Marketplace business models now fuel many of the largest tech companies. I’ve written about frameworks on how to analyze consumer-facing marketplaces from Amazon to Uber. However, one type of marketplace that is seeing an increase in startup activity is the category of B2B Labor Marketplaces. There has been some discussion recently on why labor marketplaces are compelling, and I want to provide an example of how to identify and analyze specific labor marketplace verticals.
Jobs expected to grow the most by 2026
Why now?
With improvements in technology over the past decade coupled with a more tech-savvy generation across specialized industries from healthcare to financials and data science, managed marketplaces can facilitate more complex services that may require more regulation and vetting. Let’s take the nursing vertical - which has recently seen fundings for labor marketplaces including Incredible Health, Trusted, Medely, CareRev, Nomad and DirectShifts, funded out of the most recent YC class.
How can we identify whether or not nursing is a labor marketplace vertical to spend time in?
1. Market - how big is the market opportunity?
Nursing marketplaces live in one of the biggest market opportunities. In 2018, $3.65 trillion was spent on healthcare in the U.S. alone, averaging $11,212 a person. Even though some labor marketplaces can solve a major pain point for a job vertical, that market needs to be large enough to justify its growth as a venture-backable company. According to the Bureau of Labor Statistics, nurse anesthetist, midwife and nurse practitioner jobs are expected to grow by 26% and registered nurse jobs by 12% over the 2018-2028 period, much faster than average (average growth is 5%).
Furthermore, you should understand market dynamics. Is the market segmented? Is it comprised of mostly permanent or temporary or gig workers? In the nursing market, with increasing pressure on supply over the past few years, temporary nurse usage has increased, resulting in some hospitals adopting a mixed permanent and temporary nurse employment model.
This analysis leads to a bigger question: frequency of use. In an ideal world, workers use a labor marketplace multiple times. In the nursing landscape, we’ve recently seen nurses exiting the workforce much faster than they are entering - the BLS also predicts a labor shortage of 1 million nurses by 2024 (for context, the BLS only predicts a shortage of 300,000 software engineers by 2024). Such a phenomenon increases the likelihood that such a nursing marketplace would be used more than once.
Understanding market dynamics are critical - with a future supply constraint, marketplaces in the space will need to think strategically about how to balance supply and demand across different types of nursing jobs.
2. Value Proposition - how much value does the platform provide to the workers and companies?
If you’re a temporary nurse looking for a staffing position at nights in a limited geographic area, it is not only hard for you to find a hospital hiring on LinkedIn but it’s also hard for hospitals to find qualified nurses to perfectly fill out their staffing schedule. Nursing labor marketplaces can increase hiring rates dramatically - up from 0.2% hiring chances on third party job boards up to 5%.
If you’re a hospital, it’s a time-consuming and costly process to recruit a nurse with the right credentials at the time you need that employee most. The national average for hospitals to hire nurses is 90 days, whereas many platforms like Incredible or Trusted have reduced this to 30 days or less.
More broadly, how significantly does the platform facilitate the job matching - is it a hiring agency or software company facilitating job matching? In the nursing case, a more managed marketplace provides more value to both sides,- making it easier for both sides to find each other. Some of the nursing marketplaces that have been most successful have taken a more managed approach to vet nurse qualifications, and facilitate a W2 or 1099 for nurse hiring.
A few other questions to ask - can the marketplace ROI be quantified concretely in terms of time and money for both sides of the platform? Does it hire workers via 1099 or W2? Is the marketplace transient or sticky? (this gets back to the frequency of use question mentioned above.)
3. Network Effects
Unsurprisingly, as more nurses join the platform, the more valuable the platform becomes for healthcare providers, and vice versa. As more workers and companies join the marketplace, does it become more valuable? Look for fast MoM organic growth and traction on both the supply and demand sides.
Other Verticals for Labor Marketplaces
You could easily apply this framework to other labor marketplaces - take RigUp, an on-demand network for oil and gas jobs, recently posting a massive $300 million in funding. RigUp is operating in a giant market (2-3% of global economy), providing a value prop of aggregating a largely fragmented and offline job search and becoming more valuable both to oil and gas companies and contractors as they increase in scale on both sides.
Local businesses and restaurant franchises looking for hourly or part-time workers to fill shifts from dishwashers to warehouse staffers and delivery drivers is another vertical I’m excited about. The blue collar worker market is massive and companies such as Wonolo and Instawork are providing platforms with real value-adds to facilitate these relationships, as is Pared, which is focused specifically on restaurant and hospitality staffing. Labor marketplaces matching industrial workers to temporary jobs in the warehouse and manufacturing space like WorkStep are also another $34B category on the rise.
Of course, another good reference is my marketplace checklist. There’s still a lot of room for labor marketplaces to develop across verticals, and other factors to consider from business financial margins to frequency of use, but this is a good place to start.
For reference, here are the previous articles in my Marketplace Checklist series:
