How to scale your marketplace

You've built a marketplace, validated your way to problem-solution fit, and achieved product-market fit in your initial niche—well done! Now, you're ready to take things to the next level.

At this stage, you already know what works and what doesn’t. The next step is to apply those winning strategies—and maybe add a few new ones—to scale effectively.

Scaling a marketplace involves expanding into new markets, whether that’s through additional categories, new locations, or targeting different customer segments. However, scaling is not mandatory. If your goal is to maintain a profitable side business or focus on a specific niche, then remaining within your current market is perfectly fine.

That said, if you want to grow beyond the limitations of your existing market, this guide will provide the necessary insights for successful expansion. We’ll walk you through the four stages of scaling your marketplace, from choosing your next market to creating a playbook for expansion and funding options to fuel your growth.

Quick note: Scaling is the final step in our ten-step approach to building a successful marketplace.  Be sure to check out our complete guide to building a marketplace or our full video course on building a marketplace. These resources cover everything you need to know to launch and grow your platform from the ground up.

From what we’ve seen working with successful marketplace founders for the past 13 years, the process of scaling a marketplace broadly tends to follow these four steps:

1. Decide how you’ll scale your marketplace
2. Choose your next market
3. Create a playbook
4. Raise funding (if you need to)

Next, we’ll explain in detail what each of these steps entails and how to go about it. 

Before deciding which market to scale into next, it's essential to first determine how you want to scale. 

For example, if you’ve built a home cleaning marketplace and validated product-market fit in your city, there are typically three main scaling strategies you can consider:

• Location
• Category
• Customer segment

Let’s break down each approach.

This is one of the most common ways to scale a marketplace, especially for businesses with a local focus. Scaling by location involves launching the same model in a new city or region while keeping your customer segment and service category unchanged.

Consider Uber or Airbnb. Their core offerings—on-demand rides and peer-to-peer rentals—haven’t significantly changed over the years. Instead, they've focused on expanding into new locations around the world.

Rather than expanding into a new location, you might consider offering additional services within your existing market.

Using the home cleaning example, you could introduce home repair services alongside your cleaning offerings. This approach is particularly effective because you’ve already established trust with your customer base, so they might be more willing to try out the new services you introduce.

The third option is to keep your location and category the same but target a new audience.  For example, if your cleaning service has focused on residential customers, you could expand into the commercial cleaning market.

Note that scaling by customer segment often overlaps with scaling by category. In our cleaning example, serving business clients may require adding services like industrial cleaning.

If your marketplace isn't location-based, scaling by category or customer segment can be a natural next step. For instance, if you had a marketplace for peer-to-peer online events, you could start offering events for business customers, too.

The right scaling approach for you depends on your marketplace and where you see the most growth potential. Ask yourself:

• Where is the biggest opportunity?
• What aligns best with your current strengths?
• What resources do you have available?
• What excites you and your team?

Don’t neglect the latter, even if it sounds terribly unscientific. If you’re ready to scale your marketplace, you’ve very likely spent a lot of time talking to your user base, thinking about their pain points, and iterating on your business approach. You and your team’s gut feeling is likely based on a fair amount of experience and expertise in your domain.

Moreover, you're not locked into one scaling vector forever. Many successful marketplaces use a combination of these approaches as they grow. Just ensure you choose a clear direction for your next growth phase, execute well, and learn from the experience.

Selecting your next market is just as important as choosing your initial niche, so take your time with this decision. Start by answering these two critical questions:

• Can I replicate my success in a new market?
• If yes, what’s the minimum investment needed to make it happen?

Generally, the more similar your new market is to your current one, the easier the transition will be. For example, markets within the same country or state typically have more in common than those in different countries. If you're just starting to scale, it’s often wise to expand closer to home.

To evaluate the potential of new markets, consider these five key factors:

1. Market size
2. Cultural differences
3. Competitive landscape
4. Technology penetration
5. Regulation

It’s essential to identify the key similarities and differences between your current market and the one you're entering. This is where thorough market research comes in, similar to the pre-validation work you did in your first market:

• Find potential users online and offline.
• Interview them about their needs and experiences.
• Listen to their concerns and pitch your solution.
• Analyze and act on their feedback.

Only this time, audience research is significantly easier: you have a working marketplace to show potential users, and real numbers to back up supplier potential.

Let’s look at each of the five factors in more detail.

After achieving product-market fit in Edinburgh, should you expand to Inverness, Glasgow, or a larger, more distant city like Paris?

While the bright lights of Paris might be tempting, it's often best to choose a market roughly the same size as your first one and closer to home. This way, you can apply what you have learned more directly and minimize the variables you're dealing with.

However, market size isn’t just about population. You’ll also need to consider the total addressable market for your specific offering. A smaller city with a high concentration of your target customers might be more valuable than a larger one where demand for your service is lower.

