The hierarchy of engagement | Sarah Tavel (Benchmark, Greylock, Pinterest)

Sarah Tavel: I think a lot of people think about markets almost like these bodies of water, it’s like it’s this big body of water that we’re going after. I actually think that the most interesting markets, you have to think of them like currents where you’re there’s something happening in the market that’s creating this current where you can have a plank of wood that you’ve put on the river and it’s going to pull you forward. Versus a market that doesn’t really have that momentum to it, you’re going to have to build something really big and fancy to make any progress. That’s why we care less about market size because really, what you’re looking for when you’re looking at a market, are what are the dynamics of change, what’s the current and momentum that’s going to pull the company and make the job easier for the founders to actually build something that endures.

About the Guest

Lenny: Today, my guest is Sarah Tavel. Sarah is a partner at Benchmark, one of the most preeminent venture capital funds in the world, where she focuses on investing in consumer and marketplace startups. Prior to Benchmark, Sarah was the first product manager at Pinterest. And though I normally have a policy against VCs on the podcast, as you’ll see, Sarah thinks very much like a product and growth leader. And I always learn a ton talking to Sarah about startups and marketplaces. We also learn in our conversation, she used to play rugby and was apparently one of the best tacklers in her league.

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Sarah, thank you so much for being here and welcome to the podcast.

Sarah Tavel: Super excited to be here.

Overview of Two Frameworks

Lenny: So you may or may not know this, but actually, normally have a policy of no VCs on the podcast. But you’re a very special VC because you’re a former product manager. Many people don’t know you were the first product manager at Pinterest. To me, you still think like a product manager so I’m very excited to break my rule and have you on the podcast.

Origins of Engagement Hierarchy

Sarah Tavel: Thank you for the exception.

Lenny: What I want to do with our time together is dig into two frameworks that you’ve developed and use with founders that you work with to help them build successful companies. One is focused around customer businesses, and one marketplace businesses.

Let’s just start with the first framework. I think you call it the Hierarchy of Engagement. Just to start, could you maybe just share a broad overview of this framework? And also, just where it emerged from, where you came up with this concept?

Picking the Core Action: Pinterest

Sarah Tavel: Sure. I think one thing you’ll notice about me is that I have an allergic reaction to vanity metrics, what people talk about as vanity metrics. When I made the transition from Pinterest, where I was leading product for the discovery team, so I was responsible for all the discovery surfaces on Pinterest. The home feed, the search, the recommendations, a couple other teams. Ultimately, what those teams were about was about engagement, increasing engagement of Pinterest. It was helping people, when they were on Pinterest, find something that they loved enough that they wanted to pin it to one of their boards.

When I started to meet with all these really talented consumer founders building consumer social products, this was during a time when everybody was getting excited about growth hacking. What you would see is that you would see all these founders coming in, and they all had these up and to the right graphs, whether it was sign-ups, or downloads, or MAUs. It felt to me like it wasn’t obvious that those metrics that they were all getting very attached, and focused on, and showing in these presentations was the wrong thing to focus on. It didn’t get to the heart of whether they were on the path to building enduring consumer social product. They were missing, at the core, the criticality of engagement.

I just started to feel this and it became like a pebble in my shoe. I started just to go through that process that you’ve gone through many times before of writing and distilling it, and that’s where I came up with this hierarchy. What you realize when you look at social products is that they’re almost is this action which I call the core action of that product that forms the foundation of the product. When a user completes this action, it’s clear that they both understand the utility of the product, they understand what that product is all about, and it’s an action that, if they perform the action, they’re very likely to come back. So for Facebook, the obvious action is friending, in the beginning days. For Pinterest, it’s pinning. I don’t know if you’re an Evernote user. For Evernote, it’s writing a note. When you perform that action, that means you’re an engaged user. Of course, there’s a lot of other actions that you have to do. You can follow people on Pinterest, you comment on Facebook. But the end of the day, if you’re not doing that action, you’re not really a user to the product. That’s why the MAU thing doesn’t really mean anything. It’s really looking at, I think, of users completing the core action. You can look at this as a cohort, weekly, daily, whatever the right cadence is. But that’s the foundation, that’s level one.

Activation and the Core Action

Lenny: Basically, there’s some definition of an active user that a consumer business basically needs to define, and essential figure out what is that action they’re taking that makes them an active user versus just opening up the app, or whatever it is. For Snapchat, it might be sending a snap.

Sarah Tavel: That’s right.

How to Use the Framework

Lenny: For What’s App, it might be sending a message. Okay, cool.

Layer Two: Retention Improves Product

Sarah Tavel: Yes. Yes. By the way, this action, it’s very important to pick the right action. You want to make sure it’s an action that scales to enough users. You want to think about, “If I think about my product roadmap and optimize for it, what do we end up doing?”

Just to give you a more concrete example, actually in the early days of Pinterest, we weren’t sure what it was. We had all these things we were measuring. We were measuring follows, we were measuring clicking through, liking something, pinning obviously, time on site. We would do these experiments and you would get all this different data where some things would go up, some things would go down. What were we optimizing for?

There’s something that’s really, really important about having that clarity of this is the action that is most important for our product. All things, our NUX has to lead to this. If a user isn’t doing this, then there’s something missing from their experience of the product. It’s super important to get real clarity and know exactly the one that you’re going to be picking to go forward.

Lenny: One more question along these lines. How do you think about this milestone versus the activation milestone for a new user? Do you find they’re often the same? Getting your user to that aha moment-

Layer Three: Self-Driving Network Effects

Sarah Tavel: Yes.

Lenny: Versus ongoing?

Growth and Re-engagement Loops

Sarah Tavel: Right. Part of it is how do you measure the success of your NUX, of the activation? To me, it is are you taking those new users and helping them understand the mental model of your product well enough that they start completing the core action.

Lenny: Awesome.

What Evernote Missed

Sarah Tavel: There was a NUCs once that we played with at Pinterest where we didn’t even teach people what pinning was. It was their feed magically appeared and it was a real … That was an example of okay, we have to help people understand that they are here to discover something and save it to their board.

The Trap of Broken Flywheels

Lenny: Just in case people don’t know what NUX is, new user experience. It’s just an acronym for new user experience.

Sarah Tavel: Thank you. Yes.

Why Consumer Products Must Self-Distribute

Lenny: Okay. Maybe one more just foundational thing that I think we maybe skipped is what’s the best way to think about using this framework? Is this essentially where you should focus your energy, on which elements of your product you should be driving, which metrics to focus on? Is that a simple way to think about … Basically, we’ve talked about layer one and there’s three layers. What’s the best way to think about, as you’re talking through this framework, of how to apply it and use it?

Sarah Tavel: In a way, you have to think holistically when you’re building these consumer products, when you’re designing it. But I think it’s very important, once you get the product out and you’re starting to optimize, to start thinking through each of the levels. That’s just very focusing, to help a founder understand, “What are the levers that I really have to be focusing on to improve?”

The Flip Side of Viral Growth

Lenny: Awesome. I want to come back to how to apply it, in maybe some examples, after we go through the three levels so I’ll turn it back to you.

Sarah Tavel: Perfect. Let’s say you’re building your product and you’re starting to see that you have users completing the core action. Then, the next challenge you have, and I’ve seen this many times before, is that then you have to figure out how to get those users to stick around. You want to retain those users. Obviously, if they do the core action once or twice, and then they run out of steam, you’re going to be in a really challenged position to build something that endures.

The test for me, of whether you’re building a product that has the ingredients to create a retentive product on a micro level, just at the user level, is that the product should get better the more you use it, and you’ll have more to lose by leaving it. I’ll give you a couple examples there, a couple of my favorite products.

Obviously, Pinterest. One of the features that I worked on when I was at Pinterest and we shipped was this idea of a picked for you feed. The idea was every time you pinned something to a board, we would take that information that the user gave us and use it to create recommendations in their home feed. It may have been the first algorithmic feed that was in a social product because, suddenly your home feed wasn’t just things and people that you followed. The truth is, people weren’t really following other people on Pinterest so we needed a way to make the experience get better the more you used it, so we started to do these recommendations in your home feed.

It was this experience that, the more you pinned, the more personalized your home feed got for you. Then, the more you pinned, you also had more to lose by leaving Pinterest because, all of a sudden, you had all your favorite books, articles you wanted to remember, the recipes that you were planning on cooking one day, the holiday planning that you were doing. So you wouldn’t abandon Pinterest because Pinterest was this repository for these different expressions of your identity, or these different bookmarks that you wanted to back to. That was this idea. It’s very important that the core action is the thing that you use as the product to make the experience better over time.

Evernote, another example. I don’t know if you’re an Evernote user.

The Trap of Anonymity

Lenny: No. I tried it once and it was way too complicated, and I gave up quickly.

Sarah Tavel: People still laugh at me for being an Evernote user.

Ways to Improve Retention

Lenny: Oh, wow.

Sarah Tavel: I’m a lifetime user.

The Importance of Focus

Lenny: Wow.

Most Common Founder Mistakes

Sarah Tavel: It’s one of those things that I take all my notes in Evernote. I dump documents in Evernote. What I means is that, the more I use it … Now I know that I can do a search in my Evernote and I’m going to find the document I’m looking for. Now, I can never leave Evernote. It has everything. I have thousands and thousands of documents in Evernote. That’s a product that’s incredibly retentive.

Lenny: Unless someone builds a great exporter, and then there goes that piece of friction.

Exploring Pinterest’s Core Action

Sarah Tavel: People keep telling me I need to move on to Notion or something else, but not yet. I will remain a dinosaur here.

Lenny: Wow. I love that that’s an example of someone can break that barrier and make it less retentive, by making it easier to get off.

YouTube’s Core Action: Subscribing

Sarah Tavel: Yes.

Summary of the First Framework

Lenny: It’s interesting growth strategy, basically.

Sarah Tavel: Yes. Yeah, it’s very true. Let’s say, now, you have a product, it’s growing, more people are completing the core action. When they complete that core action, the product gets more retentive for them. It gets better the more they use it, they have more to lose by leaving it. Then, your tall task, and this is the hardest thing to overcome, is how do you make the product self-perpetuating? This is where I love to think of every time a user users your product, let’s say they’re clicking on the mouse or they’re tapping on their phone, I love to think of it as this kinetic energy that they’re putting into your product. You’re taking that energy, and your job with a great product, is to take that energy and, as much as possible, convert it back to the experience that they’re having with your product.

