This is the second post of our three post series on why peer-to-peer marketplaces fail. Read part 1 and part 3.

Surprisingly often I talk to people who have an idea for a marketplace to “share everything”. And intuitively it does make sense: people who share their tools are probably also likely to share their cars.

And when you have built a network of trust for sharing one asset, why shouldn’t you use it for other assets as well?

The importance of focus is something every entrepreneur hears a lot. But in most cases, the advice is to start from one vertical and grow to become a horizontal player. For instance, Facebook started from colleges but eventually started catering to everyone. If there’s a single service for sharing everything online, why wouldn’t the same apply to the offline world?

“That’s what people want: a single purpose company that provides a very powerful service people can trust.”

The collaborative economy is a bit different. Sarah Lacy of PandoDaily explores this in her article “The sharing economy may be the first time verticals beat horizontals“. She quotes investor Shervin Pishevar, who explains why he invests in companies that target only certain sharing economy verticals: “That’s what people want: a single purpose company that provides a very powerful service people can trust.”

Lyft is an example of a company that gets this really well. Their peer-to-peer marketplace only offers one type of service: rides. Meanwhile, horizontal players like TaskRabbit that try to cover all different types of services have struggled to scale their model. The same applies to rentals: many startups have noticed that focusing only on washing machines or 3D printers works better than going after multiple verticals at once.

Building a good product is simply so much easier if you target a specific segment. If you try to please everyone, you often end up pleasing no one. Furthermore, it’s much easier to make a compelling marketing message and find the correct communication channels when you have a narrow niche in mind.

Reaching the initial critical mass is also a lot tougher if your focus is broad. For example, let’s say I am building a marketplace to share power drills. It’s relatively easy to find 100 people in my city who are willing to offer their power drill for rent. With this initial supply, you are already pretty likely to please the person who comes to your site looking for a drill: they will find probably one that is available near them. On the other hand, if my site is for “sharing everything”, even the initial supply of 1000 listings might disappoint me if I need to find a specific tool.

One of the startups that got a lot of press with the “share everything” concept was Uniiverse. They had a hefty seed fund round, wielded a gorgeous design, and got their launch covered by TechCrunch and other major tech media. The TechCrunch article laid out their big mission: “…to become a service that allows anyone to share any kind of real-life activity or service”. These activities ranged from tool-sharing to rides, services and more. They also insisted that the best way to scale was to launch globally right away.

They failed to gain traction with this model. Since then, Uniiverse has pivoted to focus on only one of their previous niches: they now call themselves “The social marketplace for events” and are focused on selling tickets. Their geographical focus is mainly on a few key cities in the US and Canada, where they have specific city managers.

Another example of focus that is initially too broad is with the clothes swapping marketplace thredUP. At first, they targeted all clothes, but saw big growth only after the decision to focus solely on kids’ stuff. Only after they gained significant traction in this one niche were they finally able to broaden the focus again.

It should be noted that as these examples show, broad focus in the very early days does not necessarily lead to failure. In some cases, a broad focus might work to your advantage; when you’re trying to figure out the right niche to pick, you have to try a lot of different things. You just need to remember that when you’ve found the most potential target group (the one that seems to be taking off), you should focus on it as soon as possible and forget about the others.

This being said, it’s good to keep in mind that doing lots of different things simultaneously is not always the best way to find the right target group. I’ve seen general purpose sharing startups fail because they didn’t manage to get traction in any of their multiple verticals. It might be a better idea to start with one niche and then change to another if it doesn’t work. This approach requires much less capital.

Lesson: Find a narrow (vertical and geographical) niche and focus solely on it.

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    Article by: Juho Makkonen

    Juho has been building marketplace websites since 2008. He is a Co-Founder of Sharetribe and currently serves as the CEO of the company. He’s also a OuiShare connector in Helsinki and a long time advocate of the sharing economy.

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