Li Jin @ljin18 Consumer investing @a16z. Beijing born + Midwest bred. MBA dropout. Alum: Product @shopkick, stats & English lit @Harvard. Lifelong artist. Loves tech & corgis. Aug. 28, 2019 2 min read

As the low-hanging fruit of services marketplaces get picked off, the more challenging regulated industries are the ones that remain. These represent a huge opportunity for startups, but there's distinct challenges. I wrote about 8 factors to consider:  https://a16z.com/2019/08/28/where-the-opportunities-are-in-regulated-marketplaces-managed-marketplaces/ 

Occupational licensing is one of the fastest growing labor market institutions in the US. In the last 50 years, the share of jobs that require a license has grown 5x to over 25% of US workers.

Licensing laws--requiring a combination of education, training, exams, and fees to work in a profession--are intended to protect consumer health and safety by eliminating unqualified providers from the market.

But some licensing requirements can restrict job opportunities and entrepreneurship in areas that *don’t* pose a serious risk to consumers--think upholsterers, interior designers, florists, tour guides, etc.

In those cases, such regulations can result in higher prices and reduced access to various services. That creates built-in demand; if marketplaces are able to win the supply side, they can capture a ton of value.

By establishing trust and ensuring quality through other means--such as vetting suppliers and standardizing experience and prices--managed marketplaces can mitigate the need for (some) licensing.

Managed marketplaces can enable high-quality but unlicensed suppliers to offer services alongside licensed providers, alleviating supply constraints. But marketplace startups are hard to build, particularly when navigating the complexities of regulated industries.

So what can founders and operators do when it comes to navigating the complexities that come with the territory in regulated industries? Where are the opportunities?

Besides all of the traditional lenses through which we evaluate all marketplace businesses, I propose 8 factors to consider for categories that involve regulation that can help inform the best approach.

These factors include: (1) downside risk of unlicensed supply; (2) burden of licensure; (3) existing industry NPS; (4) opportunity to lower prices; (5) market size; (6) latent demand; (7) underutilized assets to unlock supply; and (8) tailwinds around regulatory reform.

Of course, this framework is just a beginning point to evaluate opportunities for regulated services marketplaces. In addition to the opportunities arising from state occupational licensing, there’s also other forms of regulation at the local and federal level.

I also outline a few services categories that we're particularly excited to see startups in: cottage foods, telemedicine, home services / skilled trades, and cosmetology. Would love to talk to any founder building marketplaces here!

Thank you to @kasselman, Dick Carpenter of @IJ, and @katiebiber for their thoughts and input.
And to the team at a16z esp. @andrewchen, @avesegal, @sarahdingwang, @ASalyers3, @smc90, and @laurenmurrow!


You can follow @ljin18.



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