Now, the biggest thing that you can do is a network effect. The more I pin something on Pinterest, the better the experience for every user on Pinterest. Every time I add a pin to a board, I’m creating a new edge in Pinterest Graph, that Pinterest then uses to create recommendations and enrich their understanding of all those objects on Pinterest. The network effect is the strongest thing that you can do. And obviously, if you have that, which all social products have to in some way, you have to spend time, as much as possible, just maximizing where that shows up, fine-tuning it, removing friction so that it’s a flywheel that spins faster and faster.

But, there’s other loops too, that you have to identify and then maximize. These are the growth and re-engagement loops. These are classic loops, you talk about these a lot, they exist in marketplaces and social products. How do you get it so that, as your users use the product, they want to share it with other people? They create metadata that you can then use for SEO. You have collaborative experiences that pull other people in. There’s all different things you can do here. And then, there’s also things that you can do to re-engage a user.

As an example, in the early days of Pinterest, if you pinned something, you’re pinning something that you found on Pinterest that somebody else pinned. So we would send a push notification, “Hey, Lenny, Sarah just pinned your pin to her art board.” Now, if you were a dormant user at that point, it’s been a couple weeks since you’d used Pinterest, that notification might pull you back into Pinterest and be like, “Hey, I wonder what other pins Sarah has on her art board.” It’s a great re-engagement loop where Pinterest doesn’t have to do anything there intentional. The user is creating the action that drives the outcome that Pinterest wants in that example.

Now, as much as I love Evernote, this is a place where Evernote obviously falls down. There’s no loops that they can take advantage of, that when I use the product, I make it better for you. There’s no loop where, when I use the product, I want to pull you into the product. They tried at some point, to do collaborative journals, it doesn’t work. That’s a place where, because of that, Evernote had to spend money to acquire users, they tapped out. They missed that level three.

There’s other examples I could speak to, of companies that weren’t able to transcend to level three, that you wouldn’t otherwise think. I think of companies like Houseparty and Clubhouse. What was interesting about both of those products is that you would think that the more users that came into Clubhouse or Houseparty, the faster the flywheel should spin. But the challenge was that they relied on push notifications. I don’t know if you had this experience, but let’s take Houseparty as an example. You started to follow a lot of people on Houseparty, and then all of a sudden, your push notifications just got overwhelming. Because it was a realtime product, that you had to use push noti cations to know the moment to join the product, but when you had so many push notifications because the more people you followed, the more notifications you had, you just get to this point where you start ignoring them. It becomes this thing where, even though the flywheel should be spinning faster, it starts breaking down. That’s the real tricky nuance in this level three.

The Marketplace Hierarchy Framework

Lenny: I think people hearing this are going to be like, “Okay, getting people to use your product more often, increase retention, make it viral basically,” it’s stuff they already know. But I think what’s powerful about this is this is just a lens, a clarifying lens on what is most important. There’s so many things you can be focusing on to increase your product’s success and help it grow. What I love here is just, “Here’s the three most important things, and then here’s the levels.” They build on each other. If you want to increase retention, get people to do the core action more often. If you want to help it grow, focus on helping it spread, self-perpetuate.

Marketplace Hierarchy: The GMV Trap

Sarah Tavel: Yeah, I know. That’s absolutely right. The importance of it is I can’t emphasize enough how important focus is when you’re building these companies. It’s so hard. There really isn’t a playbook. Every company, the ones that succeed have to be fundamentally different from anything that was before it. But there are these first principles of the ingredients that they all share, and you can use those ingredients to really focus you when you’re going through the inevitable growth curve and wanting to know, “Well, how do we maximize this moment? How do we really focus on the things that will set us most up for success?” That’s where I think a framework like this can be really clarifying.

Working Backwards: Core Marketplace Insight

Lenny: There’s a lot of depth behind each of these things that you’re being modest about. One is, with the top of this pyramid of making it self-perpetuating, the reason that’s really important is for a consumer app to work well most of the time, it has to be able to spread really cheaply. The cost of acquisition needs to be very low, unless you somehow figure out some paid ad strategy where you can make money with paid ads, which is very rare. So maybe speak to why that’s so important to a consumer product.

Sarah Tavel: Yeah. What are you trying to build with a consumer product? You’re not trying to build something niche. You want to build something that can be a mass-market, hundreds of millions of users, billions of users. It would take considerable capital to do that with marketing. There’s one example that we have so far, which is TikTok, of spending more than $1 billion, once they figured out actually the first two levels in order to grow. They didn’t actually put user acquisition spend behind TikTok until they had a product that was retentive, and then they know that they really wanted to maximize that. But every other social product has grown organically. They’ve been able to do so because they’ve figured out how to maximize these loops. Even TikTok got to millions over users before they spent all the capital to acquire those remaining users.

Layer One: Extreme Focus

Lenny: I didn’t know that number. TikTok spent $1 billion on paid ads-

Lessons from Food Delivery Wars

Sarah Tavel: Yes.

Understanding Happy GMV

Lenny: To get to where they are today?

Sarah Tavel: Yes.

The Thumbtack Dilemma

Lenny: Holy moly.

Sarah Tavel: Yes.

White-Hot Center and PMF Signals

Lenny: I knew it was many millions, but I didn’t realize it was $1 billion.

Sarah Tavel: Yes.

Layer Two: Tilting the Marketplace

Lenny: That just shows you how hard it is to break in and become a new social network, essentially, or a new social app.

Sarah Tavel: It is hard. And then, at the same time though, we do see exceptions to it where I still feel like consumers are hungry for new experiences. We’ve seen a couple over the last few years that have gone into tens of millions of users. Nothing that has really created the experience that’s sticky enough to pull minutes away from, really TikTok and Instagram, which just are these dominant forces right now.

The Tilting Loop

Lenny: Your message also reminded me of a recent guest post on my newsletter about this app Saturn, I don’t know if you read it.

More Forms of Growth Loops

Sarah Tavel: Oh, I didn’t. But I know of the app, and it’s just an awesome founder.

Lenny: Yeah. It was really interesting. They had a really interesting insight about, first of all, very few apps ever make it to the top of the app store that break through what’s already there. The ones that do almost always spend a few days there and then, are gone because it’s a one shot thing. What they basically talked about is many apps have this viral K-factor, where they spread like crazy, everyone starts using them, everyone’s in there. But then the opposite happens very quickly, too, where if a few people miss using it a few days, you go in there and it’s, “Oh, nothing’s happening here anymore,” and it quickly crumbles. Clubhouse essentially went through this, BeReal started go through this, where people stopped posting and then, “All right, forget this. Everyone’s gone.” Most apps have this destructive K-factor that kicks in, the same way it kicked in to get it to spread.

The Happiness Loop

Sarah Tavel: Yes. As people say, when something grows really quickly, it also can collapse really quickly.

Key Reminders for Tilting Marketplaces

Lenny: Yeah. Tough. I guess along those lines, is there anything you’ve seen or learned … The idea of this framework is to avoid that, essentially. But I guess, is there anything comes to mind to avoid that?

Supply-Side Concentration

Sarah Tavel: One other thing that I’ve seen that runs into a challenge, and I find it runs into a challenge particularly with level two, is anonymity. Anonymity is something where … Pseudo-anonymity and anonymity are very different concepts. With pseudo-anonymity, we have it on Twitter, you have it on Reddit. You have a persistent identity that you’re creating, and that identity then can have accruing benefits, mounting loss. My pseudo-anonymous account on Twitter that just flames other VCs … I’m just kidding.

Supply vs. Demand Dynamics

Lenny: This is breaking news.

The B2B Marketplace Homogeneity Problem

Sarah Tavel: I’m not funny enough to make something like that. But for the people who do have it, they get accruing benefits because they get people to follow them. And that’s the mounting loss too, where they’ve grown their identity on a platform even though it’s a pseudo-anonymous identity. The challenge when you have pure anonymity is that you don’t have that accruing benefit or mounting loss that happens.

I don’t know if you ever played with Secret, but it’s similar to TikTok or something like that. These are the types of experiences where, over time … The network effect doesn’t work because the anonymity creates the conditions for bad behavior, so that starts to pull down the community. And then, it is also the experience where you’d use a product and you can delete, and then come back three months later, and because of the anonymity aspect of it, your experience isn’t any different. I find anonymity, people keep trying it, and super talented founders keep hitting their head against that wall because it has the very early fun growth, but it just continues to be a product that isn’t able to persist without some persistent identity.

Competition and Marketplace Tilting Potential

Lenny: I’m going to pull on this thread of just ways to increase retention. Basically, this is one of the things, maybe the main thing you’re telling people to help increase retention, make it so that it’s really hard to leave. Before we get there, just to make it clear, is this framework mostly for social consumer products, or do you generalize it to consumer products?

Sarah Tavel: I think it’s consumer products in general.

Markets Can Be Un-tilted

Lenny: Okay.

Layer Three: Dominating the Market

Sarah Tavel: But it makes the most sense for consumer social.

TAM Is Less Important Than Thought

Lenny: Okay, got it.

Waves and Marketplace Momentum

Sarah Tavel: It works for Evernote. Evernote isn’t a consumer social product.

Lenny: Awesome. Okay, so it’s most helpful for if you’re the social, your friends are in it sort of product?

Marketplace History Is Disruption History

Sarah Tavel: Right. You have the chance of level three with social.

Universal Lessons Beyond Marketplaces

Lenny: Right, awesome. Okay. On this thread of retention, it’s a thing that I speak about often, everyone always talks about. The most important thing you got to get right is get retention to a good place because if you can’t retain people, nothing’s going to work anyway.

So just to spend a little more time here, is there anything else you recommend to founders to help them with increasing retention and getting to a healthy place with retention?

Finding Marketplace Opportunity Spaces

Sarah Tavel: Number one is actually measuring it. I can’t tell you how many times I suggest to a founder to track cohorts and that’s a new thing. Just being really, really clear and intellectually honest on looking at cohorts I think is number one.

Lightning Q&A Session

Lenny: Okay, maybe just describe that briefly, and then we’ll link to an article that I have about how to do that.

Sarah Tavel: Perfect. These are the moments when I should probably turn the mic over to you, to talk about-

Lenny: Nope, you’re in the hot seat.

Sarah Tavel: [inaudible 00:27:46]. A cohort, what I always like to look at is weekly cohorts for these products. You look at them in two ways. Which is one, for each vintage of cohorts, you’re looking at a group of people who signed up in a given week, and that’s one.

