Marketplace Building Spotlight: Whatnot’s Grant LaFontaine

If you read our inaugural marketplace series post, the Marketplace Building Playbook, then you know how much we admire Whatnot and its livestream shopping platform. Described by co-founder and CEO Grant LaFontaine as “eBay meets Twitch,” Whatnot’s approach perfectly exemplifies one of the core themes shaping the next wave of marketplaces—bringing individual curators and devoted consumers together without relying on broad-based search. As the largest livestream shopping platform in the U.S., the company is a driving force in this dynamic and growing space.

I recently had a chance to catch up with Grant about Whatnot’s explosive growth, the evolution of online marketplaces, and even why Funko pops were crucial to the company’s early success. From demystifying the “tipping scale of demand” to nailing the product features that will keep people interacting and transacting on the platform, our conversation shows how marketplaces are driving profound changes in consumer behavior, and offers a fascinating behind-the-scenes look at one of the world’s fastest-growing commerce platforms.

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Unveiling Whatnot’s Journey to Success

Jonathan Golden: Grant, for those who may not be familiar with Whatnot’s story, what inspired you and your co-founder, Logan Head, to start this company?

Grant Lafontaine: In the early days, we just wanted to build something. Both of us had founded other companies in the past and had just come out of roles at bigger, more established companies. We both wanted to get back into building something because it’s really what we’re most passionate about. I think the most fun thing you can do is create something, bring it to the world and have people hopefully enjoy it.

We had no idea what we were going to do when we started Whatnot. We basically just picked a rough area that we would focus on and agreed on a set of principles about how we were going to run the company. First, we were going to be incredibly user-centric, and not vision-driven. If you have this grand vision of how the world is going to look, and consumers don't like it, it doesn't matter how grand your vision is, it's not going to work. Second, we were going to move really, really fast. One of the beauties of building a software-based business is that the cost of screwing up is relatively low. And then third, we were going to take big swings. You don’t build a billion-dollar business through incrementality–you have to do things very, very differently.

Both of our backgrounds were in either marketplaces or two-sided platforms. So we focused on what we knew. We actually started with a really bad idea—building a full-service Craigslist. I started calling up delivery companies, trying to see if we could make money. Within two weeks, we decided that we couldn't make any money. That’s when Whatnot started to take shape, and a couple of months later we joined Y Combinator’s Winter 2020 batch.

JG: And that’s when you really started to focus on collectibles. How did you land on collectibles as a focus for Whatnot?

GL: Since I was about seven years old, I've bought and resold collectibles online. Back in the day, my primary platform was Yahoo auctions, and that was still before payment processing online. I still remember when I sold my first card, it was a holographic Chansey card and I got a $10 check in the mail. That was around the time eBay launched, which has of course been the dominant force in online collectible retail for well over two decades.

JG: A lot of people bought Beanie Babies, if I remember correctly.

GL: Exactly. The first item ever sold on eBay was actually a broken laser pointer, purchased by a broken laser pointer collector. But Beanie Babies were their first kind of breakaway category. I think they were even called out in eBay’s S1 filing because at the time of IPO Beanie Babies were something like 10% of all eBay sales.

eBay is a great platform if you're trying to find one of one unique items because it’s aggregating all of these sellers across so many places. But as buyers and resellers of collectibles, we weren't particularly happy with the solutions out there. And while eBay is an amazing company, it maybe hasn't transformed that much over the past 20 years, even though technology has made leaps and bounds during that time.

As we were getting started, we saw a lot of people our age getting back into collectibles because they now had disposable income—people who grew up using iPhones and shopping online. With this new generation of collectors entering the market, we saw an opportunity to build a platform just for them. We wanted to focus on the social side of commerce, because we felt like a lot of the platforms today just weren't that fun. And when you think about collecting, it’s not just about buying the object—it’s a way to connect with people who share your interest.

JG: I was at the YC demo day when you presented. The demo was all about Funko Pops, is that right?

GL: For the entire first year of the business we were just Funko Pops. All we did was work on and sell Funko Pops. We weren't the most appealing company in those days.

JG: But you had such a core niche and you really built out a community and liquidity around that, which is super important.

GL: We were glad we did it, but you know, it's hard to tell your parents you quit your good job and are now selling vinyl dolls.

JG: I hear you! What are some lessons learned from those early days, particularly around getting to product market fit or liquidity?

GL: One, if you're starting a marketplace, you really want to start it as narrowly as possible with a view to how you can expand. Starting with a niche constrains the problem—you do not have enough resources to solve for a million things when you're starting a new business, and you are likely competing against bigger players that have vast resources. But one of the things they can't do is get very narrow, because they can't justify it in the business. So you can carve out a niche by providing exceptional value for a small group of people.