Some cultural differences, like language, are easy to spot. Others, are more subtle and may catch you off guard if you’re not prepared.

In our interview with Joel Serra, who scaled EatWith (a marketplace for culinary experiences) from Barcelona to New York, he shared this experience:

"The incentives that the hosts in Barcelona were looking for, and the relationship they wanted with us, were very different than with the hosts in New York. The same goes for the guests: the dinners they were looking for, the experience they were after, and their willingness to pay were totally different."

When assessing cultural differences, consider the following questions:

• Do people in the new market respond to different messaging styles?
• How does the level of trust differ between your current market and the new one?
• Is your marketplace concept already familiar in the new market, or will you need to educate your audience?
• Are there differences in customer expectations or service standards?

Usually, cultural differences are less of a challenge if you keep close to your home market. But not always.

Curtsy, a marketplace for second-hand clothes, initially focused on renting formal dresses at Southern U.S. universities, where student culture revolves around events for which students need a lot of formal wear.

David Oates, CEO and co-founder of Curtsy, shared that:

“We were really able to zoom in on one school, even one sorority, to bootstrap the supply side and the demand side. But as we grew out over the next couple of years, we would launch at other schools that were similar to Mississippi, like Alabama and Georgia. And it would do extremely well, just like Alabama.

Then we would try launching at a school that is slightly culturally different like UCLA or even like Michigan. And there it's less of a dress culture. There's less need for these unique dresses throughout the semester. And the idea just didn't fly there. It was never able to get liquidity, you know, as fast as Alabama.”

So even if you think you know your next market well, you may encounter cultural factors that only emerge as you move forward with your expansion plans.

In your initial market, you might have been the first mover. But what’s the competitive situation in the market you’re considering? Is there already a dominant player, or are there several smaller competitors?

When you understand the competitive landscape, it helps you assess the resources you'll need to succeed. According to a Nielsen report, 62% of new products fail within the first year due to a lack of differentiation. Similarly, a 2023 study by Gartner found that companies with strong brand differentiation saw an average 24% higher customer retention rate. 

So, if you're entering a market with established competitors, you'll need a clear strategy for differentiation and might need to invest more in marketing and user acquisition.

The tech habits of your new market can significantly influence your expansion strategy. 

• Is the market primarily online or offline?
• Do users prefer desktop or mobile apps?
• What are the popular payment methods—credit cards, mobile payment apps, or invoicing?

Your new market may also require additional product development. For example, if you're moving into a market where mobile usage is much higher than your current market, you might need to prioritize your mobile app development to meet local demand. For instance, according to a 2023 report by GSMA, smartphone adoption in Singapore is significantly higher than in Japan.

Market regulations can vary a lot depending on location and industry, especially when scaling internationally. For example, different countries have their own rules for controlled substances or certain types of labor like care, education, or even operating two-sided marketplaces.

Here are some key regulatory areas to consider:

• Labor laws (particularly important for service marketplaces)
• Consumer protection regulations
• Data privacy laws
• Industry-specific regulations (e.g., for marketplaces dealing with controlled substances, education, or healthcare)
• Regulations around two-sided platforms or specific business models (like sharing economy regulations)
• Online payment regulation (and does your marketplace payment provider support—and offer sufficient regulatory compliance with—your selected market)

Generally, sticking to markets within the same country or state for your second expansion tends to simplify the process. Regulations will likely be more similar, and cultural differences less pronounced. 

Sometimes, your second market may already need to be international. 

For instance, your marketplace's unit economics might only work in densely populated cities, and your home country has only one such city. Take the car-sharing marketplace Drive lah, for example. They initially dominated Singapore, a city-state, and then expanded to Sydney, Australia, as their second market. (Here’s our interview with the co-founder Gaurav Singhal. The interview also has a terrific example of working around regulatory challenges.)

If there are promising markets within your home country, there's no need to rush into international expansion. A U.S.-based marketplace can safely grow domestically for years, while a marketplace from Finland might need to cross borders much sooner. And if your long-term goal is global expansion, you’ll eventually have to make the leap.

That said, even if you identify multiple promising markets, it's wise to start with just one. Your goal when scaling for the first time is to prove you can do it successfully and gauge how much investment is required to achieve product-market fit in a new market.

It’s better to expand slowly and successfully than to overextend and struggle in multiple markets at once.

In the next section, we’ll discuss how to create a playbook for your expansion efforts, which will be crucial for scaling efficiently into multiple markets.

When you launch a marketplace business, you learn a lot. You discover what worked in your first market and what didn't. Was some marketing strategy particularly effective? Did another strategy fall flat? 

As you scale to your first new market, you'll learn just as much. What was the same? Were there surprising differences compared to your first market?

Take all these lessons and turn them into your marketplace growth playbook.  

