What is problem-solution fit—and how to reach it with your marketplace

You've identified a problem, built a marketplace MVP to solve it, and found a few early users to sign up for your platform. But are transactions happening? Are they consistent? Are there signs of improved liquidity or increasing user signups? Are people returning to your marketplace to solve their problems again?

If you're nodding yes to these questions, congratulations! Your marketplace might be approaching problem-solution fit—an important milestone in proving that your platform can become profitable.

In this article, we'll explore what problem-solution fit means for marketplaces and why it's important—and what you can do if you aren't seeing the signs yet.

Reaching problem-solution fit is step eight in our ten-step approach to building a marketplace, head over to our complete guide to building a marketplace, our our full video course on building a marketplace. Both explain everything you need to know to create and grow your platform from the ground up.

Problem-solution fit is the stage where your marketplace consistently facilitates transactions between the two sides of your platform and collects revenue from that activity. 

At this point, you might still be operating a concierge MVP or a partially manual platform, perhaps facilitating matching or transactions yourself. Your operational costs may still exceed your revenue, so you may not be profitable yet. 

However, you've validated that there are at least some people on both sides of your marketplace for whom you're solving a problem well enough that they want to return.

In other words, problem-solution fit means you’re satisfying both sides of your platform: the supply side (sellers or service providers) and the demand side (buyers or customers).

Reaching problem-solution fit is a critical milestone for several reasons:

It's one thing to believe you have a great marketplace idea (even one that is well pre-validated), but it's another to have users actively engaging with and benefiting from your platform.

Problem-solution fit provides concrete evidence that your marketplace is addressing a genuine need in the market.

This validation helps you refine your value proposition. Through your early customers, you gain more understanding of exactly how and why users find value in your platform. This helps you better position and market your marketplace, and also find areas still needing improvement. 

Having reached a problem-solution fit, you will likely have a core group of satisfied users. These early adopters can become advocates for your platform, which will help drive early organic growth through word-of-mouth referrals. 

More importantly, they form the foundation for working toward product-market fit—a stage where you start slowly growing your user base to validate that you've found a good market and a product that can satisfy that market.

Problem-solution fit provides tangible proof that there is demand for your offering and that you can effectively meet that demand.

Start-up expert Paul Graham writes that the most common reason startup companies die is a loss of faith in the business. This is especially common for marketplaces because they are such difficult business to get going. It may seem like the business is not going anywhere for a long time, even if your idea and product have great potential.

Reaching problem-solution fit shows you've successfully navigated one of the most challenging phases of building a marketplace. This achievement can give you confidence in your ability to overcome challenges and help you find the motivation to keep going.

Here are some key indicators that your marketplace is approaching problem-solution fit.

One of the clearest signs of problem-solution fit is that transactions are happening on your platform. The exact number will vary depending on your niche and market size.

Importantly, the signs don’t need to be huge at this stage, but show promise. For example, might see:

• Regular, recurring transactions
• A slow, gradual increase in transactions over time
• Transactions occurring with less and less direct intervention from you (if you've been manually facilitating them).

For example, it took the formal dress marketplace Queenly months to get just one transaction. 

“So there was this magical-like silver lining moment where we passed that boundary of having enough supply to please one user and produce one transaction. So we just have to keep building—over and over again every single day.”

The following summer, co-founders Trisha Bantigue and Kathy Zhou were accepted to a startup work retreat:

“At that point, we were already getting pretty consistent transactions, maybe two to five a day. That doesn't sound like a lot, but it was steadily increasing.

When we got to the startup work retreat, we found out that most of the other founders didn't even have a product, didn't have revenue. All of the mentors there were very impressed, and they said: You girls need to quit your corporate jobs today and start fundraising ASAP because you have more traction than we had when we got funded.

One to two months later, we both quit our jobs and went into it full-time.”

Another sign of problem-solution fit is that your user base starts to grow. 

You don’t need to (and likely shouldn’t) invest heavily into acquiring thousands of users yet. 

In the words of Andrei Hagiu and Simon Rothman: "Growing too early amplifies flaws in the business model, making them harder to fix."

However, slow, steady progress each month in your user base can be a sign that:

• your marketplace provides enough value to retain existing users.
• new users understand your value proposition and find it compelling enough to sign up.

A steadily growing user base that engages with your platform and makes transactions is a great sign of problem-solution fit.

Word-of-mouth is difficult to engineer. Rather, it happens when a product solves a problem for users so well that they’re excited to recommend it to others.

Word-of-mouth referrals are a fantastic indicator that you’ve reached problem-solution fit with your marketplace.

Marketplace liquidity means the likelihood of a transaction occurring in your marketplace. Liquidity is measured for both sides of the marketplace:

• Sell-through rate: the share of listings on your marketplace that get sold during a given time period.
• Purchase rate or search-to-fill rate: the share of visitors to your marketplace that make a purchase or the share of searches on your marketplace that lead to a sale.

High liquidity is a requirement for a profitable marketplace. At this stage, though, the absolute percentage matters less than improvement.

Getting to your first transaction is tough. The second one might be just as hard. How do you get to a point where you facilitate consistent transactions and satisfy your users? 

Here are some key strategies to help you reach this crucial milestone:

Starting with a small initial group of users is often the fastest way to reach problem-solution fit.

Andrew Chen, a general partner at Andreessen Horowitz, has introduced the concept of the "Atomic Network." 

