Okay, so Rob Mihalko, founder, principal of Spectus Strategy, whilst a lecturer at Stanford. And I'm really excited to have you here today, because I would say that we are, well, I'll put words in your mouth, but we're marketplace nerds, sort If we really are excited by love and interested in the concept of digital networks in market places and fine -tuning these platforms to be optimized. But I'm just really looking forward to unpacking your experiences in market places. But I first have to know, so your founder principle of spectus strategy. What is a spectus? It is a spectus. Well, first of all, thank you, Chef, for having me today and looking forward to our conversation. A spectus, actually, is derived from a Latin word, spectospectarii, which is to look at or observe. And when I created my consulting firm, I really wanted to focus on deep insights into the businesses I was advising to. These were marketplace businesses or business networks. So having that unique insight to make good decisions was sort of important to me. So I use that as kind of the way to frame how my consulting practice was different. And did you know the word "spec" this or did you go looking for your, like, I know what I want the name to be. I've got to go find the word. It was more the latter. I actually studied Latin in high school and so I had a thing for Latin derived words. I think they just have a uniqueness to them that I really liked. And so I was kind of going in that direction. And so I was thinking about insights, Latin words that related to that concept. And so I just did some searching and kind of came up with that word. And if I'm correct, there's not a J or a W in the Latin alphabet. Is that correct? I don't believe so. No, I don't think it's a K either. No case. Yeah. So did you find, they always said in high school, they're like, if you know Latin, the SAT is gonna be much better? - Well, that was probably one of the reasons why I took it. But I love the topic. I thought I had a great teacher, and he really inspired us on not only the language, but Roman history and other things too. So it's something that always sort of resonated with me as far as that language and developing words around that. - Yeah, - No, it is interesting, it's a collatin. I put it with a student as well, it was a discopoly. Is that what that, anyway. Doesn't matter. So tell me what does Spectre strategy do? - Yeah, so it's a strategy consulting practice focused on digital marketplaces and business networks. I have about 15 to 20 years experience as an operator with digital marketplaces. And over the past few years, I've kind of elevated that experience to helping companies across the industry on core strategy concepts, pricing, packaging, things of that nature, to help them, if they're an early stage business, to sort of establish themselves in their markets, but if they're a gross stage business, helping them grow. - Okay, you just said a lot. There's a lot done packing just what you're doing. So if Business is like one of the ones you just described, which is a marketplace that's maybe a startup. Or in a different phase of their life cycle, they would reach out to Spectus, you, and say, "Hey, come take a look at what we're doing, "give us deep insight, share experience, "and get us, help us get us where we wanna go." Is that fair? - Yeah, yeah. - I mean, at a very high level. - People come to me in various ways, either through referrals, through my course, through other avenues. But generally, industry or in their particular market and hopefully find a solution for them. And you don't have to name names, of course. You may if you like, but what are the types of marketplaces where you feel comfortable? And what I mean is, as you know and I know and many know, their marketplaces come in all different shapes and sizes. And there are many different ways to structure either the flow across it, is it one to many, one to one, all these different things. And then you have marketplaces that you can get the Amazon, you can get anything in the world really on there. - Yeah. - And then you have these very specific marketplaces, Bryzos is a metals marketplace for instance. So where are you comfortable on that or what types of marketplace is from a product standpoint? - You know, I actually, I enjoy many of them. I think the diversity of the business model is what makes it interesting. I think actually, in some cases, I like going into an entirely new industry and learning and figuring it out. And so I wouldn't say there's any like one, you know, vertical or even type of marketplace per se that I would gravitate to. I mean, I might have some experience in some categories, my deeper experiences in sort of horizontal procurement marketplaces. I formerly was at a company called Ariba and then SAP afterwards. So I do work with a lot of sort of procurement oriented marketplaces. Many of them are category specific, so I have worked with that. But I've also worked with a good number of consumer marketplaces in a lot of other industries as well. Services industries, travel, manufacturing, a whole range of different industries. So I think that's what makes it interesting and as a business model and just trying to sort of take some of the concepts I develop and how generically and how to build a successful marketplace and then apply it to different industries. I think that's what really gets me excited. Can you define for me what a marketplace is? Yeah, so the The idea I defined as a marketplace brings multiple parties together on a single platform to interact with each other, exchange information, and ultimately conduct a transaction. That's sort of the flow. It's two or more parties, so marketplaces have more than two