I always like hearing how entrepreneurs have managed to launch marketplace businesses. TechCrunch recently posted this interview with Michael Karnjanaprakorn of Skillshare, a platform for online education, about how they seeded and grew their marketplace.

He described two main phases in a marketplace’s journey:

Phase 1: Seeding

Where you “Roll up your sleeves up and get it done.”

Michael explains how, at Skillshare, they focused on getting teachers onto the platform as they recognised that teachers already had their own student communities who they’d be able to bring along with them. They reached out to their friends and personal contacts and tried to minimise the friction for teachers to get started, including doing non-scalable things like finding them real-world venues for the classes.

The key points from Michael are:

• Don’t try to do everything. If you can focus on one side of the marketplace and get them to bring in the other side, then do that.
• Reduce friction and get to liquidity as soon as you possibly can because once you do, powerful network effects then come into play.
• At this stage, don’t worry if what you’re doing doesn’t scale.

Phase 2: Scaling

The labour-intensive approaches used in the seeding phase tend not to scale, so you then need to transition to building things into the platform to power further growth. Skillshare are currently improving their product to deliver more value to their users and help users create content and resources that, in turn, bring in more users.

Further Reading

• How to get a marketplace to critical mass (my round-up of different strategies for overcoming the chicken-and-egg problem)
• Solving the “marketplace” business model (a very good post in a similar vein by Jason Cohen, a.k.a. asmartbear)
• Liquidity hacking: How to build a two-sided marketplace (by Josh Breinlinger, formerly of oDesk)

Photo by: Emilian Robert Vicol

I’ve rounded up the clips from the series here as they’re worth a watch if you’re interested in some of the high-level trends in ecommerce at the moment.

Part 1: Does Technology Matter?

Part 2: What Makes Ecommerce Hard?

Part 3: Content vs Commerce

Part 4: Maintaining Margins

Part 5: Fulfilling Demand vs Generating Demand

Part 6: Ecommerce apps

Part 7: iPhone vs Android

Part 8: What are Investors Looking for in an Ecommerce Business?

Part 9: Does Ecommerce 2.0 Need It’s Own Brick & Mortar?

Part 10: Why TV is a Big Sales Driver

Part 11: Which Companies do the CEOs Envy?

Some key points put forward:

• Adding commerce to an existing content business can be extremely tough to pull off successfully.
• Ecommerce businesses may increasingly look to generate demand rather than just fulfil demand.

What do you think will be the key success factors for ecommerce companies starting now? Have the CEOs in the videos got things right?

I’ll try and keep this post updated as more videos are added to the series.

In the meantime, if you’re interested in more thoughts from Ben Lerer, have a look at this post.

In the month before Christmas, 13.2% of our unique visits came from iPads. In the seven days since Christmas, that has leapt to 16.2%. That’s a whopping 23% increase in a matter of weeks.

I guess plenty of our customers received iPads for Christmas!

Is It Just Technophiles?

Who are these gadget-hungry consumers, you ask?

Well… it turns out they’re not Fab’s hip design-lovers. And they’re not a bunch of geeky dads who finally have a much-anticipated tech gizmo to play with.

No.

Our site sells knitting wool.

Our customers are, by and large, knitters. Someone looking for a dozen balls of Rowan Pure Wool DK or a new pair of knitting needles isn’t the most likely to be using the latest technology. And that’s why this is particularly noteworthy. These are everyday people — a fair proportion are middle-aged women — and, according to Google Analytics, 26.0% of them are now using mobile devices to visit our site (up from 22.7% before Christmas).

The One Mobile Device You Should Worry About Above All Others

So what should we take away from this?

First, in case you were trying to ignore it, ‘mobile’ is clearly a very real factor in today’s e-commerce. Significant numbers of ordinary people are now using mobile devices to buy stuff online.

But let’s be more specific. ‘Mobile’ might conjure up images of smartphones. And that wouldn’t be accurate when nearly two-thirds of our mobile visits are from just one familiar (non-phone) device. At least for now, if you run an e-commerce site, there’s one mobile device I suggest you worry about before all the others: the iPad.

