It seems obvious to me now, but it wasn’t apparent when I was putting the together the business plan for Rewire Attire (the start up I shut down a little over a month ago).
I’m a big fan of the exchange marketplace business model (or the two sided market). Basically, the model is…there’s a buyer and seller, and your business sits in between to facilitate the transaction (or the exchange). The business profits by taking a small piece of the transaction.
I see the model in all the great internet companies. The obvious example is eBay (buying and selling of used goods) and a related example Etsy (craft goods). Some of the less obvious ones are Elance (freelance jobs), Airbnb (property rentals) and, a personal favourite, Google with their Adwords, where there are buyers “finding stuff” and sellers “showing stuff”.
The model suits internet companies really well because, once you’ve nailed value proposition for both sides of the exchange, the business benefits from network efforts and scales really well. More sellers attracts more buyers, who attract more sellers. The operational costs of this kind of business don’t grow at the same rate as the revenue, so the profit margins are really attractive.
Which begs the question….what did I get wrong with Rewire Attire? Why did the business model need help?
I’ve come to realize that for an exchange marketplace to work really well, the marketplace needs to “help” the seller and buyer do something they either can’t do at all or would struggle to do easily without the marketplace. It seems almost ridiculous to try to sell used goods anywhere other than eBay (Craigslist being an option usually used in conjunction).
(See what I did there? ….It’s not that my business model needed help….it’s that it needed to help more….which probably says that the business model needed help…..never mind, moving along.)
The problem with Rewire Attire‘s approach to the exchange marketplace was that, because we were targeting high end fashion designers, our sellers saw our marketplace as one of the channels they used to sell their designs. In addition to Rewire Attire, our designers sold their designs on their own sites and through other retailers. They didn’t need our help enough to sustain our business model and shoppers could find their designs outside of the marketplace.
We were “holding on by a very thin thread”: