This post is brought to you in part by this week’s Startup Edition question: How do you get a job in startups?
I am Not a Recruiter
I was playing ping pong with a friend recently when he tried to distract himself from the beating he was receiving…
Friend: I need to hire 15 people this quarter. Do you want to help?
Me: Of course not…I’m a dev, not a recruiter. Don’t be rude just because you’re losing.* 17 serving 3.
* Engineers typically despise recruiters.
But he got me thinking – companies are so hard up for senior dev talent, they’re paying recruiters an extra 20% – 25% of a new employee’s 1st year’s salary (e.g. for a $100k/year hire, they’re shelling out an extra $20k to $25k to the recruiter who found her).
Curiosity piqued, I wondered…what would it take to solve this problem? And how would I test it?
Except when I’m Testing
Recruiting is a classic 2-sided market. You’ve got candidates and employers – neither of which will talk to you if you don’t have buy-in from the other (e.g. Craigslist is useless w/o buyers and sellers, Groupon is useless w/o companies and consumers, etc.)
When I mentor startups in 2-sided markets, the question is always, “Which side do I test first?” To which I answer, “The harder one.”
In this case, finding great developers is harder than finding people who want to hire them, so…
Of course, that begs the question, “How do you test one side of the market, without the other on board?” In other words, how can I get great candidates (e.g. amazing devs who currently have jobs) to talk with me, if I’m not working with great companies they want to work for? The answer…
Forecasting
To crack the chicken & egg problem of 2-sided markets, we’re going to “forecast” to one side of the market that the other side is on board. Let me be clear, I make a big distinction between Forecasting, Predicting and outright Lying:
Forecasting = Statements made with > 90% certainty
Predicting = Statements made with < 90% certainty
Lying = Statements made with < 50% certainty
You can see what I mean with a screenshot from my MVP:
Predicting would have been including logos of friends’ companies on this page, without talking to them first. It’s likely they would have been on board, but since I wasn’t > 90% sure, I didn’t include them.
Lying would have been including logos of companies I had no relationships with.
The flier above is an example of forecasting. I haven’t nailed down everything 100%, but if the candidates come, I’m > 90% sure I can deliver what’s written.
MVP Time
Using Unbounce, I whipped up an MVP and posted it on Hacker News. 8 hours later, I had 200+ candidates:
Next I spent 3 weeks researching and interviewing each of the candidates to confirm these folks were high quality. Sounds tedious but I had a couple tricks up my sleeve:
- I used to be a hiring manager for a large software company – that made screening faster.
- It’s actually fun. Nothing better than 1-on-1 conversations with smart people who I can help take the next step on their path. It’s proving to be a privilege.
Within a month, I had validated problem market fit for the “hard” side of my 2-sided market.
Validating the “Less Hard” Side
Once I knew I had solid candidates, it was time to validate I had opportunities to place them in. Of course I had friends who were hiring, but I wanted to see if there was a more scalable way to make connections:
Since my customers are my friends, Facebook did the trick and got me 4 intros to recruiters – 3 of which wanted to collaborate (i.e. I would source candidates, they would source open positions, and we’d share referral fees).
As a meta-cruiter(?) I now have access to a couple dozen open positions.
Problem Market Fit isn’t Product Market Fit
At this point, I’ve validated Problem Market Fit for both sides of the market, but it remains to be seen whether or not I’ll successfully place folks. If I can do that with consistency, we’ll know we’ll have achieved Product Market Fit as well.
Want to know how this story ends? So do I. I’ll share the results as soon as they’re in. Subscribe via Email or RSS to get them, plus I’m really excited about our next post – Hacking the Google News API & Mechanical Turk to get press!
TL; DR
3 Steps to Testing a 2-sided market:
- Define the “hard” side (e.g. candidates) and the “less hard” side (e.g. employers)
- Validate buy-in from the “hard” side by forecasting buy-in from the “less hard” side
- Use validation from the “hard side” to validate the “less hard” side
Step 4. Profit.
