This is a guest post by Josh Breinlinger, Managing Director and VC at Jackson Square Ventures, cofounder at Rev, and early employee at oDesk. He regularly blogs about marketplaces at A Crowded Space.

Productivity. It’s one of the relentless pursuits of innovation over the millennia. Marketplaces play a pivotal role in this process—they offer the promise of eliminating middlemen, centralizing goods or work, handling payments, fraud, service, and every other aspect of transactions.

Looking around every day, it’s easy to spot inefficiency and waste. Everything from waiting in line to having to call a restaurant for availability, to spending time on interviews and reference calls. Sometimes the waste is simply in under-utilization of assets like boats only being used ~1% of the time or cars ~3% of the time. Marketplaces can address massive inefficiencies in our economic system and eradicate them. Sometimes the cost savings are direct, sometimes indirect, but the best marketplaces in the world always radically improve the productivity of the world.

I believe productivity is so important that it should serve as a North Star for marketplace operators, a constant and dependable target towards which you navigate the development of your marketplace. When you’re deciding what to build and how to build it, lean towards the greatest overall productivity. You should constantly strive to identify waste and design systems to eliminate it. If you can do this repeatedly, even 1% efficiency improvements start compounding quickly.

Let’s take a hypothetical example. Say you’re operating a marketplace for dentists. In the dental industry, let’s imagine that a typical visit takes 30 minutes of active dentistry time, 10 minutes to schedule an appointment, an hour to travel to and from the office, and 20 minutes of sitting around in a waiting room. It also requires the dentist to spend 5 minutes filing paperwork and an administrator needs to spend 15 minutes resolving billing with insurance. The dentist marketplace should view every single step in this process as an opportunity to reduce waste in the system. Maybe billing insurance can be automated with technology. Maybe the paperwork can be accomplished with the use of electronic health records (EHR). Better scheduling software can reduce work for the patient and the administrator. Additionally, better appointment reminders and notifications can improve operations and reduce patient time spent in the waiting room.

You should aggressively strive for constant improvement. Here’s a fantastic quote from the great Bill Walsh as one of his most important coaching principles for the San Francisco 49ers.

A ferocious and intelligently applied work ethic directed at continual improvement.” — Bill Walsh, from The Score Will Take Care of Itself.

As you make incremental improvements, it compounds and builds a big, beautiful moat, making it less attractive for your users to switch to a competitor and more difficult for competitors to compete with your offering. With a 1% improvement each month, after two years (24 months), you will be 27% more productive than the competition. You can pass some of those savings on to the consumer and continue growing even faster because now you’re cheaper than your competition as well. Those productivity gains offer a better customer experience because of lower overall effort made by the customer and a potentially cheaper (and better) service.

The productivity gains give you an insurmountable advantage over your competition. Just think about how many startups try to compete with Amazon these days. The answer is basically zero (Jet being the notable exception). The reason is because Amazon has been compounding productivity gains for the past 20 years. They are a formidable competitor.

Some additional examples:

  • Uber: Increased productivity of drivers. Reduced wasted time for passengers calling dispatch and hailing taxis.
  • Rev: Increased productivity of transcriptionists with proprietary software. Reduced wasted time of customers editing and proofreading transcripts.
  • Increased utilization of charter and school buses. Reduced waste in trip planning and coordination.
  • OfferUp: Increased productivity of sellers with under 30 seconds to list an item. Increased productivity of buyers, faster to browse, search, and arrange meetings.
  • Redfin: Increased productivity of realtors by splitting up the job into parts that lower-cost resources can handle.
  • Mynd: Increased productivity of property managers by automating repetitive tasks. Reduced waste of owners and tenants by streamlining communication through a mobile app.

As you address your particular industry, the first fundamental goal that you as CEO must accomplish is to understand your business from A to Z. If you are a middleman, it is not enough to just understand your piece in the puzzle. You must understand every step of the process that takes a good service from initial demand to final completion. You should master one step of the overall process and then set your eyes on the next adjacent step, possibly moving up the funnel towards the customer or down towards the delivery. You should understand all of the inefficiencies in the process. Every inefficiency you identify is an opportunity for improvement.

Let’s look back at Amazon. They could have been content to offer an eCommerce site that just ships books to consumers. They didn’t stop there. They have moved both up and down the funnel to every step in the overall process—relentlessly driving productivity.

They moved up the funnel towards the customer ordering process. They’ve launched Echo and Echo Dot so I can just say, “Alexa, order some paper towels” and the process is done. What used to take a web browser and a minute or two now takes a few seconds of voice command.

They’ve also moved down the funnel towards delivery services (buying their own planes, for example) and they’ve started manufacturing white-label goods for the most common items. The line of Amazon Basics is incredibly carefully curated, selected, and maintained. I’m willing to bet that they are best sellers in almost every category.

Take it as a mission. Improve the productivity of every step in the entire process in your industry. Start with one step, master it, and continue to spread up and down the funnel. You could say this is vertical integration or a move to full-stack or managed marketplaces. Relentlessly pursue productivity gains. Your customers will thank you.

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    Article by: Josh Breinlinger

    Josh Breinlinger is Managing Director and VC at Jackson Square Ventures. Before that he co-founded, and was an early employee at oDesk. He often blogs about marketplaces and related subjects at A Crowded Space

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