplaces.
It's not hard to see why—the freelance economy is booming:
There are 350 million skilled knowledge workers globally, many looking for fractional opportunities.
There has been a step-function increase in freelancing. In 2015, just 5% of buyers were considering online staffing / freelance solutions. By 2020, that number was nearly 50%.
To state the obvious, building a marketplace is really hard. You start with nothing; no suppliers, and no buyers.
Without one side, how do you acquire the other? You have to crack that chicken-and-egg problem, and then figure out how to scale it while balancing both sides of the marketplace.
While there is plenty of high-quality content on Marketplaces out there (NFX, FJ Labs, Dan Hockenmaier at Faire, and Colin Gardiner, to name a few), talent marketplaces are a breed of their own.
There are a handful of people writing about talent marketplaces specifically. For example, Philip Thomas has written thoughtfully about his experience starting Moonlight. Jon Younger has become an authoritative voice on all things freelance marketplaces.
But the advice out there remains fairly limited and often contradictory, and I noticed I was frequently sharing some of the same tactical advice with founders.
I don't pretend to have all the answers, but I've started putting together a collection of thoughts and learnings from my time building Thirdwork:
Understand that you’re (almost certainly) operating a demand-constrained marketplace
It’s important to understand what type of marketplace you are at a fundamental level. Is your primary constraint on the demand side of the marketplace, or the supply side?
Of course, it’s a given that you need both sides in order to operate. But the key question here is, "which side is harder to onboard? Which one are you more worried about?" That’s likely the side that faces the primary constraint.
For Airbnb, for example, the challenge is on the supply side—the primary constraint is enough hosts to meet demand. Supply-constrained marketplaces often focus on developing creative ways to unlock new supply (e.g., how OpenTable built reservation systems to onboard restaurants and get a critical mass of supply for the marketplace).
Contrast that with Upwork, which is a demand-constrained marketplace. They’ve said this explicitly on their investor calls, and their primary challenge is consistently generating demand as efficiently and scalably as possible.
Like Upwork, your freelance marketplace is likely going to be demand-constrained, and that’s where you’ll need to focus the bulk of your efforts.
Think about your unfair distribution advantage
Once you identify that you are demand-constrained, your next logical question is going to be "what unfair advantage do I have in generating that demand" and "what strategies should I focus on"?
This is one reason why many talent marketplaces form out of existing communities or are launched by influencers or thought leaders with large followings: they already have built-in demand via an audience.
If you don’t have that, there are a handful of strategies that marketplaces can consider:
Focus on a niche
Specializing in a smaller sector can help you stand out. For example, niche talent marketplaces have emerged around specific roles (e.g. writers, marketers), as well as specific industries and sectors (like Thirdwork). This allows you to be much more focused in your messaging and appeal to the demand side with targeted content and solutions.
Subsidize demand
Offering early-adopter discounts can lure in hesitant buyers. You obviously can’t subsidize the entire purchase (otherwise you'd just be paying freelancers directly), but it’s common to waive fees and reduce your take rate as an incentive to encourage early adopters.
Make supply seem larger than it is
It's a time-tested tactic in marketplaces to find ways to make the supply side seem more robust than it is. You need to be careful doing this with a talent marketplace. I've seen founders try to fake profiles or create profiles for people who never consented to being on the platform. I wouldn't recommend that, but there are ways you can highlight the people who are on your platform without listing all the inventory you have.
Build tools and products for the demand side
Another tactic for onboarding demand is to create tools that make it easier for clients to scope out projects, manage contracts, and communicate with freelancers. This value-add can be a strong pull for clients. Offering them free or valuable tooling up front can be a first step, with the second step being onboarding them onto the freelance platform.
Be willing to experiment with demand acquisition tactics, but know that a few things are more likely to work than others
Hiring a freelancer is an infrequent, high-importance purchase. These aren’t impulse decisions; the need to hire a freelancer arises only periodically, but when it does it is often an acute need.
That has major implications for some of the specific demand acquisition tactics. Here are a few of the things we found worked best at Thirdwork:
Leverage referrals and word-of-mouth
This is why focusing on an A+ client experience is so important. Your early customers won't just come back for more, but we found that word-of-mouth was one of the most effective avenues we saw for new demand. There are so many options in the hiring space, and trust is so important, that nothing matters more than a trusted reference.
Build an affiliate program
We found this was a valuable way to leverage our freelancer community. Freelancers often wanted to be helpful, and if they knew another client of theirs was looking for a freelancer, they'd receive a referral bonus for sending that client our way.
Start a newsletter
A well-curated, industry-specific newsletter can offer value to clients and freelancers alike. By creating content for a specific niche or vertical, you not only add value but you remain top of mind for when a client may end up having a hiring need.
Invest in SEO
SEO takes time, but it's one of the most reliable tactics for generating demand. Ranking on the first page of Google for a specific freelance search intent can drive major volume to your site. You can also invest in programmatic SEO that grows your presence as you add new freelancers or services onto the platform.
Cracking the chicken and egg problem is an operational challenge, not a technological challenge
In the early days, you’ll have no supply and no demand. So what do you do?
One thing I can say unequivocally you shouldn’t do is spend months building out a robust technology platform for your freelance marketplace.
Your immediate goal is proving your concept, not perfecting a technology. Start with a Minimum Viable Product and enhance it only when its limitations begin to hamper your growth.
In the early stages, you're not running a marketplace so much as a staffing agency. You’ll be matching clients with freelancers manually. You can do much of it over email. You can use off-the-shelf tools to facilitate payments and invoices.
This may not be sustainable long-term, but you’ll learn a lot from the process and earn the right to build out a more robust technology solution.