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Hi Justin first of all thanks for the article, I think I see for the first time someone outlining specifically the “two-sided-market”, it’s usually not being mentioned, so that’s great; my question would be, which side do you think is the hardest side in a platform for food delivery for example, where you have the restaurants on the one hand that you want to win as customers and the actual customer who would order food through the website or let’s say on booking.com? I’m working on an idea currently so would be great to get some guidelines. Thanks in advance
Thanks for the question Attila!
Ask yourself, “If I had side A of the market ready to work with me, how hard would it be to get side B to join us?” and then switch it, “If I had side B ready to work with me, how hard would it be to get side A to join us?”
So in your case it would be something like, “If I had restaurants committed to working with me, how hard would it be to get customers to come to my site?” and “If I had customers coming to my site, how hard would it be to get restaurants committed to working with me?”
My gut is that if you’ve got customers coming to you site, it will be easy to get restaurants on board – on the other hand, just because you have restaurants committed to work with you, doesn’t mean customers will come to your site. I’d say getting the food eaters is the harder side of the market.
Hope that helps!
Justin
This was just what I needed to clarify the way I approach the two-sided market my next app will service.
I love this post! Do you think the majority of mobile health apps will have 2 sided markets as they work to help the industry make sense of patient data? We have to have a way to get the data (the app) and then a meaningful use of it to the enterprise, so is this a 2 sided market. If so, can the lean startup concepts be used in a straight forward way with this approach?
Justin you’re amazing as always. Bravo.
Cool post, looking forward to see the results.
Hi Justin, as always a great post and a smart Idea. the facebook-post was just a great laugh!! I’m excited to see where this goes and if you can – just trough curious testing – completely change people’s lives, having them move to SV ;)
Keep up the awesome work! Clemens
Thanks Clemens – I’m curious too! Been a little trickier than I thought to make this a high priority for everyone involved (a lot of herding cats) but hopefully we’ll connect a couple folks and help a couple folks out!
This is just amazing. I can not remember if I ever read anything on this blog that wasnt pure gold.
Thanks Michal – couldn’t have asked for a better endorsement :) That means a lot, really.
I love this post. Thanks for sharing Justin! So much to comment on, but I’ll try to stay focused until we can catch up in-person.
On the company side, a couple thoughts. 10% is way below what recruiting agencies typically charge. I see 20-30% on average. Assuming reasonable experience, lots of companies would be eager for leads at 10% per hire. 10% is actually what many companies give for internal employee referral programs (e.g. $10k to an employee who makes a referral that leads to a hire). If you can effectively bill at 10% while delivering good results, you’ll almost certainly have customers without needing to rely on middle-men and splitting revenue.
To find companies that are hiring, you could look at job boards, go to any tech meetup and announce that you have 200+ developers ready to go, and/or see what companies are sponsoring tech events.
On the flip side, it will be a pain in the butt to manage relationships with many different companies. Partnering with recruiting agencies is smart in that it allows you to scale up quickly since they have the infrastructure in place to deal with the work of sourcing and interfacing with hiring companies. And since the model is transactional, you only pay when you’re making money. Great way to expand your capabilities and speed of execution.
An interesting aspect of this partnership is that both sides likely have a goal of cutting the other side out, which doesn’t seem unlikely. I do think your business has the advantage over agencies since the model under which agencies interact with companies is fairly standard. Your business can focus on a building a unique brand and candidate experience that will be difficult for agencies to replicate any time soon.
Brilliant and fascinating. Can’t wait for the next post!
Hakon, I _always_ love comments from you.
Good call on the 10%, I’ve updated the article to reflect reality (and my price 25%). Re finding companies that are hiring, I think you’re right. I’m dying to build some sort of hack/scraper…but this is clearly a trust and relationship building game. With the Customer Dev Labs mentoring, it’s going to be hard to be in the Bay for long stretches at a time, so I may be best off sticking with recruiting partnerships.
Will keep you posted for sure. Like I said elsewhere, it’s been quite a bit of cat herding so far, but if I can get that process down maybe we’ll be on to something.
Thanks again for taking the time write!
Justin
This is awesome! Very nicely written piece that’s pretty darn smart. Just signed up for your blog to see how this’ll end :)
PS: I still remember watching your presentation at the Lean Startup Conference last year – you rocked it!
Wow, thanks Yazin! Excited to see the results myself – will keep you posted.