… like a group of people who signed up in a given week and that’s one cohort. You look at it both on an active user basis, like are those people continuing to come back to the product? And I particularly love to look at that on a weekly active user completing the core action pieces of like, are users completing the core action? How is that changing overtime for each of the cohorts? And then also, looking at activity level within those cohorts. And so, what you love to see is the kind of classic smile graph where, as the network grows and users start to use the product more and more, you start to see that, overtime, they actually become more retained in the product as opposed to kind of the classic leaky bucket where the cohort just keeps on dwindling down. And until you reach a point with your cohorts where there is a plateau, you have more work to do on figuring out the retention of your users.

The second thing is just focus. So I can’t tell you how how many times also you’ll meet a founder and they will… There was one example I saw, it was a kind of a dating app, friend making app, and he was growing it via TikTok, which is not geographically constrained at all. And so, he’s growing the user numbers, but without focusing on a specific geography, it’s gonna be really difficult to make that type of product a high retention product.

Lenny: Coming back to the framework, which layer do you find most often is the one founders maybe are under-investing in/maybe the most important to focus on if you had to pick one of these, or is it super dependent on your situation?

Sarah Tavel: What I often feel is that, a lot of times, product founders, consumer founders, see where they want to get to, they compare themselves to the full expression of a product that you see with other products, ROBLOX, Instagram, TikTok, whatever it may be, and they want to get there.

But what that ends up meaning when the when a new user signs up is that there’s too much in the beginning to to take in and understand, and you don’t then have a very focused product that gets the user to the thing that you most want them to do. And that’s actually part of the importance of understanding level one, what your core action is, is that you want to make sure that when a user comes to your product, signs up for the first time, doesn’t have necessarily a lot of contacts on what the product is itself, that they see the thing that they’re supposed to do and you get them to do it. And a lot of times, in the beginning, there are just so many other things that a product might have that you’re defusing that attention that they would otherwise have had on the on the thing that’s most important.

And so, I feel that that’s the first mistake, and it’s kind of natural that it would be the first mistake, but maybe the largest mistake that I see people make.

Lenny: Essentially, not getting the activation moment right, not focusing enough on getting people to that aha moment as people describe, and then again, that repeating again and again as a core action.

Sarah Tavel: Yes.

Lenny: To close the loop on this sort of discussion, could you just share again a few examples of core actions/activation moments, just to make this fresh again in people’s minds? And then also, just whatever you could share about helping people decide what that is. I know it’s a difficult thing to do well, but any advice for how to find that activation?

Sarah Tavel: I mean, I’ll tell you the exercise that we did at Pinterest because as I mentioned before, it wasn’t obvious to us in the beginning of Pinterest like were we a social network? Like should we optimize for the follow graph? But you have to remember, Pinterest, this was 2011, you had Twitter growing like crazy, Instagram was growing. Those were both asymmetrical follow graphs that they were creating, right? And so, it wasn’t clear at the time whether Pinterest was actually just creating a new follow graph, but that was about things instead of what Twitter was or what Instagram was. And so, it wasn’t obvious.

And what happened actually is that there was two efforts that I think of as like kind of bottoms-up and top-down that helped really clarify that, actually, pinning something was the core action, it was going to be our North Star. We called it weekly active pinners.

And the two things were, there’s always this like bottoms-up analysis that you do, which is, we looked at every action that you could do on Pinterest, so we had liking, following, clicking through, time on site, pinning, repinning. And we looked at, first of all, what percentage of users complete those actions? And if you do that action in a week, what’s your propensity to come back the following week? And we basically ranked that.

And what we saw was that if you pinned something, repinned something, which is finding something on Pinterest, I’m using those synonymously, or click through, you had an incredibly high probability that you would come back. So if someone’s pinning something, they’re coming back to Pinterest the next week with a super high, more than 90% probability at the time.

And then there’s like the top-down way of thinking about it, which is, well, what is Pinterest for? And if a user does come to Pinterest and they never add something to a board, do they really understand what Pinterest is? And yes, clicking through makes you want to save it. The click through is valuable, you want save it, so clicking through is obviously really important. But at the end of the day, if they don’t like that pin enough that they want to save it themselves to their board, then we haven’t done our job.

And so, we did this kind of top down, bottoms up analysis to make it very clear that when we launch an experiment or launch a new feature, if the probability, if the percentage of people that pin something doesn’t go up, or the number of pins for that cohort doesn’t go up, that experiment is not a a successful experiment.

Lenny: Awesome. There’s a post I’ll link to in the show notes where there’s actually a guide to doing this regression analysis on how to figure out your activation milestone.

Sarah Tavel: Amazing.

Lenny: Basically, what is most causal of retention as you’re describing. And I love this example from Pinterest. Any other just examples? Again, you shared a few at the beginning of just examples of great activation milestones/core user actions.

Sarah Tavel: I’ll tell you one other one that I thought was super interesting, which is that when I initially published this post, I had assumed wrongly that YouTube’s core action was watching a video. And then Shishir Mehrotra, who was the kind of CPO of YouTube, he reached out to me and he said, “That’s what it was in the early days, but we started to realize that it wasn’t actually our core action. And we did a lot of analysis on YouTube and what we realized was that subscribing was the core action on YouTube.”

And it makes so much sense when he said it, right? You’re a creator, you’re uploading content onto YouTube, there are a lot of other places at that time that you could have uploaded that content to, but you care about YouTube because that’s where you’re growing your audience, right? And so, the more people that subscribe to your content on YouTube, the more you have the accruing benefits and mounting loss of using YouTube.

And so, that was super important on the creator side, which, one of the funny things that will bridge to our next conversation is that all social products are really marketplaces, right? YouTube is a marketplace. You have the creators uploading content and the viewers who are watching it, supply and demand.

And so then, the subscribe button is also very interesting because then from the demand side, the viewer, why would I come back to YouTube consistently versus, again, all the other places I could spend time on if it weren’t for me having found creators for whom their content really resonates with me so much so that I subscribe to their content?

And so, I loved that example because it showed a little bit the evolution that can happen with these companies, but then also, just the beauty of like you know you’ve got something really right with the core action when it’s helping both sides of your network.

Lenny: Awesome example. And I think it’s also a good reminder people change these things. “You come up with your best bet. Okay, we tried this for six months, maybe let’s try something else. We’ve learned something new.”

Sarah Tavel: Exactly.

Lenny: I’m also going to link to this post I wrote around finding your North Star metric, which was like such a multimedia conversation with just links for all these topics to go deeper. Essentially, I figured out the North Star metric for, I don’t know, 30 companies. And I feel like the North Star metric of a company ends up often being this core user action. So like Pinterest, it sounds like those WAPs, weekly active pinners.

Sarah Tavel: Yeah. Pinners, yeah.

Lenny: And YouTube is subscribers.

Sarah Tavel: In the beginning we called it weekly active repinners and war because we felt like we were at war, so it was good.

Lenny: And then, it became peacetime maybe.

Sarah Tavel: Yes, exactly.

Lenny: Awesome. So maybe just to close the thread on this framework, can you just briefly summarize who this is most helpful for and just how they could apply it if they’re maybe not growing as fast as they want or they’re just getting started as a founder building a consumer product?

Sarah Tavel: Yeah, I think about consumer founders, product founders, product leaders in these companies that are thinking through the road map. What is the most important things that they need to prioritize, the big rocks, for the immediate short-term? And the framework then provides a lens on what to prioritize.

Lenny: And we’ll link to the whole framework for people that want to go deeper.

Sarah Tavel: Awesome.

Lenny: Okay, so let’s move on to your second framework that you called the hierarchy of marketplaces. And first of all, I want to give a shout-out to Mike Williams, who’s the founder of Everything Marketplaces, who gave me a bunch of good question suggestions to ask as we do this.

Sarah Tavel: Wonderful, now I’m nervous.

Lenny: He’s Mr. Marketplace.

Sarah Tavel: Yes.

Lenny: Okay, so let’s start with the same question, just what’s kind of the broad way to think about what this framework is and who it’s for? And then, where did it come from?

Sarah Tavel: It’s a framework or hierarchy that is for marketplace founders. It could actually be B2BC or B2C, or marketplace product leaders that are like either getting started or scaling their marketplace and helping kind of prioritize and focus on the things that most matter.

And it came out of a similar reaction, a very similar parallel to what I was experiencing, meaning, all these consumer social founders. Like they would talk about MAUs and I just felt like it didn’t get to the heart of whether they were building enduring value. And I actually started to realize that GMV was very similar. GMV, it’s a metric that it seems like… Of course, you can’t build a marketplace without growing GMV in the same way that you can’t build a social product without growing MAUs. But if you focus, if the race that you think you’re running is to grow MAUs or to grow GMV, you’re not actually going to run the right race. It can take you…

And actually, with marketplace, very interestingly, it can take you in the wrong direction. So what would happen is I would meet all these founders and everybody got fixated on this milestone of $1,000,000 of GMV. Right. And I think a lot of people started to feel like if you could hit$1,000,000 of annualized GMV, it means you’re ready for your Series A. But it’s kind of self-evident that not all GMV is created equal, right?

So imagine a food delivery company 10 years ago. You could have $1,000,000 of GMV by focusing on LA, or$1,000,000 of GMV by focusing on Boston, or you could have $1,000,000 of GMV by having$500,000 here, $200,000 here, like spreading it out. And I would meet so many founders who would say, ” Oh, well, I thought we had to prove out that the value proposition resonated in these other cities and so, that’s why we’re diffusing our focus.” But what they what I would always feel is like they were just making their job so much harder by doing that.

The other way you could think of it is like if you’re trying to get to $1,000,000 of GMV as quickly as possible, you're actually motivated to go after a really big market, right? It's a lot easier to get to$1,000,000 of GMV when you’re skimming the cream on this big ocean of a market, then to be very, very focused on a smaller market. And getting to $1,000,000 of GMV in a constrained market is a lot harder, takes longer, but it’s actually the path to building something that endures.

And so, I was having the same conversation again and again and I just felt like I needed to crystallize it or synthesize it in a way that would be easier to communicate, and that’s what led to this hierarchy.

Lenny: Awesome. Okay, cool. So you’ve touched on a number of the important elements of this hierarchy, so let’s dive in.

Sarah Tavel: Okay. There’s probably a couple core insights, but the first one that I think about with this hierarchy is that when you’re building a marketplace, you actually have to start from the goal and work backwards from there.

Now, what’s the goal? Marketplaces, I mean, you have so much incredible content on this, they’re just incredibly difficult to build. You’re basically building two companies at the same time, right? You have the product and go-to-market org for the demand side, the product and go-to-market org for the supply side. And somehow, you have to make these two line up so that they serve each other’s needs. It’s an incredibly difficult dance. And yeah, it’s one of the hardest types of companies in the software world that I think you can build.

