Lenny's Podcast: Product | Career | Growth
00:59:05 · Lenny Rachitsky, Casey Winters
[00:59:05] S1: And so the examples you gave, Eventbrite was a SaaS tool trying to add a marketplace. Yep. Faire is an example of a marketplace adding a SaaS tool. And is the takeaway there that it's... In your experience, it's generally more... You're gonna have a better time if you're a marketplace adding a SaaS tool versus the other way around. [00:59:23] S0: Yeah. I think that's right. So I think, you know, I don't know when it was. It was maybe, like, 2015 or whatever. A bunch of investors started writing about SaaS to marketplace transitions, and, like, that's the transition Eventbrite's going through. It's going to work, but it's hard. And it's not replicable for a lot of other SaaS businesses. You need to have a direct relationship with your customer's customers, first off. Those customers need to have needs beyond that single supplier. Usually, it's like a discovery value prop, you know, for other suppliers. And you be... Need to build, like, this totally new skill set, to build tools for your customer's customer who is very different from your current customer. [01:00:02] S1: Whereas, [01:00:03] S0: you know, marketplaces that add a SaaS component, you know, as a customer acquisition tool like Faire or a workflow or retention tool to, you know, increase retention or reduce disintermediation, I think you'll see that be a lot more common approach and and much more replicable. [01:00:20] S1: Is this just rooted in the fact that marketplaces are incredibly hard no matter whether you start with them or whether you add them? Like, is that the root of the issue here?
01:00:20 · Lenny Rachitsky, Casey Winters
[01:00:20] S1: Is this just rooted in the fact that marketplaces are incredibly hard no matter whether you start with them or whether you add them? Like, is that the root of the issue here? [01:00:28] S0: I think that's a good way to frame it. It's... So if, you know, you're building a startup in 2023 and you're like, oh, I'm gonna build this SaaS business. And then five years later, I'm gonna build this Marketplace business on top of that, it's kind of like, it's gonna take a long time for you to derisk the hardest part of that strategy. Whereas if you get the hard part done upfront, it opens up a lot of amazing, you know, adjacencies, different ways to grow. So I think there's definitely truth in that statement. [01:00:53] S1: So kind of the takeaway here is if you're trying to add a marketplace, it's gonna be very hard. You shared a couple things of... A couple attributes that kind of tell you that maybe it might work. Maybe just share those again real quick.
01:01:06 · Casey Winters
[01:01:06] S0: So take Square or Substack or or Patreon or or, like, Eventbrite. Right? All of these are examples of SaaS businesses that, in providing the SaaS service, deal with the customer and the customer's customer. Right? That makes it a lot easier because you already have a relationship. They already know your brand. Whereas, like, Stripe, when we buy things, we don't know if we're buying it through Stripe. Right? Like, it's just a SaaS tool that's white labeled in the back end. We have no idea. So I think that's the first element. Right? There's a lot of businesses that look like that, but it is a subset of SaaS businesses that look like that. And then secondly, those customers that you're you're building a relationship with, they need to have a reason to transact with more than one of your current customers on the supply side. Right? So if you're always gonna use that same supplier, there's no need for me to show you the rest of the inventory. And, basically, all marketplaces win on, like we mentioned, selection and you needing selection. You know, there's... And then there's, of course, the marketplaces that win with, like, standardization of, like, I can get it at any time. It might be from different people, but I know that Uber car is gonna be there in five minutes or whatever. I don't care as much who the driver is. So one of those has to be there. And you just find in a lot of these examples, like, there isn't really that much of a discovery need for for, you know, who the demand side would be in this theoretical marketplace when you when you dig into it.
01:02:30 · Lenny Rachitsky, Casey Winters
[01:02:30] S1: It might be helpful just to define, like, what makes it a marketplace. In my eyes, it's you are driving demand to supply. That's, like, the nuance. Right? Because otherwise, you're just a tool that they're using to do something. [01:02:40] S0: Yeah. Exactly. Right? It's like the primary value prop of why supply signs up is that you're gonna bring them extra business. And if you have, you know, customer... Buyers and sellers, but the primary reason supply signs up is for tooling or payments, like how Eventbrite started, that's not really a marketplace. You know, I call it a SaaS like network. Some people might just call it a SaaS business, a payments business, whatever the case may be. But it's... Doesn't really have those cross site network effects that we associate with marketplaces. [01:03:10] S1: What this makes me think about is Patreon and Substack. And interestingly, when I was looking at early Patreon days, what I understand is they want it to be a marketplace. They want it to be a place where artists come, they collect payments, and then people can discover artists to patronize. And what they found is nobody needed... That wasn't a problem anyone had. I'm not [01:03:30] S0: looking for... I'm not looking for other people that don't hate money too. Same with GoFundMe. Right?
01:03:30 · Casey Winters, Lenny Rachitsky
[01:03:30] S0: looking for... I'm not looking for other people that don't hate money too. Same with GoFundMe. Right? [01:03:35] S1: And so with that story in mind, when I was chatting with the Substack people early on, I was like, this is exactly what you're gonna run into. No one's, like, sitting around looking for more newsletters to subscribe to, but shockingly, they've actually pulled it off. Yeah. They have a really wild network effect going now. [01:03:49] S0: And I've been very impressed with what they've built. I don't know if I'd call it, you know, a marketplace yet. Yeah. Yeah. But the... I I think they were able to abstract away the version of what you just said to something that was actually useful, which is, yes, I don't want more emails to subscribe to, but I do... I am fundamentally interested in more articles relevant to my interest. And no one has really solved that super well. Twitter was a very hacky form of that, you know, where I follow you, and then I see when you post a new blog because you you tell everyone on Twitter you post a new blog, but it isn't built for that. Whereas, you know, the Substack reader will now allow me to be like, oh, yeah. Sure. I'll subscribe. So I really like what they've done. It'll be interesting to see, you know, how big a business that is and and how it all plays out. But I think their execution has been really solid.
01:03:49 · Casey Winters, Lenny Rachitsky
[01:03:49] S0: And I've been very impressed with what they've built. I don't know if I'd call it, you know, a marketplace yet. Yeah. Yeah. But the... I I think they were able to abstract away the version of what you just said to something that was actually useful, which is, yes, I don't want more emails to subscribe to, but I do... I am fundamentally interested in more articles relevant to my interest. And no one has really solved that super well. Twitter was a very hacky form of that, you know, where I follow you, and then I see when you post a new blog because you you tell everyone on Twitter you post a new blog, but it isn't built for that. Whereas, you know, the Substack reader will now allow me to be like, oh, yeah. Sure. I'll subscribe. So I really like what they've done. It'll be interesting to see, you know, how big a business that is and and how it all plays out. But I think their execution has been really solid. [01:04:38] S1: Awesome. I feel the same way. And it is... I also wasn't sure whether it makes... Like, it's worth calling a Marketplace. But for whatever it's worth, 80% of my new sign ups are coming from Substack's network, the recommendations feature and their onboarding, things like that. [01:04:52] S0: Do you think that's unique to you because you are already a top one percenter Substacker, or is that a meaningful number for newish players? Like, if I finally switch my email list to Substack, which has been on my list for a long time, you know, that probably won't be the same percentage for me. Right?