Ethan Stock lived the Silicon Valley dream. He had recently sold his company to eBay and emanated the tanned skin and relaxed composure you'd expect of someone who just cashed a big corporate check. But as we sat across from one another in a Palo Alto coffee shop, I was surprised by what he said next. "Mediocrity is worse than failure, you know?" For seven years before the acquisition, Stock served as the founding CEO of Zvents, an online guide for local events. Though he was successful by anyone's standards, I could tell he was a guy who, like me, had learned some hard lessons about marketplace businesses.

"Zvents grew incredibly well," Stock told me. "We were the largest events site of its kind, providing local listing in hundreds of markets and attracting over 14 million monthly unique visitors." Zvents had done what so many tech companies dream of doing, they cracked the network effect and built a marketplace business that increased in value with each new user. The more event organizers posted to the site, the more useful the site became to people looking for things to do. Both parties loved the site and Stock’s marketplace business was in the middle, connecting visitors to events they otherwise wouldn't find.

"But I learned the network effect isn’t everything. In fact, it became a liability." Stock's words confused me. How could being in such an enviable position of creating a valuable marketplace business be a bad thing? "Getting paid was a bitch," Stock said, and he began to unravel how certain marketplace businesses like Zvents can succeed themselves to death.