The atomic network refers to the smallest viable network that can sustain itself and demonstrate your marketplace's core value proposition. It's the minimum scale at which your platform starts to function effectively and provide real value to its users.

Often, an atomic network is established within a specific geographic area or niche market before expanding more broadly. Achieving it serves as proof of concept. It shows that your marketplace idea can work, at least on a small scale.

Here's more on why it's a great idea to constrain your marketplace in the beginning.

Sometimes, achieving problem-solution fit requires iterating and improving your offering within your initial market.

Let’s say fifty people sign up on your marketplace, but no transactions happen. You'll want to contact them and ask them why, and use what you learn to improve your marketplace.

Did they not understand what the site was for? Look into how you’re communicating your value proposition. 

Was there nothing they wanted on offer? You need to build more supply.

Was it too difficult to find what they were looking for? Time to rethink your matching process. 

Or perhaps they found something but did not complete a transaction. You may need to redesign your transaction flow or think about your pricing. You’ll need a model that extracts enough value – but not too much – from your transactions. Finding the right model can take quite a bit of trial and error. 

After you’ve made changes, bring more people on board, and see if it made a difference.

Also, remember that negative feedback can be valuable for the iteration process. It means users care enough about your solution to want it improved. What you don't want is silence.

Figuring out all these factors takes time. You’ll likely need to iterate many times, and for that, you're going to need to find more users from your atomic network—which takes us to the next point.

To reach problem-solution fit, you likely need to employ some early-stage growth strategies. You’re not scaling into new markets yet or attempting to reach the biggest audience possible. 

Instead, you want to reach the early adopters within your atomic network who will help you to validate problem/solution fit. Here are some strategies to find them:

Offline strategies

Offline approaches can be highly effective for finding early users. For example, the car-sharing marketplace Drive lah distributed flyers on cars to attract users. 

Curtsy, a second-hand clothing marketplace, used university sororities to grow its user base. Its co-founder, Sarah, took a creative approach: She attended sorority meetings, encouraged members to download the app on the spot, and organized trunk shows with dresses for rent, requiring app downloads for participation. 

These offline strategies attract users and provide valuable insights about early adopters that are hard to gain through other means. Here are other offline methods you can adopt: 

• Attend local meetups and events.
• Join conventions
• Engage with potential users in person
• Distribute flyers or promotional materials
• Target-specific communities (e.g., universities)

Online communities

If your target audience is active in online communities, engaging with these groups can be an effective way to find early users. 

Furthermore, this approach lets you connect with your early users beyond advertising your marketplace: you get the chance to chat with other community members organically and show you’re taking a real interest in solving their problem.

Another online tactic could be to reach out to influencers to try your platform and spread the word—and perhaps offer them and their followers discount codes for the trouble.

Paid advertising

Paid advertising can be useful for validating demand and attracting early users, provided you have the budget. Keep your campaigns very targeted and short at this stage. 

At this point, you don't need to worry too much about the customer acquisition cost. At the same time, while you don't need to recoup every dollar spent on ads, avoid pouring significant amounts into advertising before you've achieved problem-solution fit.

Word of mouth

Big players like Airbnb, Lyft, Instacart, TaskRabbit, and many others surveyed by Lenny Rachitsky state that customers telling each other about their platform was a key driver for growth. As stated earlier, though, word-of-mouth tends to happen organically as the result of reaching problem-solution fit.

Help supply drive demand

This growth lever is unique to marketplaces. Suppliers doing their own marketing and inviting customers to the platform is a great way for marketplaces to grow. Give your suppliers incentives and easy ways to market their products or services through their own channels.

This ties in with the network effects built into most marketplaces: high-quality suppliers bring in more customers, and the growing customer base, in turn, attracts more suppliers. If this is a lever that can work for you, it should work from the very beginning.

Direct sales

For B2B marketplaces, in particular, direct sales may be the most effective and sensible way to acquire new users. This approach allows for personalized pitching of your platform's value proposition to potential clients.

Building a marketplace is tough. As you’ve learned, getting that first transaction might take a lot of time. Your initial idea might need several iterations before you start noticing signs of problem-solution fit.

Don’t get discouraged. Once you get the right product in front of the right audience, witnessing the marketplace dynamics kick into effect is tremendously rewarding.

Take inspiration from Trisha Bantigue and Kathy Zhou, co-founders of the formal dress marketplace Queenly. It took them months to get their first transaction, but they kept pushing forward. Today, Queenly is backed by prestigious investors such as YCombinator and Andreessen Horowitz.

For more inspiration and insight from other marketplace founders, check out seasons 1 and 2 of Two-sided—the marketplace podcast.

Reaching problem-solution fit is an exciting milestone in your marketplace journey. It's the point where you can confidently say that your platform is solving a real and significant problem for your users. Let's recap the key points:

• Problem-solution fit means consistently facilitating transactions and collecting revenue, even if you're not yet profitable.
• Problem-solution fit is characterized by a steady stream of transactions, a growing user base, and signs of organic growth.
• Achieving problem-solution fit validates your concept, sets the foundation for reaching product-market fit, and gives you confidence in your idea.
• To reach problem-solution fit, start with a small enough "atomic network", iterate on your offering based on feedback, and find effective ways to attract early adopters.

It's critical that you reach problem-solution fit before you start growing your marketplace. If you scale too soon, fixing issues in your business model is much more difficult.

Once you've reached this stage, you're ready to move on to the next exciting phase of your marketplace journey: working towards product-market fit and scaling your platform.