The Matrix Economy

Last night, I had two calls back to back: a call with a venture backed founder building an online marketplace, who I have been supporting over the past few months; and a call with my Spanish tutor, who has been supporting me over the past year.

On the first call, I was the expert and was charging a fee for my time (in this case in equity). On the second, I was the student, paying the other person for his time and expertise (and, his infinite patience with my slow learning).

In both cases, the transaction was part of a side hustle, and not the expert's main job. I can't speak for my tutor, but for me sharing insights with the founder is interesting work. It challenges me and helps me learn.

I think we all have an intuition that there are many skills we could either teach or learn if we matched with another person. These relationships can be commercial, but they are also so much more - mentorship and connection provide meaning and purpose.

What's interesting to me is that I found both of these relationships through informal personal recommendations. Think of how many such relationships never get started because there is too much friction.

I see at least three sources of significant friction that limit the reach of these valuable relationships. First, the initiation step of the expert - the decision to put one's self out there in the world as an expert in something worth paying for. And, to define that something, "Spanish" or "Leading a Startup", in an legible way. To clearly present the expertise to the world, and name a price for it.

This barrier includes the ickiness some of us feel that we shouldn't charge others for our time and expertise. Certainly, some times we are the 'expert' in a non-commercial relationship - helping a sibling, friend or neighbor with career or personal advice. It's taxing to decide when and how to charge for something you already provide free to others, even if they are personal relationships. Social norms and inertia weigh against taking the first step.

Second, the market needs a good way to find suitable matches between learners and experts. A trusted forum for exchange, navigation tools, personalization, ratings systems, feedback mechanisms - all the ancillary support that helps traditional markets (think groceries in a market or stocks on an exchange) operate.

Third, payment mechanics. How the payment actually moves from one party to the other, in a way both sides feel they have been fairly delt with. For my tutor, I use Zelle to pay directly. I prepay for ten sessions. I don't know if I have a 'good' deal or not, but the hourly rate feels fair me and there aren't wide parameters if we are off (e.g. you could guess within 25% what the rate is. The range of potential fees for tutoring are not likely to be 10x whatever you think it is). For the startup, there is a wide dispersion in fees (.1% to 1% of a company, for example) and complicated mechanics (vesting schedule, confidentiality, non-compete, etc.)

I don't know the overall impact of these frictions, but I think it is a reasonable guess that the existing market is less than 1% what it could be. Think of all the potential ways you could aid others with your expertise, or benefit from the right person at the right time.

I'm not the first person to make these observations - a long list of startups have built online marketplaces to connect individuals for services (Fiverr, Thumbtack, UrbanSitter - Italki and Verbling specifically for language tutoring). Dan Hockenmaier has two excellent essays on this topic: here and here.I love Dan's framework.

My addition is to suggest there is a long tail of potential service providers that don't yet know they are potential service providers. Just as Airbnb opened up supply from homeowners who never before considered listing a house for short term rental, how could a targeted marketplace nurture and support a long tail of potential experts to enter the market for the first time?