And you do it because you think about the the full expression of these models and you think about companies like Airbnb or Amazon or eBay or Google, where once you have scale and have very dominant market share, you have a product that just is the best place without question of fulfilling this need. And they end up being very profitable cash-flowing businesses. And you see that, and that’s the business that you want to build, that’s why you’re going through all the hardship of building a marketplace, getting the marketplace off the ground to get to that place.

And there’s kind of very clear analysis. I published it in the hierarchy. I have this incredible graph that I remember seeing when I board observer for this online classified company called OLX led by Fabrice Grinda. And it kind of shows that the more dominant a marketplace is relative to the number two in its space, the more profitable that business is. And so, it’s just like a very clear like you don’t want to be… Obviously, when you’re building a marketplace, you don’t want to be in the middle of the pack, but even being number one but just barely number one doesn’t give you any of the benefits of a marketplace model, you’re fighting for each incremental point of market share. It’s not clear to the supply side or the demand side that you’re like the main place to be. And so, it only becomes really clear once you have that dominant market position where you’re just so much bigger than the number two

And the only way to get to that place, to get to that moment of real dominance where you have this winner take most dynamic is that you have to tip your market, and that’s the only scalable way to do that, and that’s what level two is.

And so, how do you maximize your chance of tipping a market? You have to focus on a really constrained opportunity, and that is level one. So that’s kind of like the broad framing, which is like a really important thing of how, when you’re building a marketplace, you actually are building towards that point of dominance. And so, it’s part of the reason why being really, really, really focused in level one is so important.

Lenny: Awesome. So you walked through this backwards. Just to summarize in case people didn’t totally catch it, basically, layer one is focus, layer two, tip the market, layer three, dominate the market.

Sarah Tavel: Exactly.

Lenny: Awesome. So let’s maybe start with layer one of just focus-

Sarah Tavel: Let’s do it.

Lenny: … which I think is the most counterintuitive step for people building a marketplace where, as you said, normally, it’s go big as fast as possible, get as much GMV as possible, just make everyone happy as quickly as you can. And your advice is, essentially, do the opposite. Make it very…

You have this like great acronym of thimble that, I imagine, you’ll talk about that I love, I always think about. So yeah.

Sarah Tavel: Yeah. And part of what’s so hard about this idea focus is I’m lucky to meet with just incredibly ambitious founders. And the hardest thing I think about building these marketplaces is that the ambition can often feel like this sun, like the heat of the sun that’s trying to warm everything up, and you’re going after this big market, warming the ocean.

And I think that, really, what the the best, ambitious founders do is they focus that ambition like a laser beam on a small market, the thimble. And what you do is like you’re getting that thimble, you’re getting the product market fit really, really right with this like small, constrained market. And if you heat that up really, really hot, then it expands from there.

And part of this is that we have to accept a couple of points of scarcity. One is that, you can’t raise hundreds of millions of dollars from the start, where we, especially today, live in a world where there is a constraint around capital. And so, you have to be able to take that capital in the beginning and make the most out of it. And the only way to do that is to be very, very focused.

And the second thing is that the constraint is the founder’s attention. And again, these things are really, really difficult to to get off the ground, and the only way that you can do it is by having myopic focus on a segment.

And the example that I always think about was a very cool thing that we all got to see, which is when the food delivery wars happened, where you had companies like DoorDash and Postmates and Uber Eats, and then, the incumbents of Grubhub, take very different strategies. I make comparisons to Postmates and and DoorDash, both successful companies, but Postmates, from the very beginning, had very big ambition and went after all the big cities. They went after, not just restaurants, but restaurants and Apple and retail, bicycle. I remember, there were so many things that they went after all at the same time.

And when you’re playing that game, you’re always being compared to whatever other substitutes there are in the market, right. And you’re it and that just when you have constraint of capital and attention you’re you’re spreading yourself thin across a lot of different vectors of kind of preference for the customer and the seller.

DoorDash on the other hand, famously and very controversially went after the suburbs in the beginning. And the beautiful thing about the suburbs is that there is very little competition because no one thought that you could do it economically. And they probably weren’t wrong in the beginning, like DoorDash lost a lot of money in the beginning fulfilling delivery in the suburbs, just because the delivery times, the driving was so long, but by going after a market that other people weren’t focused on, it let them get to a place where they were able to really make the customers on both sides of their marketplace happy enough that they retained.

And this word happy I use, I should expand on it a little bit because the realization I had as I reflected on this kind of feeling that GMV is really actually a vanity metric, it doesn’t get at the core of whether you’re building enduring value. It’s like very clear and there’s plenty of examples I could give where there are companies that had incredible scale and still were disrupted by a startup. And it’s because actually, customers don’t care how big you are, they don’t care how many transactions you’ve accumulated. What they care about is when they have a transaction with you, how happy do you make them? How much better is the experience that you provide than any other substitute that they could use? And if you do a good job, then they’re gonna keep coming back to you. And so I call it happy GMV.

And that’s actually the thing that I think you as a founder or product leader have to focus on, which is, what do I think is going to be the experience of a buyer or seller that leads them to retaining and tracking that as like the happy path and therefore, the happy GMV.

Lenny: Amazing. I love that concept, happy GMV. You also kind of extend this idea and I think you call it the minimum viable happiness is what you want to create when you’re building this marketplace, this symbol of water that you’re trying to boil into something incredible. What’s the minimum version of that that creates really happy customers?

Sarah Tavel: That’s right. Yes. And kind of the way to think of it is like, obviously, when you’re a marketplace founder you know that in order to build something endures, you’re going to have to grow. But you in the beginning, you’re you’re doing all these things that don’t scale, you’re working on your product experience, you’re taking friction out of the transaction, and you want to get to a point where there’s a certain percentage of people that retain after having done a transaction. And so, you’re kind of doing the work, doing the work, doing the work to get to that minimum threshold. And that’s when you know you get to kind of go to the next step of starting to figure out the levers to really scale what you’re doing.

Lenny: Awesome. And again, it’s easy to say, it’s difficult to do as a founder to tell them like, “You just need to get a small version of this marketplace working, versus you go big really quickly.” And so, most of the time, I think it’s actually like location, basically start in a city if it’s location-oriented. Or if it’s all online, pick like one niche to focus on, like Etsy was like, craft fair goods, right?

Sarah Tavel: Exactly. And sometimes, as we saw with Postmates, sometimes it’s both, which is, geography and category. Again, you have to assume scarcity of your capital, of your attention, of your customers attention and so getting complete clarity of what is the experience that you want to really nail, what’s that happy path you’re optimizing for, constraining that in the beginning gives you the option, the optionality to grow beyond that, but if you don’t constrain, you just won’t be able to get there fast enough.

Lenny:

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I want to talk about what it looks like when you you’ve got it working and it makes sense to start expanding, but before I do, there’s one kind of example I found in my research which is really interesting, which is Thumbtack where they, from the beginning, went national and across many categories. And the founders admit maybe that wasn’t the right idea. It took them a long time to get to something that was really working. But on the other hand, their thinking was to create enough of a flywheel for people to keep coming back. How often do you need a plumber? How often do you need a DJ? So there’s-

Sarah Tavel: I was just going to say that is the trickiness with Thumbtacks model and it persists as the trickiness with their model, which is that you don’t have a high repeat use case there and so you have to… One of the really important things with building a marketplace is cornering the buy side, like having a relationship with the buy side where they don’t even think about where they’re gonna go, they come to you. And if it’s a plumber, you use that so infrequently that every time you are going to look for a plumber, you’re gonna start at Google, right? You’re not gonna assume, “I’m gonna go to Thumbtack to find that because-

I’m not going to assume I’m going to go to Thumbtack to find that because you’ve already forgotten by that point. And so you need to have enough touch points with the consumer so that they’ll have a relationship with you and start to think of you as a place to go to. And that’s probably, that was the trickiness with Thumbtack. And by the way, when we talk through level two, that also level two will articulate some more of that trickiness.

Lenny: Awesome. By the way, I do use Thumbtack. It’s implanted in my head of that’s where to go to find plumbers and stuff.

Sarah Tavel: That’s great. I mean those founders, I adore Marco. He is an incredible, incredible founder.

Lenny: As a segue to layer two, what are signs that you’ve done a good job at focusing and things are working? You have this term that I love of creating a white hot center, so maybe speak to that, or just what tells you, it’s like, “Cool, I think we’ve got this very focused thimble. How do we know it’s time to go?”

Sarah Tavel: Yeah, I think it’s very much that you see people retaining. You just feel that where people are texting you or emailing or whatever it is, that they’ve had a great experience and you see them coming back. And you’re not going to make everybody happy. Let’s all accept that. But there’s a core of users, a persona that you are able to make really happy. That’s when you know that you’re on the right track.

Lenny: Awesome. It’s essentially the very fuzzy product market fit question.

Sarah Tavel: Yes, yeah.

Lenny: And I’ll link to a few posts I’ve written that help people get there. I guess is there anything you want to add there like this?

Sarah Tavel: The only thing I’ll add, those two things related I’ll add. I don’t like NPS for this, and I have a whole blog post on this. I like Sean Ellis’s question of how disappointed would you be if this product disappeared? And I think it’s if you have at least 40% of people respond that they’d be very disappointed, then you’re on the right track. That’s kind of the feeling that should tell you you’re on the right track.

Lenny: Awesome. Okay, let’s talk about layer two around tipping the marketplace.

Sarah Tavel: So layer two, I think, will actually illuminate again the importance of that constrained focus for layer one. You’re doing all these things that don’t scale, that you’ve written so much about, Lenny, about kick-starting, the marketplace, all those things that you can’t just keep on doing forever.

Now, layer two, level two is about figuring out how to do things that do scale. And really, you’re doing it in service of this kind of mythical moment of a tipping point. And the tipping point is this idea that you often reach some kind of saturation point in a market. You’ve reached an experience, you’ve kept on working on the product experience, you’ve taken a lot of friction out, and you keep on growing, growing, growing. And you’re doing that in service of increasing happiness.

And this is a really important thing. The growth that you’re doing, you should have a lot of clarity on your flywheel at this point, and know that you’re growing in service of accelerating your flywheel. And people talk about the flywheel as liquidity. You could think of it as happiness, which is that the more the flywheel spins, the more you’re able to make both sides of your marketplace happy.