different parties. But the idea is that it's a common digital platform, and the key thing is this is a digital marketplace. Marketplaces as a concept have been around for hundreds, thousands of years in the physical world, but for digital marketplaces, it's creating sort of a digital place for different parties to come together. And why are digital marketplaces considered to be the most difficult things to do in a digital world? Like getting a marketplace to spin is not easy. What is that all about? I mean, because, I mean, I could chime in and tell you my thoughts here, but I'm interested in what you're thinking because the concept couldn't be more simple, which is a buyer and a seller are meeting somewhere to transact, and that somewhere is the marketplace. It's a platform. And I shared with you yesterday, when I think of a marketplace, I think of just medieval times. You have all these merchants and everything hanging out out in the streets, and somebody owns that street, but that street brings a bunch of buyers down it. So merchants love setting up there. And so you just kind of walk down the street and you're buying, oh, I need to get some food, oh, I need to get some rope, oh, I need to, you're just buying what you need. And that's your marketplace. And so it's a simple concept. What is so difficult about these things. Yeah, it is contradictory. Digital marketplaces are probably the most complex businesses around. And the reason is that you have more dimensions, more factors, you have to get just right for the marketplace to work. In a physical marketplace, you know, if you go to a street fair or whatever, you can look at the product, you can see the vendor, you can expect it, and you can pretty quickly, you can assess the quality, you can do a lot of things in the physical world that don't directly translate into the physical world. You have to create sort of approximations or other things. So there's a whole range of decisions that marketplaces have to make to kind of just dial in all the ingredients that both the buyer and the seller have a good experience. Who can participate? How do you, what products legitimately should or should not be sold on the marketplaces? What is the customer experience? How do you handle trust? I mean, a lot of cases, you don't know who the counterpart is. How do you make sure that you're going to get good quality products or have a good quality service? These are all the decisions, you know, scope, how wide, you know, what sort of things should you do. Many marketplaces was called asset light, where they let the vendors or the marketplace participants own the assets. So in the consumer world, like Uber, for example, that the drivers, you know, most part own their cars, own the vehicles. Uber does not own them. And there's a lot of decisions like that. So there's all these decisions that marketplace has to make to get it just right. And I've seen, you know, some marketplaces in some industries that just didn't quite get them right and just were kind of not really growing and that others just right adjacent to it just made a few tweaks to their marketplace model and it's sort of taking off and so it's a real subtle thing to kind of get all those ingredients right. So what you're saying is there's a series of levers that marketplaces have. Let's provide the following that there's a need for it and that the products lend themselves to digital trade, talk to the idea of a brand new jet is probably going to be a direct purchase from a plain manufacturer, maybe not a huge need for a marketplace right there. So assuming that The judgment was there to say, "This is the right product," and all that checks out. What levers exist for a marketplace to be successful? As an example, product -market fit is an enormous lever, and it's a very hard one to push to you know, I say one brick at a time and some bricks are heavier than others. So what do you see as those levers assuming they're in the right place? Yeah, so to get product market fit for a marketplace, again, it's, you know, take for example, just standard SaaS software. Like if you're designing software for, you know, design software or an accounting software, you're designing for one customer has to use the product, and it's a fairly simple thing. So the first thing is that Marketplace has to design essentially two products. If there's two major players, there's a buyer side and there's a seller side. They understand the needs for both of that. So right off the bat, they have to sort of dial in that, getting a good product for on both sides. The first thing I look at from a product market fit perspective is, can you support sort of clean transactions? Can you present the, you know, the offerings in a clean way so that when buyers come in, they know what they, they, they see a selection. They know how to determine their requirements. They can pass it on to the seller and then the seller can accept that. And then, then, um, then the, the payment process is simple and just the basic plumbing sort of work properly. But the first lever is just getting the transaction flow working from, you know, from search and discovery to purchasing to payment. Then there's some other factors that marketplace have to figure out. They have to figure out, okay, how do they make money? What is the monetization model? And getting that right, I've seen many marketplaces that will put in a pricing model that actually can growth or it doesn't quite work for one side or the other. So that's another lever is getting the monetization model dialed in just right so that, you know, the reality is marketplaces need a good revenue stream to fund their business. So you need to generate revenue, but you also don't want to