How about you? Have you also seen a big increase in iPad traffic on your site? If so, how are you optimising your site for it?

It’s interesting for a couple of reasons:

1. It gives some useful benchmark conversion rate numbers.
2. It shows how conversion rates can and do vary significantly between sites with checkouts that are functionally almost identical. (Clearly other factors are at play, e.g. brand, initial purchase intent, removal of any impediments, etc.)

Here’s a quick summary of the findings.

Data collected:

• Analysed 2.5m visitors to over 27 websites.
• All used standard Magento ‘accordion-style’ checkout page (customised for each brand).
• All niche brands selling lifestyle goods.

Findings:

• Average conversion rate (visit to sale): 2.47% (ranging from below 1% to over 10%)
• Average % of visits leading to a basket page view: 5.76% (mostly between 3% and 7%)
• Basket page exits: 9.29% (mostly between 7% and 11%) [people who leave the site at the basket page]
• Overall checkout completion rate (basket page view to sale): 37% (mostly between 22% and 48%)

This is a great TED talk: Rory Sutherland makes an entertaining case for thinking more about psychology in the way we design and enhance things (and less about technology).

One example: one of the best improvements to the London Underground in ROI terms did nothing to change the trains or how they ran. Instead, it was to install displays on platforms to show passengers when the next trains were expected.

If you have a few minutes spare, it’s worth a watch.

When you hover over a +1 button, you may now see a popup showing other pages on the site that your friends have recommended via +1.

My account has been in the beta test for the feature for the last few weeks, but I must admit I hadn’t noticed any recommendations until today. I guess I just hadn’t been using those +1 buttons enough!

Anyway, it’ll be interesting to see if this extra functionality is useful to anyone. If users do find it a useful way to discover new content, perhaps it could encourage a few more people to actually click the +1 button as well. For now, I haven’t found the recommendations particularly interesting, so I remain a bit skeptical about the new functionality. What I think would be useful to users is if the +1 button recommended content on other sites. But that would be a tough sell to the website owners who need to choose to include the +1 button in the first place and who wouldn’t want to lose visitors to their competition.

How about you? Are you seeing any interesting recommendations?

If you’re trying to model a potential new subscription box business, or just wondering how profitable an existing business is, retention rate is a key variable. What retention rate should you assume?

The answer, of course, is “it depends.”

But you need something to plug into your calculations. So let’s look at some potential comparables.

Retention Rate Comparables

Here’s some retention data that has been shared publicly:

• Retention rates for H.Bloom (flowers by subscription) and Relay Foods (groceries from local merchants)
• MenAreUseless (male grooming and essentials) assume a 9-month average subscription (Quora answer) [note: this is not actual data, just an assumption that this business claims to be using]

(If you know of some other good public data, please let me know — this sample is a bit limited at the moment!)

Why Churn Rate Tends to Decline Over Time

If you look at the H.Bloom and Relay Foods examples, you’ll see that lots of subscribers cancel early in their subscriptions and the remaining ones tend to be more loyal. I’d expect to see this in most subscription businesses — customers that aren’t getting value from your service are likely to leave early on. Those that remain are likely to be doing so because they like the service. Consequently, as your business matures, your overall churn rate is likely to fall.

Churn Rate Varies by Acquisition Channel and Offer

You will also find that your churn rate is affected by how people sign up. At Boudoir Privé, for example, we found that, when we ran a special offer giving a discounted first box, a lot proportion of those new subscribers cancelled after they’d received that one box.

Churn Rate vs Retention Rate

I’ve been talking about churn rate and retention rate. But how are they related?

Churn rate is the percentage of subscribers who cancel in any one period. e.g. if you have 100 monthly subscribers and one month 20 of those subscribers cancel, then your churn rate for that month is 20%.

Retention rate is simply the percentage of subscribers who remain. In the example here, 80 subscribers remain and your retention rate is 80%.

retention rate = 1 – churn rate

Modelling Retention Rate for Your Business Plan

In my opinion, simple is good where possible. And I think that applies to modelling retention rates and churn rates for subscription commerce businesses.