There is nothing magical about this framework, but you have to know what that user value is, how to make it bigger, and how you can make money from it. You may not get it right initially, and you will have to iterate on it over time, but you’ll never make it without keeping all three of those things constantly in view.

Second, I think the principles we set up at the outset—listen to your users, move very fast and take big swings—were the right set of principles and are broadly applicable to any early-stage company. When we started with Funko Pops we hadn't built the live component of the business yet—that actually came later as a result of staying really, really close to our users. We were seeing them attend live auctions on other platforms that were all hacked together, people were bidding in the comments, and it was so incredibly fun. There was just this visceral feeling of seeing this amazing experience taking shape and knowing we could 5x or 10x it. We’d never built anything around live video before, but my co-founder ended up locking himself in his room for about five weeks and came out with the v.0 of our live stream shopping product.

And you know, that's the thing that changed the course of our business. During our first six months or so we were focused on our asynchronous product, which looked a lot like eBay with a few social features and a focus on safety. We got to around $50,000 in monthly sales, but it wasn’t until we launched our live stream shopping product that we started to grow 100% month over month.

JG: Was live streaming initially just Funko Pops as well? So you stayed narrow from a category perspective?

GL: Yeah. It’s hard when you're starting something completely new. You have so many disadvantages relative to any big players. At that point we had just four people working full-time on Whatnot. The only way we were ever going to grow as a company was to create something great for someone, because you can’t create something good for everyone when you only have four people. You just can’t build that much stuff. There was so much that went into making our first version of live shopping work. Sellers would send us spreadsheets over email and we’d be entering products and pricing manually during the live shows. Payouts were manual. When it’s so hard to get one thing to work, it forces you to ignore all the less important peripheral bits. And if you've truly built something great, you’ll be able to get by despite those smaller points of friction.

JG: And was the supply base really gravitating towards that? Or did you find ways to incentivize users to do live shopping instead of asynchronous?

GL: We had already built a significant base of Funko Pops buyers and sellers by the time we launched live shopping. I was the first person to go live, and I sold $5,000 worth of Funko Pops in just a few hours—most of them way above market price. Any seller who saw that was like, I don’t know what that is, but I want it. We on-boarded sellers slowly over time and made sure the experience was really great for them. We started with one live auction a day, then two live auctions a day, then three, and soon sellers could schedule auctions whenever they wanted. At first it was just Funko Pops, but then we started adding other categories and proved that we could add more supply without hurting demand.

JG: For marketplaces to work, you need to hit this minimum viable product for both the supply and the demand side. For Uber it was the lead time of a car and when it would show up. For Airbnb it was more around how many listings you'd see in a geography that you considered viable. Was there a set of viability criteria for you, some kind of magic number, whether it be number of auctions or number of participants in an auction that really catalyzed activity?

GL: We haven’t whittled it down to a specific metric like those companies have, because our platform is more experiential than a pure efficiency play. But broadly what we’ve seen is that if you have the right supply and can deliver the right experience, people will love it and keep coming back. And as we add more and more sellers in a category, that levers things up and just dramatically improves the experience.

JG: How did you think about category expansion as well as geographic expansion? Were signals coming from your own platform or the broader collectible communities?

GL: Our initial category expansion was 100% driven by what our users wanted. There was a huge resurgence of Pokémon and it became one of the hottest collectibles on the market. Everyone who was into Funko Pops was also getting back into Pokémon cards, so people were asking for it. We could look at the online sales data and see how much Pokémon prices were catapulting. And we could see a broader theme in pop culture where collectibles of all kinds were really trending.

Fast forward to today and we're selling collectibles, fashion, electronics, home and garden stuff, food and drink—it’s a huge spectrum, but we’re still looking at the same criteria. What do people want? How big is the market? And where can we provide value?

JG: You can think about expansion on several different vectors. One way is to say, hey, look, we're a collectibles marketplace where you can transact in a variety of different ways; live shopping is the dominant format, but you can interact in other ways too, both synchronous and asynchronous. Another way to look at it could be, hey, we're a platform for live shopping across not just collectibles but any and every category out there. Have you come to some hard conclusions around which tack to take? I know a lot of companies debate this for many, many years.

GL: It’s definitely something you can debate for a long time and there's only a correct answer in retrospect. The stance that we've generally taken is, we'll let our customers lead us. If we listen to our customers and build something great for them, we’ll create value over the long term and know how to grow.

From very early on, people were asking us to expand into their countries. We're now in the U.S., Canada, France, and the U.K., and we've seen pretty tremendous growth in all of those places, which indicates that people are getting a lot of value out of it. People have wanted to sell asynchronously in addition to live, so we do both. Of course, you can only do so many things well and it’s really hard to figure out where to draw the line. But what I've observed is that most companies tend to be overly risk averse and not aggressive enough. It’s impossible to know where that theoretical line is unless you push up against it. Our approach has been to do as much as we can while paying really close attention to whether the wheels might be about to fall off the bus. And when we reach that point, we slow down a little bit, we tighten up the wheels, and we refocus.