introduce too much friction. So let me jump in really quickly. Our first one is just sort of basic plumbing for this marketplace, which how do we get from one end to the the other. And then monetization being next step, and you said that you've seen monetization strategies be implemented that thwarted their own growth. There are a lot of people out there trying to build marketplaces right now, undoubtedly. What were some that thwarted growth, the model that you saw, and do you think that that model that they installed would probably work growth across any type of marketplaces. Is there a common thread as far as, don't do this? Yeah. Monetization is very market -specific. There are many different models. There are subscription models, there's commission models, there's service fee models, even use advertising, there's a variety of different sort of monetization models you can use. And so, give them the dynamics of your marketplace. I always talk about minimizing friction. If you want a successful marketplace, you gotta keep finding all the friction points to remove. - Okay, so what is friction? I mean, people are very physical. We're probably thinking like, you know, pulling rubber down concrete, that's super high friction. Like, what are you talking about when you say marketplace friction? - Yeah, it's like a consumer adoption and behavior of the product, right? If there are barriers, if there's too much choice and you can't decide that's friction, if the pricing is such that, okay, I gotta think about this, maybe I'll come back tomorrow, or I'm ready to buy, but now I need to then contact the seller, I need to do the other things, or other steps before it's done, or there are a variety of things in the user experience that add time, or in some cases can introduce uncertainty that customers just go away or don't transact. And so you wanna minimize those things that if, we always talked about if you find a buyer ready to buy and a seller ready to sell, you want that to happen as efficiently as possible. - Time kills deals. - Right, and so friction is sort of the term that we use to explain these are the things that you can start removing from your service or improving to make those things happen in the day. You want to capture it in the moment when you got sort of two willing parties where you get to tease out to each other. - I agree with that, and I think I coined it here, which is people don't come to Briza's for homework. You know, we're not here to give you more work, we're here to solve something for you. And it's a good exercise, especially in like a metals industry, which is the distribution, which is fabulous, and has a lot of standard workflows. And when we got far enough out of distribution, we were able to question, well, do you have to do that? And do we need to replicate that digitally speaking? You know, in a digital world, people think differently even though they're doing the same thing. So it's like, it's now an opportunity to start stripping some of this stuff out. But let me jump back. So the levers, you said the plumbing, the monetization, and what else could a marketplace do to optimize? Yeah. So the other thing is, I call policies and governance. Like what are the rules of engagement? How do buyers and sellers interact? What is behavior that you is acceptable? What is not acceptable? And if something bad happens, what do you do about it? You know, if you're selling illegal items or other things like that, you want to make sure that you're providing some guardrails so people have a good experience. Sort of like all the rules of the road. How do they understand how, you know, how the service works works and what's acceptable behavior. That addresses a lot of the trust issues I talked about earlier in terms of marketplaces solving this sort of trust thing. If they feel like the marketplace is protecting them in terms of having a safe experience and if something bad happens there's some you know some ways to rectify that that's helpful. So that's sort of the third area. That is really hard to do by the way. I mean for someone who hasn't built a marketplace before to sit down and create rules of the road, or the guardrails, or the house rules, that activity of building that out is the backbone, in my opinion. Like, for instance, when you sit down and you have got to write your terms and conditions finally for your marketplace, you learn a lot. Absolutely. Because you have attorneys saying, okay, what are you going to do about this? What are you going to do about this? And that's where you really-- And that informs the product greatly, especially in supply chains, where I think one of the key features or differences between B to C, B to B, and even what I'm quoting eye to eye, which is industrial to industrial, is in B to C, for sure, the final step is you check out, you're done. Because everything's become so formulaic, like these products are, I mean, it's just going to be rare that something goes wrong and beat it, but I'm saying eye to eye, industrial to industrial, that's when the transaction kind of begins as a checkout because now you're moving big, heavy things like metal, throwing them on trucks and, you know, they're variable lengths for different products and maybe you ordered 20 feet and 18 feet and the product experience hasn't finished yet. - Right, and so what I'm tying back to is when you do your terms and conditions, they're like, what do you, their attorneys are like, well, what are you gonna do if this happens, if this happens? And then that's when you have to start thinking, how do we roll that into the UI to make sure it doesn't happen? - Yeah, it's super important. You know, when you directly with, say you do a one -to -one