How to validate your marketplace idea

Plus, how to structure conversations that reveal genuine customer needs rather than collecting false positives

Author

Fiona Burns
March 20, 2025

Hey - it’s Fiona

This week, I've been helping a founder validate their marketplace concept. While guiding them through the early stages of their journey, I was reminded that validation isn't just a box to tick - it's the foundation upon which successful marketplaces are built.

The validation process can feel painfully slow when you're eager to bring your vision to life. Maybe that's why so many first-time marketplace founders rush into development, skipping the essential steps that determine whether their concept actually solves a meaningful problem for both sides of their marketplace. They build solutions before fully understanding the problems they're addressing.

Today, we're diving deep into marketplace validation best practices. It might not only save you months of misdirected work and thousands in unnecessary development costs, it can also dramatically increases your chances of creating something people genuinely want. After all, the most comprehensive code and delightful design can't save a marketplace that doesn't serve a real need.

QUESTION OF THE WEEK

How can I validate my marketplace idea?

Validation is fundamentally about reducing risk and uncertainty. For marketplace businesses, which face the unique challenge of building for two distinct user groups (buyers and sellers), validation is particularly critical.

Understanding the problem space

Before writing a single line of code, you need to thoroughly understand the problem you're solving. This begins with comprehensive research:

User research: Conduct in-depth interviews with potential users from both sides of your marketplace. Ask open-ended questions about their current behaviours, pain points, and workarounds. For example, if you're building a marketplace for home services, talk to both homeowners and service providers about their frustrations with current solutions.

Market research: Examine existing solutions, including direct competitors and alternative methods your users currently employ. Analyse their strengths, weaknesses, and gaps your marketplace could fill. Look at reviews of competitors to identify common complaints.

Opportunity sizing: Determine if your market is large enough to support a new marketplace. Consider factors like total addressable market (TAM), serviceable available market (SAM), and serviceable obtainable market (SOM).

Testing your concept

With research in hand, it's time to test your concept:

The concierge approach: Before building technology, manually facilitate transactions between buyers and sellers. This allows you to observe pain points firsthand and refine your value proposition.

Landing page test: Create a simple landing page describing your marketplace and collect email addresses from interested users. Use targeted ads to drive traffic. Measure conversion rates to gauge interest. A 5% signup rate often indicates promising interest.

Developing an MVP

Only after validating core assumptions should you build a Minimum Viable Product:

Feature prioritisation: Use the MoSCoW method (Must have, Should have, Could have, Won't have) to determine which features are absolutely essential for launch.

Wizard of Oz testing: Use Sharetribre to help you create an initial, basic version of your marketplace platform. This lets you test user experience without needing to invest in full development.

Feedback loops: Implement systems to collect continuous feedback - both qualitative (interviews, surveys) and quantitative (analytics, usage patterns).

Measuring success

Establish clear metrics for success:

Liquidity metrics: For marketplaces, success often hinges on achieving sufficient liquidity, meaning enough supply and demand to create satisfying user experiences on both sides.

Engagement metrics: Track user retention, time on platform, and completion rates for key actions.

Economics: Monitor customer acquisition costs (CAC), lifetime value (LTV), and transaction volume to ensure your marketplace model is sustainable.

Iterating and pivoting

Be prepared to adapt based on validation results:

Controlled experiments: When making changes, use A/B testing to measure impact before full implementation.

Know when to pivot: If validation reveals fundamental flaws in your concept, be ready to pivot. This might mean targeting a different user segment, changing your value proposition, or even rethinking your marketplace structure.

—> ✉️ Reply with your questions and I’ll answer them in a future issue.

DESIGN SPOTLIGHT

Airbnb: Photography First

When Brian Chesky and Joe Gebbia started Airbnb, they struggled to get traction. Through user research, they discovered a critical insight: listings with professional photos performed significantly better. Instead of building complex technology, they validated this hypothesis by personally visiting properties in New York with cameras, taking professional photos themselves.

This "concierge MVP" approach led to a 2-3x increase in bookings for those listings, validating their assumption before they invested in scaling the solution through professional photographers.

The lesson: sometimes the most valuable validation comes from non-scalable, hands-on effort.

Etsy: Pivoting to Find Product-Market Fit

Etsy didn't start as a handmade marketplace. The founders initially built a website for a crafting community. Through user interviews and observation, they noticed community members were struggling to sell their handmade items on existing platforms like eBay.

This insight led them to pivot towards becoming a marketplace specifically for handmade goods. Their validation process included extensive interviews with craft sellers about their needs and frustrations, followed by a basic platform that addressed those specific pain points. This pivot, based on thorough validation, led to Etsy becoming a billion-dollar company.

Thumbtack: Paper Prototypes to Platform

Thumbtack, a marketplace connecting customers with local service professionals, began validation with simple paper prototypes showing how users might request services. They conducted in-person user testing with these prototypes before writing a line of code.

After refining their concept, they created a basic landing page test for different service categories, measuring which generated the most interest. Only then did they build their MVP, focusing exclusively on the categories that showed strongest demand. This stepwise validation approach helped them avoid building features that users didn't actually need.

DESIGN SNIPPETS

Here are some excellent resources I often refer to when helping my clients validate their marketplace ideas.

The Mom Test by Rob Fitzpatrick
This guide teaches you how to conduct user interviews that bypass politeness biases and flawed questioning techniques, showing you how to structure conversations that reveal genuine customer needs rather than collecting false positives that can lead your product development astray.

Lean Customer Development by Cindy Alvarez
Drawing from lean startup principles, this practical handbook provides step-by-step methods for validating business ideas through structured customer conversations, helping you identify real market problems and test solutions before investing significant resources in development.

Platform Scale by Sangeet Paul Choudary
This comprehensive exploration of platform business models delves into the complex dynamics of two-sided marketplaces, offering frameworks to design interaction patterns, create network effects, and scale operations effectively while avoiding the common pitfalls that cause marketplace businesses to fail.

Fiona Burns

Whenever you’re ready, there are two ways I can help you:

Marketplace idea validation - Get a research-backed, 15–20 page validation report assessing market demand, competition, monetisation, and customer acquisition, so you can move forward with confidence. Ideally suited to founders who are still validating their idea and aren’t ready to invest in building just yet.

Sharetribe configuration - I can set and fully configure your Sharetribe marketplace using the no-code tools available in the Sharetribe Console. This is best suited to founders who are ready to launch a proof-of-concept at a low cost.

UX/UI design - I provide a tailored UX/UI design service for marketplace businesses, including custom UI and bespoke features. This is aimed at founders who are ready to invest in a high-quality, custom-designed marketplace.

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