JG: Makes sense. There's a perennial question in marketplaces, which is whether the demand side or the supply side is more important—the whole chicken and egg debate. I’m curious to get your take.

GL: I don't have a dogmatic view on this, so I’ll just tell you what it's been for us. Whatnot is predominantly supply driven today and has always been so. I think that is generally how things work out in the early days—you kind of get it going through supply, probably because it's easier to hack the supply side initially—and then over time marketplaces typically shift to become more demand driven. That said, I think one of the biggest logical errors that I see people making at our company and other places is to think about things as “either/or” instead of “and.” Whatnot would not be where it is today if we didn’t focus on the demand side and the supply side—you can’t separate the two.

JG: And what about monetization? How did you start to monetize in the early days, and has your approach changed as the business has grown?

GL: The beauty of marketplaces is that the model is really clear. Most marketplaces take a percentage of sales, which made that part easy from day one. We’ve had the same base take rate since the beginning, but there are some nuances. The magic of live is that it can move product. There is also a star dynamic, in that your biggest sellers are much bigger than your next biggest sellers. When you layer that star dynamic with that ability to move product, it’s a force multiplier. So for a huge seller doing massive volume, we'll sit down and talk about what the fee structure should be. And then when we enter a new category we typically get more favorable fees because we haven’t built liquidity or value for the sellers there in the same way. But the base has stayed the same.

JG: What have been some of the scaling challenges along the way for you and the team and, and how have you overcome them?

GL: So just to put it in context, Whatnot today is more than 400 full-time people with 80-90 different product categories. In January 2021, we were probably 25 full time people selling in three or four categories. What we’re great at is building good product faster than anyone. But that comes with a cost, and the cost was our infrastructure was in terrible shape. When you get to around 50 people, you kind of have to start operating like a real company. Communication breaks down, systems break down and you have to bring in people to make the business run more effectively. We were lucky enough to bring in a great head of engineering who helped clean that up in a couple of months, and it’s an area we’re still investing in heavily.

JG: Have you found that people who have worked in marketplaces before are a really good fit for Whatnot, or are people who have worked at all different types of consumer internet companies a good fit? Or are there other types of experiences or skill sets that have helped you reach the next phase of growth?

GL: I hugely devalue previous experience, and hugely value the slope of a person, which really refers to an individual’s raw desire coupled with problem solving ability. A lot of experiences just don’t readily apply in a different context, and we’ve seen that when people take a playbook from a previous company and try to apply it here, it just doesn’t work. Across most of the team, our approach is just to find the highest potential people and teach them what we’ve learned. For executive team hires we do look for consumer internet or marketplace experience, but we have to be very, very careful because the growth model of Whatnot is not like the growth model of any marketplace in prior decades.

JG: One thing I wanted to touch on is AI. How are you thinking about leveraging it in the product, especially related to user experience or facilitating better interactions between buyers and sellers?

GL: So I know AI is all the hype, and for me that means a level of caution. We are building a small team to start testing some interesting use cases like large language models, but we’re definitely not all in on it. The areas where we’ve used it most so far are around edge velocity, helping debug code, speed up workflow and allow people to program better. Trust and safety is probably where I'm actually most bullish on AI because it effectively allows us to have a very large army of moderators who are always on.

JG: What do you think the future of marketplaces looks like, and how do you think live shopping could play a role in that?

GL: I tend to have a pretty blinders-on view of the world because I'm very focused on Whatnot, but it's abundantly clear to me that social and video commerce is going to have a huge wave in marketplaces. You can just create a much richer, more engaging shopping and buying experience. There have definitely been a lot of pundits talking about how big live shopping can be in the United States and putting numbers out there. I think it’s hard to say, but I do think it’ll be ubiquitous in the next five to 10 years.

JG: Do you have any concerns that some of the larger social platforms could decide to move from an advertising model into more of a marketplace model? Or do you think that they're uniquely distinct, and therefore there will always be opportunities for new entrants with this type of business model?

GL: Whatnot is a very large business, and we've been able to build it despite heavy investments from a lot of very large players. I believe that consumer behaviors in our geographies of focus enable us to create a platform that is single use, and we can build a great experience around it. I also think there’s room for many players in this market.

JG: Looking ahead, what are you most excited about as you continue to build Whatnot?

GL: I'm excited to continue to build the product out. We are working on async and live and making the shopping experience more fun. We’re launching a lot more categories right now, like electronics, and I'm excited to see how big we can make that. And we’re launching new countries. I think the reason I started Whatnot is because I like to build things, bring them to the world and see how people respond. I think that's the most enjoyable thing I could do for work, so I'm excited to just keep doing that.