relationship with your customer, you have a contract, right? And that's that it defines the relationship through a contract. Marketplaces can't do one -to -one contracts with everybody. They have to create sort of a general environment, and so that's what the Terms of Service sort of does. It creates that framework that people interact with, and there's a balance. You don't want to script out everything, and I've seen some terms of service and some clauses that were so complex of all the things that go wrong and all the penalties that you would get if you didn't follow that I go I'm not gonna use the service I guess it's just again it's too much friction so there's this balance between just finding that sort of the right sort of guardrails that protect people but don't scare people off. Right so that that'd be a third lever that that that we've identified, right? So you said there are six kind of things that must be occurring for a marketplace. And maybe I'm conflating, but those sound like levers to me to a degree. What other ones are in there? So next is liquidity. So getting enough buyers so that the sellers have enough business to justify investing into the marketplace, and then there's enough sellers that buyers have a good selection. So it's managing basically the supply and demand balance. I kind of combine those into two or into one in terms of liquidity. But that is probably one of the biggest challenges, particularly for early stage marketplaces, is how do you get that liquidity? How do you get that initial sort of critical mass of buyers and sellers so that the average customer has a good experience. And so liquidity could be defined as how quickly can a seller turn their product into cash? Yeah, well, it's the whole process, right? It's actually finding and finding customers, identifying them and satisfying their needs. So it's essentially, I look at it more from a kind of an investment perspective. There are many marketplaces or if a seller joins a marketplace and they get no business, it's not a free thing for them. They may have to set up a profile. They may have to load it on a catalog. They may have to do something. They have to have someone monitor activity that comes through. And so even though in some marketplaces it could be relatively light, it still takes time and energy. And they have choices too, right? There's other ways they can go to market. So having enough business for them to justify being in the marketplace is super important. So you want to make sure you kind of choose your markets carefully and also kind of choose the number of participants you have and then you go after to make sure that each one, you know, as many as possible have a good experience. Well, you just touched on something we just showed you in the other room, which is we have 100 % liquidity because the way we've set this up, which is there is, we're speaking for Brijos, which is they have, sellers don't have a time invested. They're not putting on, you know, uploading all their inventory. And that's how it used, Brijos was originally, and that's the lesson we learned what you're talking about, which is, you know, there's liquidity, which is How successful can this be and how quickly can it happen is how I think about it and I think in a very pure sense, how quickly can a seller, if they're going to go through the rigmarole of uploading profiles and stuff like that, there better be a win waiting for them. For sure. Or else they're out. Yeah. Yeah. And it's all about ROI. So in your case, and of others, if the investment is relatively low, then you can more easily get more participation and, but even then, even if the participation is low, if they're still not getting any business, they may still just lose mind -sharing or responsiveness, or there's other things that sort of come into play as well. And you want sellers who are engaged in your platform. - And perhaps a stupid question, what is the growth phase? - So the is once you've achieved, at least the way I look at it is once you've achieved product market fit, then you start thinking about expansion. And there's sort of two elements to it. There's this traditional getting the flywheel going, the sales and marketing, the customer acquisition, getting those sort of elements sort of humming. But there's also a lot of infrastructure decisions and maturity decisions that a marketplace has to make. Thinking about what capabilities do they invest in? Am I talking about finance or HR? Those are sort of givens, but do you need an economist to figure out about liquidity? Do you need a marketplace sourcing expert to really help work with vendors on the bidding processes, like some marketplace -specific skills that you may want to invest in. What product and infrastructure investments do you want to make? Make -by decisions are hugely important. When you kind of get the product market fit, you probably cobbled together a few things on the product side. You make decisions, OK, do we want to continue to invest in this homegrown billing thing, or do we want to maybe We outsource it to event, there's a whole service provider community that you can tap into. You don't have to build everything as a marketplace operator, and so I find in the growth phase is a great opportunity to start thinking about, well, we want to be really smart, say, in the matching. We want to be really good on the customer experience, the UI, but we don't want to spend time on billing or logistics or delivery, or some other things, payments, that we'll work with third parties for that. So those maturity investments is also, as part of the whole scaling process of kind of, you know, maturing the business. But it's all about both getting the five -wheel going on