5 Lessons Entrepreneurs Can Learn From Niche Marketplaces Thank Airbnb, Trulia and other niche players for the potential partnerships -- and more -- that they offer entrepreneurs.

By Tx Zhuo

Opinions expressed by Entrepreneur contributors are their own.

Uber | Facebook

Niche markets almost always develop out of an unmet need. You start by finding people's pain points -- either in their personal or professional lives -- then dream up ways to solve those problems.

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That's exactly what HotelTonight did when it saw the need for last-minute hotel bookings via mobile devices. In three taps, users can find deals and book rooms anywhere at any time. The whole process takes 10 seconds. And with this mobile-only platform, hotels can offer exclusive deals not available online.

But filling an unmet need isn't the only lesson niche that marketplaces can lend the business world. Here are five more, thanks to niche players, that can be applied across the board:

1. Partner with incumbents to achieve a scalable, high-quality supply.

Convincing users to rely on your platform as the primary transaction point is challenging for newcomers. But without a quality supply, you can't scale up when necessary. If you want a vetted supply pipeline, you need to establish partnerships early on with potential competitors or companies in similar industries.

Take Postmates, for example. This urban logistics and on-demand delivery platform is dependent upon ride-sharing marketplaces such as Uber and Lyft for its supply. The same may be said for Pillow. Pillow, a rental-property management company, was built on the success of Airbnb and HomeAway and even uses those sites to create and refine listings for its own clients.

But to secure these relationships, you have to serve up an enticing offer. For example, by enabling a cross-listing function with Trulia, Craigslist and other popular sites, the apartment finder RadPad became the primary listing portal while Trulia benefited from lead generation.

2. Split the value.

Marketplaces should disrupt existing markets and reduce the value lost to intermediaries. However, most start by focusing on solving the pain point for the buyer side and then haphazardly filling the other end. But this dynamic relies on both buyers and sellers to function smoothly.

Consider Uber's cautionary tale. When it ran promotions that offered discounted rides over the summer, drivers got riled up because they felt that riders were receiving overly discounted rides at their expense. So, make sure the extracted value is split evenly. And when you tip the scale for one side, realize that that could affect customer service or create churn issues with supply.

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3. Simplify the choices.

You may be tempted to provide users with a broad set of options, to drive customer satisfaction or capture a larger audience. But all those choices will only overwhelm them. Instead, you earn trust and loyalty by specializing in one area.

At its launch, Uber offered users only exclusive black cars, but this didn't stifle interest. It built a loyal fan base that valued quality. Uber took its time and was deliberate before increasing transportation options and moving into complementary verticals, such as food delivery.

4. Build trust into your business model.

Marketplaces are built on trust. Why should buyers and sellers feel comfortable engaging in your marketplace? Uber created an almost immediate layer of trust for riders and drivers by using its transparent platform. Both parties know who will be in the car, and the rating system allows future riders to vet drivers beforehand.

5. Open communication lines, and populate them.

Because marketplaces don't sell products or services, continually providing unique and engaging content for users can be challenging. But enticing people to a platform is only half the battle -- you also need to keep them there.

Marketplaces ultimately survive off of community engagement. If a budding marketplace doesn't offer unique perspectives or become an authority in that space, it could quickly become an intermediary or enabler for stronger marketplaces and suffer huge user attrition.

Chairish, an online consignment platform for design items, exists in a marketplace that could easily be relegated to an intermediary. But because the site uses a thoughtful curation process for the buyer and taps interior designers for content, it's quickly becoming a thought leader in the space.

Most marketplaces emerge out of a distinct consumer need. But that isn't always enough. Keeping buyers and sellers engaged is an ongoing process, and if you strike the right balance, you just might join the ranks of other successful niche marketplaces.

Related: What UberX and Lyft Drivers Can Do to Minimize Their Personal Liability

Wavy Line
Tx Zhuo

Managing partner at Karlin Ventures

 TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.

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