When developing a product or platform that acts as an intermediary between two parties—such as connecting service providers and end consumers—startup founders can easily fall into a conflict of interest trap. Whether it’s a marketplace, a platform for services, or a two-sided solution, balancing the needs and incentives of both parties is a delicate act. Without careful planning, these conflicts can hinder growth, alienate users, or even lead to the failure of the entire business model.
In this article, we’ll dive into why these conflicts arise, how to spot them, and strategies to realign interests through smart business model changes.
Understanding the Conflict of Interest in Intermediary Products
Intermediary products serve as a bridge between two groups—service providers and end users. The problem arises when the goals or interests of these groups don’t naturally align, creating friction within the platform.
For example, imagine you’re building a platform to simplify the visa application process by connecting applicants with immigration lawyers. On one side, you have lawyers who may charge by the hour or per service, focusing on maximizing billable time and fees. On the other side, visa applicants want the process to be as affordable and quick as possible. In this scenario, the lawyer’s business model could conflict with the applicant’s needs, creating tension in the service you’re offering.
This conflict of interest is common across many platforms and marketplaces where two distinct parties interact. A few well-known examples include:
• Ride-sharing apps: Drivers want higher fares, while riders want cheaper rides.
• E-commerce platforms: Sellers may want to increase prices, but consumers seek discounts.
• Freelance job platforms: Freelancers aim to charge more, while employers want to minimize costs.
In each case, the platform’s job is to find a balance that satisfies both parties without letting either feel neglected or exploited.
Why Conflict of Interest Can Be a Major Problem
If left unchecked, conflicts of interest within your platform can lead to several key problems:
1. Decreased User Satisfaction: If one party consistently feels that their needs are not being met, they may stop using the platform altogether. For example, if your visa service only caters to the lawyers’ interests (e.g., prioritizing high fees), applicants may find the process too expensive and look for alternative solutions.
2. Loss of Trust: Users need to trust that the platform is fair to all parties involved. If visa applicants or service providers feel like the platform is tilted in favor of one group, they may lose trust in the entire service.
3. Imbalanced Growth: If one side of your platform grows while the other stagnates, your business model can become unsustainable. For instance, attracting many visa applicants without having enough lawyers to serve them (or vice versa) could cause your platform to collapse under unmet demand or undersupply.
4. Revenue Constraints: Platforms with unresolved conflicts of interest may struggle to find sustainable revenue models. Focusing too much on either the consumer or the provider can limit your platform’s revenue potential, as your business depends on both sides thriving.
How to Identify a Conflict of Interest
The first step to solving a problem is recognizing it. Here are some tell-tale signs that your platform may be suffering from a conflict of interest:
1. Disproportionate Complaints from One Side: Are you receiving more complaints from one group than the other? If visa applicants are constantly complaining about high fees while lawyers are content, it could indicate an imbalance.
2. Drop-Off Rates: Look at your churn rates. Are service providers or customers leaving the platform at an unusually high rate? For example, if many visa applicants sign up but fail to complete the process, that’s a warning sign.
3. Revenue Growth in Only One Area: If your revenue is growing from only one group (e.g., you make money from service providers but struggle to monetize end users), this may indicate that one side of the market isn’t benefiting as much from your platform.
4. Customer Reviews and Feedback: Regularly review feedback from both sides. If one group feels underserved or taken advantage of, you’ll likely see it reflected in reviews.
How to Realign Interests and Eliminate Conflict
Fortunately, there are ways to realign the interests of all parties and create a win-win situation. Here are a few strategies to consider:
1. Reevaluate Your Business Model
One of the most effective ways to resolve conflicts of interest is to adjust your business model to better align with the needs of both parties. For example:
• Flat Fees vs. Hourly Rates: In the visa service example, shifting from a billable-hour model to a fixed-fee structure could align the interests of lawyers and applicants. Lawyers are incentivized to complete tasks efficiently, while applicants know exactly what they will pay without fear of escalating costs.
• Tiered Pricing: Offer different tiers of service that cater to both cost-conscious users and those willing to pay a premium for faster or more personalized service. This allows you to serve a broader audience without alienating one group.
2. Create Transparent Policies
Transparency can help reduce friction between service providers and users. Make sure your platform has clear policies that both sides agree to. For example:
• Fee Transparency: Clearly outline how fees are charged and why. Visa applicants should understand why certain legal services cost more, and lawyers should be informed of any platform fees upfront.
• Performance Metrics: Implement performance metrics that hold both sides accountable. For instance, track lawyer responsiveness or visa processing time and make this data available to visa applicants.
3. Develop Incentives That Align Interests
Another powerful approach is to incentivize behaviors that benefit both parties. Consider these examples:
• Incentivize Speed: Offer bonuses to lawyers for completing visa applications within a certain time frame. This aligns with the applicants’ desire for speed while ensuring the lawyers are still compensated fairly.
• Customer Loyalty Programs: Develop loyalty programs that reward both visa applicants and lawyers for using the platform consistently. For instance, offer discounts to frequent users or bonuses to lawyers who maintain high customer satisfaction scores.
4. Foster Collaboration and Trust
Your platform isn’t just a transactional interface—it’s a community. Fostering collaboration and trust between both sides can reduce tension and conflict. Here’s how:
• Community Features: Create a feedback system where visa applicants can leave reviews and lawyers can rate their experiences with clients. Encourage dialogue that helps both sides improve.
• Educational Resources: Provide resources for both visa applicants and lawyers to understand the process better. For instance, offering webinars on immigration law for applicants or efficiency tips for lawyers can help both sides meet expectations.
Real-World Examples of Conflict-Resolution in Marketplaces
Several successful companies have navigated conflicts of interest by adjusting their models. For example:
• Uber faced initial challenges with drivers seeking higher wages and riders seeking lower fares. They introduced dynamic pricing, which helps balance demand and supply by charging higher fares during peak times. This benefits both drivers (who earn more) and riders (who get a car faster when demand is high).
• Airbnb adjusted its fee structure to ensure that both hosts and guests are satisfied. Initially, hosts were concerned about fees eating into their profits, while guests wanted transparency in booking costs. By introducing a balanced pricing model, Airbnb created a win-win scenario for both parties.
Conclusion: Aligning Interests is Key to Success
Building a platform that serves two distinct groups is a delicate balancing act. Founders must ensure that neither side feels left behind or taken advantage of. By identifying and addressing conflicts of interest early, you can create a healthier, more sustainable platform that fosters trust, collaboration, and long-term growth.
If you’re a founder working on an intermediary solution or marketplace, remember: realigning the interests of both parties is not just an operational necessity—it’s the key to unlocking lasting success.
Need help refining your business model or resolving conflicts in your platform? Contact us at DueCap.com, and let’s discuss how we can help your business thrive.
