Originally appeared in Techcrunch
“The theme of L.A. is diversity.” That is what DoorDash’s Kevin Huang told me in our conversation about how expanding on-demand marketplaces into Los Angeles differs from other markets.
As an L.A.-based enterprise and marketplace investor, one of the most common questions I get from entrepreneurs is how to expand marketplaces into L.A. While this includes all the usual difficulties of marketplaces, like balancing supply and demand, finding the right pricing structure, and establishing liquidity, it also presents difficulties unique to L.A.
These are things like lots of traffic, not much parking, and the oh-so-many neighborhoods, each with their own unique personalities. After extensive interviews with general managers from the likes of Zeel, Luxe, Glamsquad, Homejoy, Washio and more, there are three hurdles that continued to resurface: supply and demand acquisition, rollout strategy and quality of workforce.
Outlined below are the key factors to success for each of these hurdles, including the proper marketing strategies, acquisition channels and pitfalls to avoid. These all tie back to Kevin’s original proclamation: The key to unlocking L.A. really is about leveraging its diversity. Paying attention to the diverse strengths and weaknesses the city has to offer across these three categories can determine the success or failure of your L.A. marketplace.
Supply and demand acquisition
The first step is consistent across all cities: Figure out the most effective way to acquire both supply and demand, then begin to do so. After all, a marketplace without supply and demand isn’t much of a marketplace.
Supply is rarely a shortage in L.A. It’s just a matter of accessing it.
Supply
Marketplaces need to start by populating local supply in order to avoid the empty room problem when the demand arrives. Having a quality foundation of supply ensures a quality experience for your initial customers and encourages them to come back.
Once that foundation is in place, carefully control the rate at which you allow the demand to access the platform. While there are many ways to populate supply, here are the few most common that have seen success in L.A.
Craigslist. A quick scan of Craigslist shows that nearly every marketplace is advertising on the site to recruit supply. L.A. marketplaces are no different, but given the high penetration of Craigslist here, the city’s desire for flexible work and the lower competition of marketplaces, it can actually be more effective here than in other markets.
Steal from existing marketplaces. In situations where Craigslist doesn’t work, like high-skill workforces or super competitive industries, you can supplement your Craigslist efforts by poaching from existing marketplaces. We’ve all seen this happening very publicly with Lyft and Uber, but it works on the small scale, too. It can be especially effective if you’re disrupting an industry that already has small networks or unions that exist.
Referrals. Once you have a foundation of supply, referrals are one of the strongest ways to grow it. If your workforce is happy, they’ll want to invite friends to join them. Encourage them to do this and even incentivize them with referral bonuses.
Hire a head recruiter with expertise in the field. Not every marketplace is in an industry with existing networks. For those that are, hiring a head recruiter from your world to manage your supply can be the quickest way to boost your supply-side growth.
When it comes to supply, L.A. has many advantages. The city’s population of nearly 4 million people is double that of the next largest market, Manhattan, which is just below 2 million. That alone is powerful when it comes to recruiting supply.
But adding the diversity of established industries here, the desire for flexible work, and the entrepreneurial lifestyle that many choose to pursue, supply is rarely a shortage in L.A. It’s just a matter of accessing it.
In L.A. particularly, you are forced to have a multi-city strategy even within just this one city given its diversity.
Demand
While recruiting supply, marketplaces should also be establishing brand awareness on the demand side in L.A. before they actually launch. This way, when they decide to turn on the faucet, the demand will immediately flow to supply. Some of the most effective ways to grow users in new markets like L.A. are digital marketing, supply-side promotion, deal sites, ambassadors, offline marketing and business development.
Digital marketing. Almost every marketplace will find that their initial bread and butter of demand acquisition comes from digital marketing, whether that’s search engine marketing (SEM), Facebook, Twitter, etc. This has been proven to work across sectors, with the main exception being companies that have a complicated value proposition. If your value can’t be explained in a few short words, digital marketing may not be the most effective channel of customer acquisition for you. Otherwise, it’s a strong place to start.
