When the market surges like it did in the past decade, new ideas and models are explored. When the surge ends, some ideas stay while others go away. This happened with the “the future of work.” New ideas like remote work, AI-replacing-workers, managed labor marketplaces, global employee-of-record (EOR) platforms, and more were looked at.
Once the easy-money period ended in 2022, one of the ideas that stuck is managed labor marketplaces. These are companies that bring together global talent sourcing, SaaS, and enterprise sales to grow quickly and deliver high margins. There are a lot of opportunities to start these kinds of companies in different fields like design, marketing, coding, security, training and more.
Curious to hear what you think, after reading the post. Let me know if there is anyone I should be meeting.
How did we get here?
Companies traditionally hire full-time employees. But now, they want to be able to change their teams easily. One way to do this is with outsourcing, but this usually involves long-term fixed contracts.
Another way is to hire freelancers through platforms like Upwork or Fiverr, but these don’t have all the features that big companies need, like project management and being accountable for final deliverables.
A third way that has appeared is managed labor marketplaces. A new generation of these labor marketplaces grew well during the pandemic with a SaaS component, including the likes of Deel, Jobsandtalent, Karat, Miro, Toptal, Turing and Wonolo.
The Managed Labor Marketplace model
Managed labor marketplaces are vertical-focused, mid-stack business models that are focussed on improving the overall experience for both supply-side talent and enterprise customers. They’re hyper-focused on “everything for one category” vs “something for all categories”. They operate in areas like interview-as-a-service, content-production-as-a-service, translation-as-a-service, analytics-as-a-service, coding-as-a-service and mental health counseling-as-a-service.
They take a big project management load off of the shoulders of enterprises. As a result, they can capture higher take rates and have a more sticky customer base compared to discovery marketplaces. They aggregate high quality, expert talent through careful vetting and upskilling as well as providing productivity tools. They acquire demand like SaaS companies do, sometimes direct, sometimes self-serve.
Customers get software for visibility into their deliverables, project management and collaboration. In the middle is a giant engine, programmatically matching supply and demand.
Keys to Success
To be successful, managed labor marketplaces should:
- Identify current low-NPS experiences and offer better solutions. Don’t try to win based on lower prices.
- Use AI, SaaS and productized workflows, to help both buyers and sellers. This could mean offering a full SaaS product. Make AI your friend, not your enemy.
- Automate, automate, automate. Ops-heavy models are tough to manage and have tougher economics.
- Help larger enterprises with a variety of needs, to drive repeat demand.
- Find and offer highly skilled workers, which will make the marketplace stand out.
A note on India
India is a good source of talent for these managed labor marketplaces. India has a potential talent advantage with its large workforce – 149 million out of its 1.4 billion population are in the 18-24 age group, making it the world’s largest youth population. Add to this the fact that English proficiency in India is one of the highest outside the US.
For India, supply has also been built by IT services (TCS, Infosys) and BPOs (Genpact, Ugam). The top five IT services companies from India employ 1.1 million people. They have a combined market cap of around $350 billion, with a revenue of about ~$60 billion and ~$15 billion in EBITDA.
There are also large agencies in areas like advertising (DDB Mudra Group), translation (Tridindia), Staffing (Quess, Teamlease) and animation (Prime Focus). Many of the freelancers on the earlier generation of discovery marketplaces (Fiverr, Upwork) are based in India.
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Lightspeed is an investor in marketplaces and SaaS companies across the globe. In India, some of our related investments include Pepper Content, Scrut Automation and Zetwerk.
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