And what you’re doing is you’re growing into a greater percentage of your market. And as you’re doing all these things again that don’t scale, then you reach this moment where things start to get a lot easier. You’ve kind of pushed the boulder up the hill and it starts to slide down. And what you notice first, I think, is you start to see it on a micro level where you might have suppliers that start to tip to you or buyers that tip. You might see your cohorts get a little bit better. You start to see some organic growth.

And let me give a story or an example of a company that I got to see where the marketplace started to tip. So we’re investors in a company called REKKI. And REKKI is a marketplace for restaurants and their suppliers. And it’s, imagine in the beginning, this kind of app that you could use. It almost looked like WhatsApp, that a chef could use instead of doing a voicemail at midnight when they’re leaving the restaurant or typing something into WhatsApp and texting it to their supplier, an email, whatever it is. They could use this REKKI app and it would make it a lot easier for them to do that. And then of course the marketplace elements is that then they’ll be able to discover other suppliers on REKKI if they need them.

Now in the beginning, REKKI had to have their own sales force and they were going to London, knocking on the doors of these restaurants, finding and cornering probably the chef in the kitchen to show them the app, to get them to change to this new app called REKKI. And it’s a very high cost of sales effort to have, as you might imagine. But then what started to happen is that every time they got a new chef onto REKKI, that order would then go to the supplier that that restaurant normally ordered from. And so instead of getting the voicemail, the supplier would start to see a nice order form that was from the restaurant and provided by REKKI, powered by REKKI.

And what would happen is that as REKKI grew more and more in London, these suppliers started to get more and more of their restaurants ordering via REKKI. And then some of the early suppliers started to be like, “Well, this is so much easier for me. I would much rather get this order form from REKKI than have to listen to an hour of voicemails from chefs with different accents and different ways of ordering their food in the morning when I come in.

And so then the suppliers would reach out to REKKI and be like, “Hey, here’s a CSV of all of our customers. Can you reach out to them and onboard them to REKKI because I’d much rather have my orders come via REKKI than the way I’m getting them.” And so you go from this moment of the hard high cost of sales, pounding the pavement, to getting a list on a silver platter of restaurants to onboard. And that’s that feeling of tipping, where all of a sudden something goes from being really freaking hard to so much easier.

Lenny: It feels a lot like how people describe finding product market fit. Things start to feel like you’re not pushing anymore and it’s just coming to you.

Sarah Tavel: Yes.

Lenny: In your experience, is this tipping often just happens as you become more successful in this thimble of a marketplace? Or is it things you have to do actively to tip to get to this place? It sounds like in REKKI it was like this feature they built of just recommending, “Hey, you should check out REKKI, and maybe other suppliers would help you have an easier time if they’re joining.” So is it usually like it just happens with scale, or is there usually something you have to change to create this tipping point?

Sarah Tavel: I don’t think Ronan predicted that that was what was going to happen. And you’re constant, that kind of customer obsession, having the relationships with the suppliers, having the relationship with the buyers, so that you have your ear to the ground. And when they start to lean in a little bit, you’re there to receive them. And so I think this is very much part of what great marketplace founders are able to do, is they’re able to start to feel that there’s something tipping in their direction and then create momentum behind it.

And that’s a lot of what this level two is all about, which is that, I think, every marketplace has to figure out what I call tipping loops. And there’s two types of tipping loops that work together symbiotically to help a marketplace scale.

The first are the growth loops. And so we just talked about an example with REKKI. There are many examples of this Hipcamp, another marketplace I’m lucky to work with. If you and I went camping on Hipcamp and I booked a tree house on Hipcamp, and you are going to join me on it, I could then as part of my checkout flow, essentially invite you to my reservation so that you could see the maps, the more information about the tree house and any of the sites around it. And so I’m the person that Hipcamp acquired, but then I pull you into my experience and that’s a great buyer to buyer growth loop.

There’s classic seller to seller loops or buyer to seller, all these directions. And then the great marketplaces see those loops and they figure out ways to accelerate them. So classic seller to seller referrals. Uber drivers would tell their friend, “Oh, you should start driving for Uber, it’s great.” But then Uber incentivize it with a referral bonus, and you started to see Uber drivers literally writing blog posts about how much they loved driving for Uber because some of them were making more money getting the referral bonus then actually driving. And so you’re trying to find these growth loops and you maximize them.

Lenny: Awesome. I’ll link to a post that has a lot of these insights from this work that I’ve done on marketplaces, but a few others that are just interesting. Basically you’re trying to figure out how do you create a engine that continues to drive supply and also drives demand. So a fun example is when Etsy was getting started, as you know, they went to craft fairs and pitched sellers, “Hey, sign up for Etsy. You could sell your stuff online.” And then all their sellers started telling all their buyers, “Hey, buy my stuff on Etsy.”

Sarah Tavel: Etsy literally gave them business cards. So Etsy gave their sellers business cards that made them feel like, “Oh, I’m a real…” Made them feel professional. And the link on it was to their Etsy store.

Lenny: I love that. One of the most magical growth engines of marketplaces is when your supply brings on the demand. So that’s a really good example. Another one is DoorDash, where basically a restaurant signed up for DoorDash and then they tell all the customers, “You want to order our food? Go to DoorDash and order it.” And so all the restaurants are telling everyone about DoorDash and then they become DoorDash users and they order from other restaurants.

Sarah Tavel: Yes, and it shows how creative DoorDash was to both sides of the market in that example.

Lenny: And then Faire is an awesome example too. It sounds similar to REKKI as you described, where Faire is basically a B2B artisanal items marketplace where boutique shops buy nice candles and blankets for their store to sell. And essentially they did what you described, where they signed on a store and they basically told them, “All your vendors can join for free and not have to pay any fees if they sign up for Faire, and it makes it easy for you to buy their stuff.” And then on the other side, a candlemaker tells all the places they sell to, “Hey, you should use Faire. It’s so easy to buy our stuff, and we can communicate through there.” And they can sign up without any fees. So basically everyone just invites all their existing partners on Faire, and then everyone’s on Faire. So yeah, there’s a lot of ways to do it.

Sarah Tavel: I love it. And so the second type of loop, and again this loop works symbiotically with the growth loop, is what I call happiness loops. And I think of them almost as the kidneys for your marketplace as you grow. The happiness loop, the idea is you have a lot of new sellers coming in, and of course you have new buyers, but you want to make sure that you are matching your buyers with the sellers that are going to give them the best experience.

And so, normally in a consumer social product, churn is heartbreaking. Once a user churns, they’re almost never going to come back. And with a consumer social product, you’re trying to get to massive scale. But when you’re building a marketplace, actually, there’s a healthy amount of churn that you want on the supplier side because there are just going to be suppliers who aren’t going to create a great experience for the buyer, and you can’t do anything about that.

And so we’ve all had the Uber driver who you give one star to. That person you don’t want on your marketplace getting matched with buyers. And so you’re trying to then make sure that, as you grow, you have a natural mechanism in your marketplace to reward the suppliers that you want to reward and to churn out the ones that you don’t. Of course your job is to do your best to set all the sellers up for success, but it’s an inevitability.

And so there’s two great examples I think of in these happiness loops, which is around search ranking, and then reputation. Search ranking is just a very obvious one, which is, you’re trying to understand what creates a happy experience for the buy side, and then reward the sellers that provide that experience.

So I think an interesting example that ended up actually changing but still is illustrative, is that UberEats in the very beginning of their journey, thought that their advantage in the market was going to be about having really fast delivery, right? Because they already had this network of drivers and so they thought that that’s where they were going to really lean in and have an edge over any competition. And so in the search ranking, they rewarded restaurants that prepared the food quickly, and so answered the Uber Eats request, and then actually got the food out as fast as possible so that Uber Eats became synonymous with the quickness by which you got the delivery. And so that restaurant that takes 40 minutes to prepare the food, they would get ranked low in the experience for Uber Eats, even if the food was really, really great.

Lenny: Okay, so we’ve been talking about tipping of the marketplace. Is there anything else there that you want to share before we move on to the third layer?

Sarah Tavel: Yeah, there’s two other things that come to mind. One, just as a reminder, and then one as a caution. So the reminder is in order to tip a market, you have to reach a saturation point in that market. You can’t tip a market before you’ve penetrated it to some saturation level. And it goes back to level one of why you want to focus on a constrained market.

Let’s take growing a food delivery product in Des Moines, Iowa versus LA or New York. When you’re growing in a small city and you’re focused on restaurants, you’re going to be able to get to this tipping point a lot faster and more efficiently than if you’re going after a very big market. And so there’s a real advantage to being able to prove out the playbook as quickly as possible and as efficiently as possible before you move on to bigger challenges. And so I think it underscores, again, why it’s so valuable in the beginning to focus on something that is constrained.

And again, Postmates focusing on San Francisco, the city. DoorDash focusing initially on the suburbs, much smaller opportunity, but one that they could really knock the cover off the ball on. They had no competition. They had a customer that was desperate for attention, and so they could make them happy. And that just sets you up for real success to go from strength to the adjacent market.

The second thing that I’d say is, and this is so important is that not all markets are susceptible to tipping, right? We’ve all experienced this, I’m sure Lenny, with the companies that you work with, the companies I work with, where there are conditions of a market that make it vulnerable to tipping. I have six in my post just to name a couple classic ones.

The first obvious one is just concentration on the supply side. In order to be able to tip a market, you need suppliers to want to lean in on your marketplace. My partner, Bill Gurley talks about how great marketplaces create the new incumbents. So you basically have suppliers who aren’t the incumbents. The incumbents aren’t going to lean in on your marketplace, they’re already fat and happy, but you want to have these hungry suppliers who lean in. But if there’s already concentration in your marketplace, in the ecosystem, the market that you’re playing in, then you’re not going to have sellers lean in, and you’re not going to be able to create a flywheel that spins where the more sellers you bring on, the better the pricing or experiences on the demand side because the sellers are happy and there’s nobody that’s hungry or fighting. And so that’s just a critical, critical point.

Lenny: Bill Gurley and I actually had a little Twitter debate once about supply versus demand and which one’s more important. And basically his pitch was like, “All that really matters in the end, to build a successful marketplace, is can you find the demand? Can you bring the demand to your marketplace?” It makes all the sense in the world. Everything in the end is, “Can you find customers?”