Here are a few models you may want to use:

1. Average subscription length: Probably the simplest model (and my favourite for back-of-the-envelope calculations) is to assume an average subscription length and not worry about the details beyond that. This is good for estimating whether or not a business is likely to be profitable.

2. Fixed churn rate: To model cashflow, you’ll need to look at retention over time. One simple way is to assume that a fixed percentage of your overall current subscribers will cancel each month.

3. Declining churn rate: A slightly more complex model is to assume a slightly high overall churn rate to start with, dropping gradually over time.

Any of these approximations is probably fair for a pre-launch business where there are large amounts of uncertainty about other key factors of your model anyway.

More advanced businesses with a better idea of their numbers (or early stage ones run by ex-investment bankers) may want to look at a cohort analysis to better predict and model how the churn rate for a particular group of customers is likely to change over time.

Your assumptions about future retention rates significantly affect how profitable a business looks in the long term, so whatever approach you take, it’s worth understanding this component of your model and any simplifying assumptions you’re making.

How about you? Are you trying to model retention rates for a new business idea? What approach are you taking?

The latest Grovo ‘Expert Series’ video is an interesting one. Tom Critchlow is an SEO expert and talks through what you need to know about video SEO. (And he’s a Brit, too, which makes a nice change!)

Here’s the video series.

There are 13 snippets to go through, so it takes a while to watch. If you don’t have time, here are my notes:

Context

• Video is becoming increasingly important.
• Now’s a good time to get into it.

Choosing Subject Matter

• Think about who your audience is and what they’ll be interested in. Talk about something you know a lot about.
• On YouTube, people are typically searching for information – researching and asking questions rather than looking to buy something.
• Look on Quora or Yahoo Answers for an idea of what things people might be searching for and what terminology they’re using.

How to Create Your Videos

• Just dive in. Don’t worry about optimisation to start with.
• Include a call to action; tell people what you want them to do.
• For B2B marketing, you may want to put the video behind an email opt-in.

YouTube or Self-Hosting

• If just dabbling, host on YouTube. If looking to invest seriously, use something like Wistia, Vimeo or Vzaar (more features and better analytics).

YouTube Basics

• Have a good title and description. Use YouTube Keyword Tool to find out what people are searching for.
• Make it public.
• Allow comments.
• Make sure you have an umbrella account that the videos are posted under.
• Try to build up a group of followers. Ask people you know to Like and comment on your videos.
• Make sure the description encourages people to watch the video.
• If you want to drive people back to your site, include your full URL in the description.

Advanced YouTube Tips

• Upload captions (use CaptionTube) — helps video indexing and discovery.
• Use your target keywords in the filename you upload.
• Make sure you get people to watch the video all the way through.
• Engage in the YouTube community.
• Use YouTube annotations for call to actions, but don’t make it too spammy / intrusive — try to provide value for the user.

Self-Hosting Basics

• Tom recommends Wistia.
• If self-hosting, you should create a video sitemap.
• Wistia does this for you automatically (their killer feature).
• There are no great tools for doing this, apart from Yoast’s video SEO tool (WordPress-only).

Advanced Self-Hosting

• Use schema to mark up your video (VideoObject).
• If you’re getting really serious about video, consider doing transcriptions of your videos. Post transcription along with each video.

Getting Distribution

• 100,000 views is achievable.
• It’s often easier to get a blog to embed a video than to link to it elsewhere.
• TubeMogul can be useful for getting maximum views.
• Google is getting smart at spotting duplicate videos.
• If you want SEO value of ranking for a particular phrase, self-host and don’t use TubeMogul.
• If you’re pushing a viral video, paying for initial views can work well.
• StumbleUpon advertising can be effective for viral/funny content (especially if video autoplays).

Video Linkbuilding

• Have embed codes that link back to your site (you can tweak the YouTube embed codes).
• Can work well to include the video in a press release (either embedded or linked-to).
• People will often link to YouTube rather than your site. To counter this, have some related resource on your site and encourage people to link to it (even if they’re also linking to YouTube for the video). If people don’t link to your resource, follow up with them and ask them to do so. News organisations generally won’t update articles, but bloggers will.