your go -to -market strategy, but then also the capability investments to mature the business. - Product market fit, let's talk about that for a second, which is, It's one of those things that you know it, when you have it, everything changes. And getting there, unless you're just like the luckiest person in the world, is an enormous task. When you're looking at, you know, from the eyes of Spectus, when you're looking at company, How do you measure whether or not they're working closer towards a product market fit or they've achieved it? Yeah, that's a great question There's a couple things I look at I Agree with you. It's one of those things that Just said at a visceral level you kind of know it when you sort of see it like you start seeing I talked about that flywheel You start seeing growth happen. That's more organic. So one of the things I look at is organic growth rates. Like what percentage of your customers do you have to acquire the traditional way versus are happening organically in one form or another? It could be through word of mouth. It could be there's some viral components to the network. It could be that the counterparties, you know, bring in their own, their, you know, I've had a lot of situations where some sellers love of Marketplace and they'll tell their customers, "Hey, I want you, can you get on this Marketplace too?" Like, it really lights this experience. So you'll see the poll from the counterparties of bringing people in. So, you know, I really look for sort of organic growth rates is sort of one of the key things. Also looks at Customer Sat, it's sort of straightforward, but you'd be surprised. You know, I asked Marketplace, you know, what's your customer's sat or what's your MPS score? Which side is that from? What's the buyer's side? I go, what's your seller MPS? Well, we haven't measured that yet. Oh, really? So then we'll say, well, let's look at both sides. And so I'll find sometimes where there's a bit of a mismatch. And I go, well, you may not have product market fit yet. You may have it on the buyer side, but you haven't really solved it yet in the seller side. Then I look at some of the, you of the third thing to look at is retention rates, churn. How much are people staying in the service? And so, if I see high churn rates on one side versus the other, that could be a problem that they may not have product market fit yet. Have you seen marketplaces that you maybe weren't directly consulting on, but are finding verticals or segments that you just, like that's just never gonna happen there. Where you're just like, I just don't know if a marketplace can exist there. Have you ever seen like industries or relationships that are just too galvanized? Where you're like, I wouldn't build a marketplace right there. - Yeah, you know, not by industry vertical. You'd be surprised, the marketplaces exist everywhere. You know, I mean, I see them in so many different industries, both in your consumer business, even in some government spaces. What I do find though, is that I find some marketplaces that just will sort of drop themselves into an industry and say, "Okay, we're going to be in the center of this market and just by virtue of being there, we think we are going to be successful and they estimate the market say we can get 10 % of this market and it'll be a fantastic business. Just extrapolate. Yeah, exactly. That was the story, actually, of a lot of the early marketplaces, particularly in B2B, and that the-- Like .com era, 90s kind of thing. Yeah, and so a lot of business-- and I think the industry was learning. I think the internet was sort of coming to just the concept of the interactive-- So it's money flying around, too. Yeah, There was a lot of investment in it, but I think they were learning about the dynamics of each of their spaces. But I think over time, and this is the way I look at it, is that in any given market, there's three ways to go to market. You can go directly, from a seller perspective, to your customer. You can go through traditional intermediaries, or you can go through a marketplace. And I find that when you look at a market, finding your little spot in there is super important. And so it may not be necessarily that the industry itself isn't conducive to marketplace. It's just they haven't picked the right segment Okay, so what is what does that mean like so I Understand what you you mean in a general sense, but you have these massive industries and over here you've got Let's say the automotive industry. There are many links in the chain to get something that's ready for sale on a lot So So you're saying you could be more effective, there's like a locus, right, in the supply chain, where you're like, what you're doing is great. You just need to move your target from here upstream or downstream and plug it in someplace where there's a greater need. Yeah, and you know, marketplaces exist well where there's some degree of fragmentation where there's maybe access problems, trying to find, you know, willing, enable counterparties at sort of that point in time. There's maybe underutilized assets or maybe just the market is simply inefficient. There's so much complexity that you need and that's what B2B marketplaces do really well and business networks do really well in terms of simplifying that complexity And so, it's sort of finding that that sweet spot is super important. Some market, some supply chains work perfectly well, you know, traditional supply chains work perfectly well. And so, I would tend to advise the marketplace not to go in that direction and maybe focus on where's the fragmented part, where's the part of the market that has some inefficiencies and focus on that. Fragmented, meaning that the supply