In the work I’ve done looking into marketplaces, what I find is the hardest thing to do, to bring people to your marketplace, is to find the supply and bring it to people, basically aggregate it. And your point here is exactly right, is that basically the value of your marketplace is to find this non-concentrated demand that’s all over the place and bring it together and make it easy to transact with. So I think that is really important, just to double down on this point, that what makes the marketplace valuable is supply that is hard to find that you make easy to find and transact with. And I feel like that’s almost the core of what makes marketplace work.

Sarah Tavel: I think you’re both right.

Lenny: Yeah, I think we’re both right. Right, right.

Sarah Tavel: Because in the beginning, the only way you get started with the marketplace, obviously, is you’re bringing the supply online, and that’s what opens up the opportunity. And the only way then for you to have a chance at tipping the market is if there’s enough fragmentation on the supply side to create a differentiated experience for the demand side to care about your marketplace. But the only way to build long-term enduring value with a marketplace is to corner the demand side. And so it’s kind of a little bit that evolution of a marketplace that ends up changing who you focus on.

And I don’t know if you’ve experienced this in my experience with the marketplaces that I work with, it’s a constant like, “I have to focus more on the demand side right now. Okay, now we got to focus more on the supply side.” And it’s just back to how difficult these businesses are to build, especially when you have limited resources, that it’s like the forever battle of building a marketplace.

Lenny: Yeah, especially if it’s a geographically oriented marketplace like a DoorDash. Sometimes you have more customers than restaurants.

Sarah Tavel: Right.

Lenny: Sometimes you have too many restaurants, not enough customers.

Sarah Tavel: Yes.

Lenny: So, it’s very city dependent. At Airbnb we had basically many attempts at a dashboard of which market is supply constrained, which is demand constrained. Along the same lines, I think it’s also something I think about with B2B marketplaces, the reason they’re challenging, in my experience, to work, there’s so few of them, is the supply is rarely fragmented. Usually there are very few suppliers, so it’s pretty easy. “I’m just going to pick one of these 10 and I don’t need you.” Is that true? Is that how you think about the challenges of B2B marketplaces?

Sarah Tavel: There’s definitely that, but I think actually the bigger challenge with B2B marketplaces is on the homogeneity of the supply. When you think about a lot of labor marketplaces, and let’s take a classic example of Mechanical Turk, right? What you need in a marketplace for that flywheel… I have a graph in my slides where you show that the more you penetrate the market, the happier you’re able to make your customer. You should have an exponential experience where the flywheel doesn’t slow down. Now you take Airbnb as an example, there isn’t a limit to how valuable it is to have more supply on Airbnb because everybody has their own special preferences. And there probably is a theoretical limit, but you just feel like there is always going to be the, there’s such heterogeneity in the supply for Airbnb, that that’s what has let Airbnb really close and escape competition.

With B2B marketplaces what sometimes happens, like a labor marketplace, is that you have this homogeneity in the supply, where it’s not clear that adding the next incremental unit of supply actually changes the experience for the demand side. And so at Mechanical Turk, whether Mechanical Turk has a hundred thousand Turkers or 5 million Turkers, it probably doesn’t really change the experience for somebody who is using Mechanical Turk. And that’s why in the early days, a Mechanical Turk, you saw a lot of other copycats or clones of Mechanical Turk doing something similar because it didn’t take that much supply for them to be able to create an experience for a segment of the market that was as good as the already scaled Mechanical Turk.

Lenny: Awesome. I’m glad we got into that. We’re getting real dirty about marketplaces. Exactly what I was hoping for. You said that you had something else you wanted to share along these lines.

Sarah Tavel: And there’s so many other examples of reasons why a marketplace won’t tip competition. Again, you’re a food delivery company and you go after the suburbs where there’s no competition. That makes your job really easy to tip the market. You go to New York City where you have an entrenched competitor of Grubhub plus Seamless Web, a different culture around delivery where the restaurants mostly have their own delivery fleets, and it’s just going to be so much harder for you to tip that market. And so, I think you have to be really context aware when you’re building a marketplace of what your competition’s going to be so that you see if there is a path for you to actually tip the market.

Lenny: And even if you’ve tipped the market, it may get untipped, like Uber comes in and starts to eat your lunch, no pun intended. It doesn’t last forever. You have to keep fighting for it.

Sarah Tavel: Well, and it’s such an important point, which is that you can never rest on your laurels when you’re building a marketplace. The history of places is one in which you have a marketplace that feels dominant and then gets disrupted by a competitor. HomeAway, VRBO being disrupted by the likes of you at Airbnb.

Lenny: I wish I could take credit for all that. Yeah, so one way I think about it is you’re talking about this idea of tipping is, a simple way to think about if tipping is happening, if you’re tipping it successfully, is percentage of your growth that’s starting to come from organic word of mouth, people just becoming like, “This is the default way I’m going to order food, travel, book a ride.”

Sarah Tavel: I think you see two things. You see one, the cohorts getting better. So people start using you more. As the supply side gets more diverse, you have more and more use cases that you start to be able to serve. And so you get the demand side leaning in more, the cohorts get better. And then to your point, you have the organic growth that happens where you don’t have to fight to get each new participant on both sides of your market. There’s something that starts to happen where the value proposition is just so strong relative to any other substitute that the market starts coming to you.

Lenny: Awesome. So essentially, cohort retention starts going up because more and more valuable, and more people are coming to you, just word of mouth or through some loops that you built.

Sarah Tavel: Exactly.

Lenny: Awesome. Anything else on this layer/level of the [inaudible 01:21:41] before?

Sarah Tavel: No.

Lenny: Okay, cool. Let’s talk about dominating the marketplace and what that looks like, and how you do that. How do you dominate a marketplace and win, Sarah Tavel?

Sarah Tavel: So yes, level three, and this is the one I feel like every founder who starts a marketplace, they’re chomping at the bit to be able to really focus now on growth. Because all along, I feel like we’ve been holding you back of just, “Focus, focus, focus.” And what you’re doing through level one and level two as you’re honing what you’re building, is that you’re basically building a playbook. You don’t yet know whether this playbook is repeatable. It’s not always the case that the dynamics of one market is the same elsewhere. I’ll take REKKI as an example. In the London food scene, there’s significant fragmentation of suppliers. In the Berlin food scene, that’s not the case. And so it’s not always the case that whatever you did in one market works in another market, but usually there’s something that rhymes. There’s a hint of what is going to work.

So what happens now is you have a market that’s tipping, and the question then is, are you ready to take your eye off the ball and start to diffuse your focus into other markets? So there’s kind of three vectors then that any marketplace can grow at this point.

The first vector is within the existing market where you already are tipping that market. You as a founder then have to make a very personal decision, that what you’re looking at is the context of your competitive situation. So if you’re tipping a market and you have no other competitor going after that market, you’re the first one to see this opportunity, then I think you have two things that you want to do at the same time to grow.

The first thing is that you want to take the existing market that you’re in and you just keep doing what you’re doing, and you may even find ways to stretch beyond that initial market that you’re going after-

… Beyond that initial market that you’re going after, within the same market. And so, what I mean by that is Uber went from black cars to UberX to UberPool. They kept on finding ways in the geographies where they were already dominant to keep on getting stronger by expanding the use cases that they serve. So you have continuing to grow and penetrate the market, find ways to answer more use cases in that market that you can do, especially if you don’t have a lot of competition. And then, the third vector of growth is you want to then try to get as many plates spinning in as many markets that you can handle as quickly as possible. And this is like the blitz scale, right? This is the land grab. And again, your equity value that you’re going to create is going to come from dominating the market.

And so you don’t want to plant a thousand flags in a thousand markets at the same time, spread yourself too thin, and not decidedly win any one market. You always want to put more wood behind fewer arrows. The more scale that you have, the more cities or categories where you have the flywheel starting to spin and you’re starting to see the tipping point happen, the stronger your company will be. Each market that you get, you have scale in, where you’ll have contribution profit. You take that contribution profit, you invest it in new markets. The more markets and contribution profit you have, the more venture capital you’ll be able to raise, which you then reinvest in growing. And so, this is really the place where you are, as aggressively as possible, while, at the same time, not losing sight of the fact that your goal is, in each market individually, to dominate that market, you’re trying to grow into as much possible market opportunity as you possibly can.

Lenny: And again, the reason this is so important is most founders that are ambitious start with this. They’re just like, “Go big immediately, blitz scale. We need to win fast before anyone catches up.” And so, again, it’s a reminder that’s the final step, once you’ve done these other two steps.

Sarah Tavel: Yes, and it’s such an important point, because don’t forget, you’re always going to be vulnerable to competition. And so, let’s say you have a million dollars, and you spread that million dollars of go-to-market costs across 10 cities, spreading yourself really thin. You have a competitor come in, and guess what? They put a million dollars into one city, they’re going to win that city, and that’s going to set them up for greater success down the road, to keep on being able to get more capital and more expense that they can put to work to grow those cities. And of course, we never have one competitor. Always have a lot of competitors. And so, focus on these steps is just, it really is such an important thing to have discipline around.

Lenny: And this is the reason that Uber went big and raised so much money, invested so much to scale so fast, versus Lyft. Same with DoorDash versus Uber. Basically, they’re both trying to dominate. Neither one, I guess, Uber, I don’t know if it’s safe to say, seems to have won in the market. DoorDash versus Uber Eats still very one and two-ish. So I think a lot of people look at these companies, they’re like, “They raise so much money, they’re losing so much money, they’re never going to work.” But they do this, because to build a durable business and to get the benefits of the idea of what the marketplace they built, they need to dominate, they need to be number one by far. And it doesn’t mean it always works. DoorDash, even though they’re bigger than Uber Eats, from what I understand, they’re not like… I don’t know, would you consider they’re dominant? Or is it still a big challenge?

Sarah Tavel: I don’t know. I don’t know. What is clear is that they’ve built an incredible company. It’s just an incredible… They’ve done an incredible job of doing what they do, and it is a crowded market still.

Lenny: So you can still build a great business, even if you don’t dominate, dominate. It’s just you won’t make as much money, nearly as much profit, basically, your cash flow.

Sarah Tavel: That’s right.

Lenny: Something that you all at Benchmark are really big on, which I think would be interesting to talk about, is the TAM not being as big a deal as people think. So a lot of times, there’s a lot of marketplaces that start very small, and there’s a fear that the market is just not going to be big enough for them to build a massive business long-term. And you all don’t worry about that as much as a lot of other investors, where the market itself isn’t a huge killer of investing.

Sarah Tavel: I would underline it even, which is that we get excited about the markets, the opportunities, that might seem small from the outside.

Lenny: I love it. Can you speak to that and help people understand [inaudible 01:29:10]?