Here are some key elements to include in your playbook:

• A detailed timeline for market launches, from initial research to going live.
• Budget templates for different types of market expansions (e.g., new city vs. new country).
• Your most effective marketing strategies for driving growth in new markets. 
• Key operational procedures, from vetting suppliers to handling customer support.
• Tech adaptations that are needed for new markets (e.g., payment systems, language support).
• A checklist of regulatory considerations and how to navigate them.
• Challenges you've faced and how you overcame them.
• Promising new markets.
• And many other unique things you discovered in your first markets.

This documented strategy will help you scale into more markets, possibly even multiple at once. But remember that each market is still different and unique. The exact same playbook might not work everywhere, so be prepared to adapt your approach when necessary.

As Joel Serra puts it: “Once you find the right go-to-market strategy—whether it’s through PR, bloggers, or Instagram—you can detail the exact steps taken to achieve success and use that as a base when moving to other markets. But remember to adapt that strategy to the type of users you have in your new market.”

Your playbook should be a living document that evolves as you gain more experience. A well-crafted playbook will help you replicate your success more efficiently with each new market you enter.

Being open to adjusting your playbook is particularly important when you scale to your first international market. At that point, your playbook will be based on domestic experience, but international markets will introduce bigger differences and unexpected costs.

The more you learn, the better you’ll be at predicting success in any new market. 

Moreover, your playbook isn’t just an internal tool—it’s also a powerful asset when presenting to potential investors. It shows you have a clear strategy for efficiently replicating your success.

We’ll discuss this in more detail in the next section.

You've got your playbook ready, identified your next market, and are all set to scale. But there's one crucial element we haven't discussed yet: money. 

Scaling a marketplace often requires significant capital, especially if you're planning a rapid expansion or entering competitive markets. 

But before we jump into the various funding options, let's talk about timing. Our general recommendation for marketplace funding follows this structure:

• Problem/solution fit stage: Keep funding to a minimum. Use your own resources or small investments from friends and family if needed.
• Product/market fit stage: You might need to raise some funding here, but try to keep it modest if possible.
• Scaling stage: This is when you might need to go for the big bucks, especially if you're aiming for rapid growth.

Now, let’s look at what options you have. I also warmly recommend checking out our complete guide to marketplace funding, which has much more detailed discussion and practical advice for each option.

If you want to (and can) maintain full control of your business and your total addressable market is smaller, bootstrapping your marketplace is the way to go. This means reinvesting profits to fund your growth.

While this approach might limit your resources for expansion and marketing, the upside is you retain full ownership and control without the pressure from external investors.

This includes options like loans and grants that don’t require you to give up equity in your company (though loans may require collateral).

Non-dilutive funding is often cheaper than equity financing in the long run, and for some businesses, it’s easier to secure than venture capital. Just remember, loans need to be repaid, typically with interest.

Crowdfunding involves raising small investments from a large group of individuals or organizations. This option can be especially effective if your marketplace has a strong community. Crowdfunding also helps generate buzz and validates your concept early on.

If you’re aiming for rapid growth and have a huge total addressable market, raising venture capital might be your best option. 

However, bringing on VCs means giving up some control of your business. VCs are focused on quick returns, so they may push you to grow too fast. For many marketplaces, this isn’t always the ideal path. 

This is where your playbook comes in. Use it to show VCs your measured approach to scaling. Show them that you're focused on reaching liquidity in each new market before moving on to the next and that this approach will lead to more sustainable long-term growth.

A savvy investor, especially one with marketplace experience, will understand and appreciate a more thoughtful, strategic growth plan instead of pushing for rapid expansion.

Your choice of funding will depend on several factors:

• Your growth ambitions: Are you aiming to become a unicorn, or are you happy with steady, sustainable growth?
• Your market size: Is your total available market huge or more niche?
• Your competition: Do you need to grow fast to beat competitors, or do you have time to grow organically?
• Your risk tolerance: Are you comfortable giving up some control for faster growth?
• Your current traction: The more success you've already had, the more options (and better terms) you'll likely have.

You've made it to the end of our guide on scaling marketplaces. By now, I hope you have a clear understanding of what it takes to grow your marketplace beyond its initial boundaries. Let’s quickly recap the key steps to scale your marketplace:

• Decide how you'll scale
• Choose your next market carefully
• Scale one market at a time
• Reach product/market fit in each market
• Create a playbook of what works
• Repeat until world domination (or until your business goals are reached)

Remember, scaling a marketplace is not a one-size-fits-all process. Your path will depend on your specific marketplace, resources, and goals.

Building liquidity in a new market can take time, so don’t be discouraged if you don’t see immediate results. This is where iteration comes into play. While your playbook is an essential guide, be ready to adapt your strategies for each new market. What works in one location or category might not work in another.

Now, it’s time to put these insights into action and start planning your scaling strategy. The future of your marketplace awaits—go make it happen!