supply, the demand is not, well, you didn't have great access to supply, or there's many suppliers and many buyers, like what do you mean when you say fragmented? More the latter in terms of just finding the right suppliers, but also could be availability of production capacity and other things too, so it can be both. And would you Would you say that the historic hallmarks of where a marketplace might be useful would be, it's fragmented, there's pricey opacity or just opacity in general of cost structures and so forth. There's an antiquated nature to the industry. Do you still think those are good hallmarks for where you might want to see if there's an opportunity? Yeah. I think when there's a market that's just inefficient that is maybe supermanual, they're still conducting a lot of business over the phone or even email and so forth. I always liked competing with phone and email as a marketplace because I think generally that It can be more efficient in terms of structuring that if it's hard for the parties to find each other and even to find the right person at the other kind of party is also sort of a task too. So it's not just the seller, it's the right person at the seller, it's the right person at the buyer. And so having some automation or having some tools around that actually can help you find the right person to answer your question. It's you know, if you sell to a large, you know, Fortune 500 type company and you want to, you know, send invoices but you haven't get paid, it's not like you're reaching out to the company generally. No, you want to go specifically to, okay, who's the accounts payable person that's related to my, you know, my invoice that I know I can get paid on. And so it's solving those sort of problems. Many years ago, when I was reading maybe in 2010, really learning everything I get my hands on about marketplaces and the when you read why Marketplaces weren't successful They Neutrality is often in that discussion. I mean they didn't value How they had to be neutral Or it just it just was like in hindsight. They're like, yeah, I guess I guess that's important. Yeah, it gets to kind of the integrity of the platform, the trust issues. You know, sometimes you can maybe influence how, you know, companies are presented or various things that may, you know, steer business to maybe a less optimal way of just from a market perspective. And You know, I, when I, in my class, I talk about stakeholder management and understanding kind of all your stakeholders in your ecosystem. Well, I'm glad you brought that up about the class. It's sort of like the classes and the lectures that you do. Tell me about that. So your, your lecturing in Stanford, to whom are you lecturing? Yeah. So it's through the continuing studies program. So it's adult learners, people who are in industry sort of post, post -graduate school. Um, And it's a class I designed a few years ago, really, to help, you know, I talked about my Ariba experience, there's a ton of trial and error that we went through to try to figure out how to get, you know, the flywheel moving and build the business. And so I felt that there was a need in the market to help, you know, educate others who are on this journey. And if I can impart some of my learnings from things that, you know, things that worked well, that maybe, and also tell them about things that didn't work well, that could be helpful to the industry. Plus, intellectually, I just think it's a super interesting concept. So, I design the course and I teach it to that program. I also do guest lecture at the business school, St. Andrew's Graduate School of Business, on sort of my equivalent to my class for the business school students. I talk about some topics there with them as well. But the primary focus of my energy is on the adult learner side. So I get in, I get people who are entrepreneurs themselves, maybe they're in larger corporations and looking to build a marketplace business, maybe a head of strategy or something like that. - Within the business itself? - Yes, yes. Or also sometimes I'll get people just curious about the business model and want to learn more about it. - Until you get into building a marketplace. There's an inexhaustible amount of questions because from the outside looking in, I mean it certainly is when you're doing it as well by the way, but what are the questions that you keep hearing from students or the people who are adult learning? What are sort of the common questions about how'd you do it and how do I get started, what do we need to look forward? - Yeah, they follow the gamut. I'd say a good amount of them are on liquidity and just how to get the flywheel going, if you will. I get a lot of questions on that. I get a lot of questions on how to make money, how to generate money out of it, how to analyze the market, how to assess the opportunities. And we talked where the points are of, that may be more attractive for marketplace versus less attractive. Yeah, there's a variety of things. I mean, I think many things we talked about today, I can't think of there's any one area where I get a lot of questions per se, but I think that the things that people are most concerned about is kind of how do you get to that first sort of scale point? How do you assess the initial opportunities? communities, you know, early stage marketplace also looking to raise money to get capital. And so, you know, recommendations on how to, how to fundraise, how to plan the milestones for what you want to do as far as, you know, investing sort of smartly because you have limited resources. Yeah. And so there's a lot, you just said there, but in general, what's sort of the Rob checklist? If, if you were, checklist. If someone came to you and