Sarah Tavel: You remember the early days of Airbnb like, “How big could this get?”

Lenny: Yeah, I wasn’t there that early.

Sarah Tavel: Yeah, but you knew of it, and Etsy also underestimated for years and years and years. Hipcamp, that was part of what excited us is that it was this market that was actually much bigger than people would have thought from the outside. And the wonderful thing about going after these underestimated markets is that they don’t have competition in the beginning. And so, you have more of the elements of being able to operate into a market and tip the market towards you, when you don’t have competition. And so, we love these types of markets, and we always say, to the founders out there, if other people are telling you the market’s too small, we would love to get to know you.

Lenny: I think a lot of founders will love hearing this. I think it’s also important to add something you’ve shared with me is it’s important for there to be adjacent markets that are big, for you to have the potential to expand it to [inaudible 01:30:11].

Sarah Tavel: Right. And yeah, it’s such an important point. The market itself, it can’t be a cul-de-sac. You need to start somewhere that has the potential to grow beyond that, but in the beginning, it’s going to look small. Let me give you the example of Hipcamp. Hipcamp, when we invested, was literally land. It was land where people… I don’t know, Lenny, if you’re a camper. I unfortunately am…

Lenny: Yeah, I love Hipcamp by the way.

Sarah Tavel: Okay, well, amazing. Well, if you have a tent and a sleeping bag and you’re not afraid to put your thermos in a running river and clean the water, then that was the early days of Hipcamp. It was for the hardcore camper, which itself, feels like a very small market. It’s not actually that small, but it is a smaller market than other people might themselves get comfortable with. But then, what would happen is that hosts on Hipcamp, and I stayed at one of these Hipcamps, and it’s just such an incredible experience, the host started to make a little bit of money from Hipcamp. And they took that money, and they started to invest in structures on their land. So in the beginning, maybe it was a fire pit or a bathroom or shower, and then, it became a tree house or a yurt.

And so, what happened with Hipcamp is that, in the beginning, it was going after this very different market segment, but as they became successful, made their landowners money, those landowners invested that money back into their land and started to open up the market opportunity for Hipcamp, into people more like me, that are glampers, that want that experience in nature, but maybe don’t want to pitch a tent to have it. And so, that’s kind of one of those examples of an underestimated market that ends up growing beyond that. There’s warning stories here too. I always think of Etsy. So Etsy, I remember, actually, when I was at Pinterest, being driven crazy by Etsy, because Etsy was all about handmade goods. But as they were running up to going public, they started to chase GMV. And what that looked like is that they started to have a lot of mass produced goods on Etsy.

It drove me crazy at Pinterest, because there was this one seller of these scarves, that was clearly a mass produced scarves, and they were spamming Pinterest constantly with pins of those scarves. And it was just very clear that Etsy had kind of lost its way in that moment. They would start to chase GMV growth. They were going beyond what they actually stood for, and they ended up having a real reaction from the sellers that were making handmade goods and the buyers. It was this big erosion of trust, and they ended up, I don’t know if it was related, but it ended up precipitating, I think, a CEO change, to the CEO that is there now and who has obviously done an incredible job building Etsy from there.

Lenny: Yeah, we had the VP of product from Etsy on the podcast. And we talked about that actually, what that transition was like, because it was pretty dramatic. They went from very warm, fuzzy, cozy vibes to, “We need to build a business that lasts. Let’s change the way we operate.” While we’re on this topic of what gets you excited about marketplaces, this is something Mike suggested I ask you, so I love that you get excited when it’s a small market, very contrarian, what else, when founders are pitching you, let’s say with a marketplace, what else do you look for? Whatever you can share off the top of your head that you look for that gets you excited about marketplace.

Sarah Tavel: It’s a couple things. One is, and I’m thinking actually of one founder I met recently, where there’s that earned secret, where they see a market opportunity that other people are overlooking, that hasn’t been addressed. Maybe there’s a reason why it hasn’t been addressed in the past, but now is the moment, there’s something changing that’s creating a current in the market. We could talk about currents later, if we want to, but that there’s something that’s creating momentum in the market, that’s opening up an opportunity for this marketplace to exist. And for whatever reason, that founder is the person who sees it. And it’s kind of one of those things that, once you see it, you’re like, “How does it still work this way?” And it makes so much sense for somebody to come in and do something about it. And then, the second thing that always just deeply resonates, and it’s obvious at this point why this would be true, is a founder then that really has focus.

And it’s kind of back to focusing their ambition, like a laser beam, as opposed to this broad sun trying to do everything. And so, you really feel like they’re focused on the right things, and that actually leads to the third thing, which is you really feel, when a founder is either trying to fool you or fool themselves with vanity metrics, versus the true intellectual honesty and the intellectual rigor of, “What’s really working in my business? What’s not working? Where are we focused to make that the best it can be?” And man, that is always, that’s how you build long-term, enduring value, and it’s something that I think it’s consistent across all the founders I’m lucky enough to work with.

Lenny: What I love about this answer is something I often say about marketplaces is that most of your problems are not marketplace problems or questions. It’s just what every startup has to deal with. So what you shared is basically an earned secret, which will apply to any business, which maybe emerges a current in a wave that you can ride, having great focus and also focusing on the right metrics. I 100% agree. And it’s also interesting, it could be a marketplace, it cannot be, and I think people often overweight how much… “I’m building a marketplace and I need to think of everything,” from this marketplace perspective versus 95% of your challenges, questions, hurdles are going to be just whatever startup has to deal with. And then, there’s a bit of specific to marketplace.

Sarah Tavel: And I want to just double click on the current thing, because it’s very related, which is a lot of people, and this is back to maybe our contrarian take on markets, I think a lot of people think about markets almost like these bodies of water. And it’s like, “Oh, it’s this big body of water that we’re going after.” And I actually think that the most interesting markets, you have to think of them like currents, where there’s something happening in the market that’s creating this current, where you can have a plank of wood that you’ve put on the river and it’s going to pull you forward, versus a market that doesn’t really have that momentum to it, you’re going to have to build something really big and fancy to make any progress. And that’s why we care less about market size, because really, what you’re looking for when you’re looking at a market are what are the dynamics of change, what’s the current and momentum that’s going to pull the company and make the job easier for the founders to actually build something that endures?

Lenny: Essentially, “Why now?” is how a lot of people think about this, right?

Sarah Tavel: Yes, yes.

Lenny: I love just the visual of a current. There’s a startup I invested in, as an example of the opposite, that’s a crypto marketplace sort of thing. And they started it when crypto was really great, and they continued building it as crypto winter emerged. And they just realized, “Our timing, this is not the time to build a crypto company, that’s new, that’s trying to compete with who’s out there.” And so, it’s an example of the… You got to recognize when the wave is going the opposite direction and everything is pulling you away from success. The opposite of what you’re describing.

Sarah Tavel: Yes. I might have a nuance there, because I think crypto is too broad of a way to describe it. If you said it was a DeFi crypto company, then yes, definitely, with treasuries where they are, the opportunity in DeFi isn’t as material as it once was, which stablecoins, I’m a huge believer in stablecoins, and I think that’s a market where we have a real current. With inflation and so many local currencies, there’s real demand for stablecoins, the US dollar stablecoin, that comes in many different shapes and forms, that is something that I believe has a very strong current right now, that I’m actually quite excited about.

Lenny: Oh, interesting. Yeah, I should have been clear. It’s like a very specific part of crypto that’s just not happening too much, versus what it was. Okay, we’ve gone totally off track. So let me come back to our track and see what else you wanted to share around the hierarchy of marketplaces either on the top…

Sarah Tavel: That’s it.

Lenny: Okay. We did it. Amazing.

Sarah Tavel: Yes.

Lenny: I have a couple more questions sort of related, but I guess, is there anything else that you wanted to say about the hierarchy of marketplaces?

Sarah Tavel: Maybe just this kind of the coda, which is like you can never rest on your laurels, and we talked about this already, but the history of marketplaces is one of disruption. And the idea with happiness is that, and Amazon and Bezos talk about this, which is expectations, consumer expectations, are constantly going up. And so, if you ever stagnate in the experience that you give to the consumer, guess what? You’re going to get disrupted. And the examples of we talked about with Airbnb and HomeAway, DoorDash, and Grubhub, Grubhub wasn’t able to, for different reasons, they were a public company, and so, they couldn’t access capital in the same way that the private markets could. But they were too slow to change the atomic unit of their supply to have delivery that they fulfilled. And so, they got disrupted by the DoorDash, Uber Eats of the world. And so, you just can’t rest on your laurels. Expectations constantly go up. And it’s part of what’s so exciting about this market that we play in.

Lenny: I think Grubhub is a great example of that, where they were the first really successful food delivery company, and then, even with network effects, by far, the best way to order. And then, DoorDash comes around and wins, because they go bigger and spend a lot of money that Grubhub wasn’t willing to spend. Awesome. So I guess the advice there is just don’t take for granted your success, even if you have amazing network effects.

Sarah Tavel: That’s right.

Lenny: Okay. So as we were chatting about this conversation, something you mentioned is that, even if you’re not building a marketplace, these lessons are actually still useful. So say you’re building an open source product or a social network or even a SaaS startup, a lot of these sort of lessons can still apply. What advice would you have for people that have heard what you just shared, but aren’t necessarily building a marketplace? What are some of the takeaways as well?

Sarah Tavel: At Benchmark, I’m lucky that I have partners who look at very different types of companies that I look at, and we meet such a incredible breadth of founders. And what you just realize, again and again, is that these same lessons hold. With open source, it’s about solving a specific developer’s need in the beginning and solving it really freaking well, and then, expanding from there. With SaaS, I think maybe the fascinating exception, kind of similar to your Thumbtack exception, I think what Parker Conrad’s doing with Rippling and this idea of a compound startup is very different. And actually, he has a level of ambition that is both the sun and a laser at the same time. And so, that’s kind of, in a rare founder, you can have that level of execution, but again and again, what you see, and I think a lot of this, for new companies leveraging large language models to build products, is that focus on a constrained market to start is the way to win.

Lenny: I like that. Basically, it’s happy developer in the case of DevTools or happy enterprise user, just get happy people using your product and coming back to it. So I love that as a reminder. One other question is you wrote this post on finding white space in building marketplace, basically someone that wants to build a marketplace, trying to figure out, where is there an opportunity for new marketplace? Do you have any advice for people, say, founders, potential founders, that are looking for ideas and opportunities to build a marketplace for how to find one? Where do you think there’s opportunity?