Supply side promotion. Your supply-side workforce can often actually be one of the biggest drivers of demand. Early on, Uber drivers were given a referral code and a commission on new riders they brought to the platform. This was great for a company like Uber where existing customers would often bring new potential customers into the car with them, and then the driver would convert them with a promo code. Win-win.
Deal sites. For companies like Homejoy (which closed last summer), deal sites like Groupon were an effective channel from which to acquire customers. This tends to be effective for lower-value purchases that drive repeat engagement like housecleaning. But be mindful that it won’t acquire your highest lifetime value customers.
Ambassador programs. Ambassador programs are an effective method of demand acquisition if done right. In order to succeed, you must identify key influencers in each new network you hope to infiltrate and incentivize them to perform. That could mean finding popular students, college athletes or influencers with large followings in different neighborhoods and incentivizing them to promote your product. Pay attention to the personality of each micro-region and the perspective of those in that community, then find influencers who can best promote the most relatable use case.
Offline marketing. L.A. offers a unique platform to test offline and out-of-home marketing. Given the temperate climate, marketplaces can experiment with year-round events and street teams. There are also existing channels for more traditional media buys like billboards, radio, and more given these have been core to the entertainment industry for years.
Business development. For those marketplaces where SEM isn’t very effective, business development partnerships and enterprise sales are often higher converting channels of acquisition. For companies like Luxe, business development is a significant portion of their business when compared to their one-off consumer use case given they can establish relationships with businesses that need parking in volume every day. Look for similar parallels and super user opportunities for your platform; it’s the closest to recurring revenue that a marketplace will see.
While there are many ways to approach demand acquisition, it is important to have the self-awareness to understand which channels are best for your platform. In L.A. particularly, you are forced to have a multi-city strategy even within just this one city given its diversity.
Beyond that, it is critical to find some level of virality since paid channels only scale linearly while organic and word of mouth can grow exponentially. You can reach a carrying capacity of demand with some of the tactics from above, but at scale, organic growth will propel you to the next level depending on the strength of your value proposition.
Rollout strategy
Now that you have the supply onboard and demand pent up, how do you actually launch? Your rollout strategy in L.A. is almost as essential as your value proposition itself given its unique size and distance.
Compared to the two other largest markets in the U.S. — San Francisco and Manhattan, which are just 47 and 34 square miles, respectively — L.A. spans a massive 503 square-mile sprawl. That can be intimidating, especially when you factor in the different characteristics of each neighborhood and the traffic between them.
After speaking to many marketplaces, it is clear that in order to overcome these factors, each marketplace has to approach their L.A. rollout slightly differently, plotting their specific strengths and weaknesses against those of L.A.’s. An effective rollout strategy for any marketplace here requires consideration for the two most unique components of the city: infrastructure and neighborhoods.
L.A. is a story of neighborhoods, and the sprawl makes it harder to match supply and demand across them all.
Infrastructure
The infrastructure in L.A. is an obvious hurdle to conquer when expanding here. Between traffic and parking alone, you’re already adding two highly complex variables to your already complex expansion. In order to conquer these, you should look for predictability and try to stay two steps ahead of the city’s map.
The answer to the traffic is obvious: allow more time to get between appointments. Glamsquad allowed an hour between each of a stylist’s meetings. While this can sometimes lead to deadweight loss of time when appointments are actually only 20 minutes apart, it still improves the consumer experience by ensuring their appointments always start on time. Long term, you can optimize this buffer to increase utilization rates, but to start, it is always best to err on the side of caution.
When it comes to parking, you’ll have to learn each neighborhood’s different rules as you go, so just be mindful of them when implementing your pricing and onboarding supply. If a stylist has to pay $14 for parking in Santa Monica, it may not make their hourly take-home rate worthwhile.
Make sure this is baked into what you pay your supply side or that you’re charging demand enough that you can comfortably cover the costs of inevitable costs like parking. One option to lower your costs of parking is through partnership deals with garages, lots or even companies like Luxe themselves.
Finally, while the lack of public transportation is a pain for most L.A. residents, it can be an advantage for your marketplace. Given the limited accessibility via public transit, most people here have a car, making it easy to throttle your supply closer to demand or have them fill missing gaps for you.
The best time to roll into new neighborhoods is when your live ones feel like well-oiled machines.