said, "Hey, I'm about to start this marketplace, can you come up with a 10 -point checklist of things that at least get me to the next 18, 20 months," what do a founder need to be thinking about before they take their first step? What's on that checklist? We covered a lot of them today, but I'd say the first thing is look or an attractive market, look for a good opportunity that's not served well. I mean, there could be other marketplaces in there. Not just because there's another business there, it doesn't mean someone can come in to solve that space better. But it's finding a good market where there's some good mutual interaction between both the buyers and the sellers that they need each other for one form or another. Then it's all about sort of picking, you know, the sort of sequence of how you, you know, that journey to product market fit and trying to kind of pick, you know, a small enough market to start with, just sort of, you know, and then designing a product that has a good plumbing that that supports sort of clean transactions and so forth. What about the capital? I mean, marketplaces take money. and in general, the profitability is not going to happen in the first year. In general, so how would you advise them on the money part? As far as getting investors, which you commented on moments ago, do you say, hey, go find your aunt and uncle and your cousin and kind of start there or are there good angel networks that they should be looking at or? - Yeah, so like for many startups, there's a sort of a sequence. Yeah, usually in the early phases, it's friend and family or some supporters who kind of buy into your vision. You don't have a product yet, so you're selling a vision. So it's getting people maybe know you, know your track record a bit. That's sort of the first phase. There's, then I see the next phase, there's people who or maybe have some familiarity with your industry and so, or familiar with marketplaces or familiarity with these types of businesses that will make early stage investments. Those are more called seed investments. And so there's a community of seed investors that I would look at sort of the next phase. And usually you can take those pretty far along until you're kind of, you know, hit product market fit. And then you start getting more of the institutional investors, you know, either venture capital or strategic investors or others to kind of help you get to sort of the later phases. Go blow it out. Yeah. Yeah. You know, you want to be measured about it, but I always tell founders, you know, give yourself some milestones and sort of, you know, raise money to those milestones. So it's very clear kind of what you're shooting towards? Yeah, I mean, there's huge danger in it. If you're going to start a business, you have to be so mindful of the cap table. And not for like, I'm not talking about like greed reasons, I'm talking about, you can make it not worth it pretty, pretty quickly if you're not paying attention to, you know, just don't go raise a ton of money just because you got some high valuation and devilish money. Now, you know, the concept of down rounds are very real. Yes, absolutely. Happens all the time. And most recently, because you know, at the top of the market was about 2022 and VCs were throwing money at huge valuations. And now you kind of got this wood chip or situation that's going on, which is great value for those who didn't do it because they can pick up those businesses is Or own some portion or an exaggerated portion of them because now the company needs money badly, but I don't know how What what are the I guess would you agree with that is what I would say is absolutely I think you need to scale your investment capital to you know, the size of your business and You can't over You can over get over invested and at some point things can sort of not you know It's a point where it's difficult to raise even you know more capital if you've kind of over -invested. So Yeah, I agree with your general premise that I think it's super important to kind of scale proportionally You know just the maturity your business and not be too aggressive on the investment capital Yeah, because if you can't sustain it, then you might run into problems at later stages. Yeah, you may likely run into problems later stages. So let me ask you, so you've got your lecture in Stanford, spec the strategy, what else are you doing right now and or parts of your journey that you think were informative of where you are now? Yeah, so in addition to my teaching and my consulting practice, I do angel investing as well. So some of the early stage businesses. Now, I started my career in finance, and so I sort of enjoy the financial planning part of things. And so I like working with early stage companies on that part of their journey as well. And it kind of complements my consulting practice. When I invest, I typically add value in terms of some strategic guidance in one form or another. So it's usually a bit of a package deal. And so those are, I think, sort of the, that's the other element to what I do. - And how is the start -up marketplace businesses as far as, are there a lot of marketplaces being started right now that you're seeing? - Yes, yeah. I mean, on the one hand, there are a lot of marketplaces out there and the model has been proven in a lot of spaces. And I think in some ways that's a good thing because I think more more people, and I might say people, just either consumers or businesses are getting comfortable with the marketplace model. So more and more companies are finding opportunities in verticals that didn't have a marketplace or they weren't well -served. And so I see marketplace activity in lots of different places, again, both