Sarah Tavel: It’s kind of fun to ask the question whether LLMs change the game or open up new surface area. So in my post, I write about three ways that you can look for a new opportunity. I think it was like, number one, you always find a horizontal marketplace and you find the kind of low NPS part of that segment and you create a marketplace around that. eBay, being a horizontal marketplace, the sneakers being a low NPS part of that, and you get GOAT. The second is finding a niche that no one else is paying attention to. And the Etsy examples we gave, the Hipcamp stories, and bringing that online, taking friction away, and showing that it’s actually a bigger market than you think. And then, the third is changing the atomic unit of the supply. So that kind of like Grubhub, the atomic unit there was a restaurant that has its own delivery fleet, and then, Postmates, DoorDash, Uber Eats came in and said, “Actually, it’s any restaurant, we’ll provide the delivery fleet.”

And so, they opened up the available supply. Now, when I think about LLMs, I think there’s a real opportunity for the third one. LLMs may make it possible to bring on a supply type that maybe the long tail, that was just, it was too much effort to reach out to them, onboard them, but maybe if you automate that work, you actually create an opportunity to expand the supply in a way that none of us can anticipate right now. And then, who knows whether there’s an opportunity with LLMs to create a better experience in one of these kind of low NPS segments of a market or a niche market itself, that makes it possible to bring it online. So I haven’t seen anything yet, but I am definitely on the hunt.

Lenny: Very cool. Turned into AI corner, which I love. Okay, well, with that, we reached our very exciting lightning round. Are you ready?

Sarah Tavel: Okay, I’m ready.

Lenny: What are two or three books that you’ve recommended most to other people?

Sarah Tavel: Pachinko is one of the best fictional books I’ve read in a while. I just loved it, and so, I highly recommend that. And then, to founders, I am a sucker for The Five Temptations of a CEO and The Five Dysfunctions of a Team. It’s kind of like you imagine those books in the grocery store aisle, but they’re fast reads that are incredibly insightful and I highly recommend.

Lenny: Is there a favorite recent movie or TV show that you really enjoy?

Sarah Tavel: I don’t watch stuff, so I’m not a good candidate there.

Lenny: I highly respect that. Is there a favorite interview question that you like to ask candidates, which usually, we can transform into when you’re talking to founders and trying to decide if you want to invest?

Sarah Tavel: I always love hearing the journey people take and specifically how they’ve made decisions along the way, what drives them from each step. I think that’s always very illuminating.

Lenny: Do you have a favorite product you’ve recently discovered that you really love, whether it’s an app or physical product that you’ve used often? Anything real cool or fun?

Sarah Tavel: I’ll say we are late joiners to Tesla, my family. And man, it is one of those products that you use it for the first time, and you’re just like, “I could see why I’d want to own equity in this company,” not financial advice obviously, but it’s just an awesome experience.

Lenny: I completely agree. I’ve gotten so used to, we have a regular car and a Tesla, and the fact that you don’t need a key anymore, you just walk up and open it, because it has your phone… My wife, she left the key in our Subaru, just because she’s like, “Oh, shit, I need to take the key out.” It’s just sitting there running. Yeah, you’re so used to just the casual just walk up, open, you’re good to go. Awesome. Do you have a favorite life motto that you often repeat to yourself, share with people, either in work or life, that you find useful?

Sarah Tavel: My partner at Greylock, Reid Hoffman, has this line of every strength has a corresponding weakness, and vice versa, and there’s so much wisdom there. We see our own strengths and we see our weaknesses, but not realize that they actually go together. You can’t have one without the other. Similarly, strengths in organizations, like a decentralized organization can move really quickly, and the corresponding weakness of that is that it can feel chaotic and disorganized. On the other side, a centralized organization can feel really slow, but it is very intentional in the decision-making and the control of the experience. And so, everything has trade-offs, and realizing that, more often than not, they come together, it’s just so useful to be aware of that.

Lenny: Awesome. Final question. I believe you played rugby at some point, is that right?

Sarah Tavel: Yes.

Lenny: Okay. Is there a rugby story that would be fun to share from your time playing rugby? And if not, what should people know? What would surprise people about rugby, that they may not be aware of?

Sarah Tavel: Well, what people might be surprised of, especially if they meet me, is that I was actually a really good tackler, and I think I broke my nose a couple times and have more injuries than I would care to remember, but I definitely inflicted more injuries on other people than I received. And I think rugby is, there’s a camaraderie that comes with rugby, and the one thing I’ll confess is that we always joke that the rugby team is, it’s not a rugby team, it’s a drinking team, that has a rugby problem.

Lenny: Amazing.

Sarah Tavel: Those times are behind me.

Lenny: Oh, man. It sounds like an awesome person to have in your court when you’re a founder, the best tackler in town.

Sarah Tavel: Heck yes.

Lenny: Amazing. Sarah, I’m not surprised this went as long as it did. Thank you so much for being here. Two final questions. Where can folks find you online if they want to reach out and maybe ask follow-up questions? And how can listeners be useful to you?

Sarah Tavel: I appreciate that. I’m Sarah at Benchmark. I’m on Twitter, Sarah Tavel, and I have a Substack, SarahTavel.com. If you’re a founder, you’re working on something, don’t be shy. We’re in the business of meeting with people like you, and so, I always love to get stimulated by new ideas and people.

Lenny: Just to focus people even more there, is there stage you like, is there markets, anything people should know of what’s right for you?

Sarah Tavel: We, at Benchmark, we’re early stage. We’re an early stage firm. We aspire to be first board member. Usually, it looks like the series A, and that’s really where our sweet spot is.

Lenny: Awesome. Sarah, thank you so much for being here.

Sarah Tavel: Thank you for having me.

Lenny: Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review, as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.

Glossary

English	中文
activation	激活
adjacent market	相邻市场
aha moment	啊哈时刻
atomic unit	基本单元
B2B / B2C	B2B / B2C
Benchmark	Benchmark（风投机构，保留原文）
big rocks	大石头（指最重要的事项）
Bill Gurley	Bill Gurley（人名，保留原文）
blitz scale	闪电式扩张
capital	资金
cohort	同期群
collaborative journals	协作笔记本
compound startup	复合型创业公司
contribution profit	贡献利润
core action	核心行为
CPO (Chief Product Officer)	首席产品官
crypto winter	加密寒冬
cul-de-sac	死胡同
currents	浪潮（指市场中正在形成的趋势/动能）
DeFi	DeFi（去中心化金融，保留原文）
discovery surfaces	发现类界面
DoorDash	DoorDash（外卖平台，保留原文）
dormant user	沉睡用户
earned secret	靠努力换来的洞察（指创始人通过亲身经历获得的市场洞见）
engagement	参与度
Fabrice Grinda	Fabrice Grinda（人名保留原文）
flywheel	飞轮
follow graph	关注图谱
fragmentation	碎片化
glamping	豪华露营
GMV (Gross Merchandise Value)	GMV（商品交易总额）
go-to-market	市场推广
GOAT	GOAT（运动鞋交易平台，保留原文）
Greylock	Greylock（风投机构，保留原文）
growth hacking	增长黑客
growth loops	增长循环
Grubhub	Grubhub（外卖平台，保留原文）
happiness loops	幸福循环
happy GMV	Happy GMV（满意 GMV，保留原文作为专有概念）
happy path	幸福路径
heterogeneity	异质性
hierarchy	层级
Hipcamp	Hipcamp（交易平台公司名，保留原文）
HomeAway	HomeAway（度假租赁平台，保留原文）
homogeneity	同质性
incumbents	在位者
intellectually honest	理智诚实
K-factor	K-factor（病毒传播系数，保留原文）
land grab	跑马圈地
leaky bucket	漏水桶
liquidity	流动性
Lyft	Lyft（网约车平台，保留原文）
Marco	Marco（人名，保留原文）
marketplace	交易平台
MAU (Monthly Active Users)	月活跃用户数
Mechanical Turk	Mechanical Turk（Amazon 众包平台，保留原文）
minimum viable happiness	最低可行满意度
network effect	网络效应
North Star	北极星
NPS	NPS（Net Promoter Score，净推荐值，保留原文）
NUX (New User Experience)	新用户体验
optionality	可选择性
organic growth	有机增长
Pachinko	《柏青哥》（韩裔美籍作家李敏金的小说，使用公认中文译名）
Parker Conrad	Parker Conrad（人名，保留原文）
Pinterest Graph	Pinterest Graph（专有名词，保留原文）
plateau	平台期
playbook	打法
Postmates	Postmates（外卖平台，保留原文）
product market fit	产品市场匹配
re-engagement loop	再参与循环
Reid Hoffman	Reid Hoffman（人名，LinkedIn 联合创始人、Greylock 合伙人，保留原文）
REKKI	REKKI（交易平台公司名，保留原文）
retention	留存
Rippling	Rippling（公司名，保留原文）
Ronan	Ronan（人名，保留原文）
saturation point	饱和点
Seamless Web	Seamless Web（外卖平台，保留原文）
Sean Ellis	Sean Ellis（人名，保留原文）
Secret	Secret（匿名社交应用，保留原文）
self-perpetuating	自我驱动
Series A	A 轮
smile graph	微笑曲线
stablecoin	稳定币
Subaru	Subaru（汽车品牌，保留原文）
Substack	Substack（内容订阅平台，保留原文）
TAM (Total Addressable Market)	TAM（总可达市场）
The Five Dysfunctions of a Team	《团队的五种功能障碍》（Patrick Lencioni 的管理著作，使用公认中文译名）
The Five Temptations of a CEO	《CEO 的五种诱惑》（Patrick Lencioni 的管理著作，使用公认中文译名）
thimble	顶针（比喻极度聚焦的小市场）
Thumbtack	Thumbtack（服务平台，保留原文）
tip the market	倾斜市场
tipping loops	倾斜循环
tipping point	临界点
Turkers	Turkers（Mechanical Turk 上的工作者，保留原文）
Uber Eats	Uber Eats（外卖平台，保留原文）
UberPool	UberPool（Uber 服务类型，保留原文）
UberX	UberX（Uber 服务类型，保留原文）
user acquisition spend	用户获取花费
vanity metrics	虚荣指标
VRBO	VRBO（度假租赁平台，保留原文）
WAP (Weekly Active Pinners)	周活跃 Pin 用户（weekly active pinners 的缩写）
weekly active pinners	周活跃 Pin 用户
white hot center	白热中心
white space	机会空间
winner take most	赢家通吃（多数）
yurt	蒙古包

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Reformatted by reformat_english.py