Liquidity is King


For any startup building a two-sided marketplace (such as eBay, AirBnB, or Uber), liquidity is king. Liquidity means that supply meets demand, which translates into the biggest “AHA!” moment on both sides of the marketplace. Having faster and more frequent liquidity leads to higher engagement and an increased number of satisfied users. The following are the three main ways to improve your liquidity.

Improve on the demand to meet the supply. This requires an understanding of exactly what the user is looking for. Try to capture information about the user, such as their interests and their purchase history, and help them find the product or service they are looking for with stronger recommendations or search results.

Any doubts users have about your goods, your services, or even the marketplace itself make users hesitate to complete transactions. Reviews offer a powerful way to remove doubts. For the marketplace itself, things like guarantees and exceptional customer support increase the level of trust.

The more sellers there are, the more likely it is that buyers will find what they want, and vice versa. Simply increasing the number of buyers and sellers increases liquidity, making the network effect the marketplace provides much stronger. The risk of scaling is that if you have too many holes in your bucket and don’t capture the right users for your marketplace, you spend a lot of money very quickly without increasing liquidity that much.

It is very important for any startup to determine the “AHA!” moment for its users. For marketplaces, that moment is when liquidity occurs. It is very important to optimize your discoverability, increase user trust, and modify your scale.

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