Link Outreach

• Carefully craft your content with a particular audience in mind.
• Contact people in a friendly way to see if they’d be interested in your content.

Video Analytics

• YouTube Analytics show you lots of good information, e.g. when people tended to stop watching.
• SEOMoz’s Open Site Explorer is good for seeing your backlinks. You need to register for a free account to use it.
• AuthorityLabs tool has icons that let you see if videos are ranking highly for a given keyword phrase. If they are, then the phrase may be a good one for you to target with a video (Google thinks videos are a good thing to show for that search phrase).

Case Studies

• SEOMoz Whiteboard Friday
• Zappos are pushing the envelope for video SEO in e-commerce by having 50,000 product videos like this one. Note that the videos are on the relevant product pages, so it’s perfect if someone clicks through to the page from a search result.

Working out how to accept payments online is a pain. What do you need, exactly? Which payment gateway should you choose? How much will it cost?

I’ve set up a few online businesses now, so I think I have a pretty good idea of it all, but I remember how confusing all this payments stuff was to begin with.

What’s so Hard about Payment Processing?

When it comes to payment processing, there’s lots of terminology to get your head around (PCI, chargebacks, 3-D Secure, IMA) and dozens of factors to consider (security, shopping cart compatibility, support, retention periods).

Even when you understand it all, it takes ages to dig out relevant information about the different providers. And if you’re getting a merchant account you really need to shop around and play different providers off against each other to get good rates.

Does it Need to be so Hard?

Taking payments really shouldn’t be this hard. But no-one seems to be doing much to help UK merchants figure all this stuff out. The best resources I’ve come across are some excellent blog posts by David Mytton and Daniel Tenner.

So I’ve decided to have a go.

Introducing PaymentBrain

I’ve set up a site called PaymentBrain as a home for resources to help UK merchants choose online payment solutions.

So far, it’s hosting my first stab at a comparison engine to compare payment gateways. I hope to be adding and improving upon it as time goes by.

If you have a friend who’s planning to apply for a UK merchant account in the next few weeks, please put me in touch. I’d love to chat with him or her about it and to share what I know.

Thanks!

It’s 11.38pm as I’m starting to write this, so I’ll keep it brief.

The latest startup interview from Grovo came out today. It’s with David Tisch who runs the TechStars incubator in New York.

David sees lots of startups from an early stage, so has an interesting vantage point on things.

Here’s a quick rundown of the more actionable highlights from what he had to say…

Founder/product or founder/market fit

This is one of the things David looks for when selecting startups for TechStars. You need at least one of the following:

1. Direct experience of a pain point in the space
2. A thesis on the space (how the status quo is broken and how things will look in the future)
3. A network within the space that gives you an unfair advantage over other people

The actionable takeaway is this: when choosing a business to start, find one where you have at least one (preferably two or three) of the advantages above.

Personally, I agree with 1 & 3, but I’m not sure about the existence of a thesis on the space as a useful indicator of ‘fit’. For example, I have a thesis about the future shape of the National Health Service (NHS) in the UK but as I’ve never worked in that sector, it’s very likely my thesis is wrong in important ways.

Storytelling

David argues that storytelling is the number one skill you need to learn as an entrepreneur. You need to be able to express your story in an exciting and engaging way. e.g. why are you doing this, what hiccups and successes have you encountered along the way. This isn’t just important when speaking to investors (like David) but to everyone: journalists, customers, potential hires, etc.

Marketing

As a startup, David recommends experimenting wildly and widely with your marketing (at least, I think he’s talking about marketing when he mentions this). Test as many things as you can and see what sticks.

I’d agree broadly with that. Though in reality, limited time and money generally mean you have to be selective and prioritise testing the handful of marketing techniques you think are likely to work best. This is one area where I think experience can be very valuable.

The rest of the interview is more focused on TechStars and New York. You can see it all here.