consumer and business. So I still think it's a, I'm very optimistic about the industry at this point. And do you feel like the increase in either, do you feel that B2C is sort of, you know, that's been handled and that the major opportunities are more in the B2B supply chain, maybe the slightly more esoteric but highly valuable segments? Or do you feel like there's still a ton going on B2C that can be? I think there's both. I mean, I love B2B markets because just their inherent complexity just lends themselves really well to the model and there's, you know, I'm surprised why I find another category that doesn't have a marketplace or isn't well served that, you know, some organization has looked at. And so the B2B categories I think are going well And they often are category specific. I mean, occasionally I do find some companies on more of the infrastructure side, you know, supporting marketplaces, supporting business networks or BDB transactions kind of horizontally as Ariba did. But I think more of the action is in sort of vertical specific areas. But in consumer, plenty of opportunity, particularly in the services area, labor, you know, labor markets, you know, you know, marketplaces follow a lot of consumer trends, a lot of macro trends. And so, you know, people's interest in, you know, sustainability and health are driving, you know, new solutions that are coming out there. So I find opportunities in a lot of different spaces, both just because maybe they weren't well served, but also just because consumer trends are changing, and so marketplaces are forming to meet some of those needs. - And let me ask, in wrapping up here, which is Spectus strategy, how do people find you and find out if maybe what you're doing is good fit for them? Do you have a website? Do you have other things that they can look at? How do they get in your class at Stanford to do that. So how do they find you? Yeah, so probably the most direct way is through-- pay me LinkedIn. I do have a blog called the Marketplace Economy Blog. And that's kind of my voice, if you will, of some of the insights we talked about today or some of the blog articles are featured in there and some other insights I have about the industry. Those are probably the two most public ways that I talk about my business. OK. - Yeah, I think that's-- - It's fun to watch. - Yeah, I'm an enthusiastic observer, getting back to observing and looking at the industry. I'm just constantly amazed at the innovation that goes on. The history of marketplaces tracks very closely to the history of technology innovation. As technology trends have you know, computing technology, internet technology, mobility, e -commerce technologies, you know, Marketplace is drafted off of those and pushed, you know, those technologies forward and, you know, looking forward to some of the new technologies, obviously, you know, AI is a big driver of that, you know, new device platforms that are, you know, potentially coming out, I think The marketplace model is going to adapt to those new technologies, new computing environments, and I think there'll be marketplaces that have not even thought of today that are going to be the marketplace of the future, and that's what gets me excited about the industry. I think that's absolutely right, and AI being what it is, people are trying to figure out if it's friend or foe, but either way, it's here, and it's only going to get, I guess, better as time goes on, and the more time we put into understanding its capabilities, the more time we're put into seeing how we can benefit from it as a society and creating these great market places and whatever else may spin out of it. We're all aware of, perhaps, what perhaps, but the dangers might be, but there's a lot of great stuff, too. How do we harness that and make it work for us? Yeah, absolutely. I think one of the themes we talked about is just, you know, market places are complex. Businesses, they often generate a lot of data. That's a good environment for AI to be able to help solve many more complex problems that maybe the current technologies can solve today, but maybe AI can maybe perhaps either solve differently or solve better. And so I see a lot of interesting applications of AI with marketplaces, both in terms of just improving their operational capability and ability to scale, but also providing some unique capabilities, new the you know, maybe in the design area or improving matching and things like that. Like I'm finding they're getting into some of the core, you know, marketplace design elements we talked about earlier as well. So I think that's super exciting. It is exciting. And it's, I guess there's a reflex to, to sort of put one's head in the sand on that, because if you're building one, I don't want this here, but you absolutely do want it here because now you're able to do things that maybe you weren't able to do earlier. Yeah. It's like with any technology, you have to see whether it's right for what problems you're trying to solve. I think problems like as a marketplace operator, what are the things you're trying to do to serve your customers and is it going to help you do that? I wouldn't pursue it for its own sake. You can do some experimentation on the side just to even figure out what's possible because I think we're still figuring that out but as far as you know actually deploying it you know it's again it's just another tool another tool that at a marketplace offers disposal to serve their customers. I agree on all fronts I do but thank you for coming in today I really appreciate it and it's been a fun conversation and we'll stay in touch on it. Yeah, Shep, thank you for having me today. I really enjoy the conversation. Great, thank you.