Neighborhoods
L.A. is a story of neighborhoods, and the sprawl makes it harder to match supply and demand across them all. You must be prepared to either conquer the entire city at once (which takes careful preparation and lead time) or tackle each neighborhood one-by-one (which takes longer to reach full coverage).
Take Homejoy, for example, which launched in L.A. all at once. It was able to overcome a mismatch between supply and demand in certain neighborhoods by throttling some of its supply to areas that had more demand. This can be done through financial incentives like neighborhood-based surge pricing or making messaging adjustments with your supply.
All of this is possible in L.A. because the supply is a more mobile workforce than in other markets. To use that mobility to your advantage, you can also look to pattern match the people of L.A.’s behavior. According to Luxe’s Hans Yang, L.A. residents tend to live in a bubble where they spend over 90 percent of their time near work and home, as opposed to broadly exploring the L.A. area. By finding the patterns between consumer location habits in L.A., Luxe has been able to leverage predictability of demand to find efficiency in supply.
In addition to Luxe, Doordash is another great example of a company that rolled out in Los Angeles neighborhood-by-neighborhood. This approach means a much denser area for supply and demand to operate in than if you open up all of L.A. at once. It allows you to focus on tightening up your processes in a small-scale, predictable environment before a larger rollout. It also gives you the ability to learn from the local infrastructure hurdles before expanding.
Doordash used this time to take multifaceted variables like travel time, complexity of order, vehicle type and more into consideration when optimizing its routing. Once a neighborhood is streamlined, you are able to expand into new neighborhoods faster than you initially would have.
The best time to roll into new neighborhoods is when your live ones feel like well-oiled machines and there is pent-up demand in new potential neighborhoods. Most marketplaces expand into contiguous neighborhoods, but you’ll also want to expand to places where the value you provide is most needed and the results are predictable.
For instance, the demographic of Santa Monica might be similar to that of San Francisco. So if your marketing and value proposition were well-received there, they may be well-received in Santa Monica but not in Hollywood or Downtown L.A. without changing the strategy. Adaptability and agility are essential to success in L.A.’s many neighborhoods.
Quality of workforce
The third pillar of marketplace expansion into Los Angeles is the quality of workforce. Due to the entertainment industry, there is a large population of people here looking for flexible work. For better or worse, it is a part of the lifestyle here in L.A. and part-time work goes a long way for many in this city.
This alone is a massive differentiator when it comes to populating the supply side of your marketplace. Combine it with a lower cost of living, the larger population, and fewer marketplaces to compete against and you have a ripe workforce waiting to be onboarded.
While expanding to L.A. can be a daunting task, it’s less daunting when you establish a play-by-play approach that accounts for supply and demand acquisition, rollout strategy and quality of workforce.
Beyond the population of supply, their level of happiness tends to be higher, as well. This ties back into the fact that their earnings go further in L.A., but also that they tend to live closer to their work in L.A. and can pursue multiple interests. Unlike a market like New York — where the majority of the demand is in Manhattan but the majority of the supply lives outside of Manhattan — L.A. has supply living closer to their work and thus improves their overall quality of life.
Lyft learned that another main contributor toward work quality was automating their training. There’s nothing worse than onboarding a new driver in El Segundo and asking them to come to Hollywood for training, so Lyft figured out how to automate its onboarding process through videos and local driver mentors. Airbnb’s approach to onboarding hosts is similar, and others have realized that the largest lever of quality control is the efficiency and effectiveness of your recruiting and onboarding.
Conclusion
While expanding to Los Angeles can be a daunting task, it’s less daunting when you establish a play-by-play approach that accounts for supply-and-demand acquisition, rollout strategy, and quality of workforce. The cost of living here is cheaper, and the workforce is higher quality in many ways; the population is larger, and it’s looking for flexible part-time work; and the diverse neighborhoods afford you with more marketing opportunities.
These are the hurdles you’ll have to face, but once you clear them, many of the other opportunities in the City of Angels can make it one of your top markets.
Special thanks to Abby Listo, Anand Iyer, Anton Zietsman, Hans Yang, Kevin Huang, Laurent Grill, and Nick Greenfield for their help and support in writing this piece.
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