All Segments
"Hierarchy of Marketplaces" with Sarah Tavel at the 2020 Product Leader Summit
35 segments available
How do you build an enduring, profitable marketplace? In this presentation, Sarah Tavel lays out a framework that synthesizes her learnings, both as an investor at Benchmark, and as an operator at Pinterest. She discusses how to focus correctly when you kickstart a marketplace. Then what it takes to tip a market. And lastly, how to build dominant, “winner take most” value. Sarah Tavel is a General Partner at Benchmark. Sarah invests in consumer businesses (particular focus on marketplaces & social), SaaS, and the future of work. Sarah led Benchmark's investment and currently sits on the boards of Chainalysis, Hipcamp, Rekki, and three additional unannounced companies. Prior to Benchmark, Sarah was a Partner at Greylock Partners, where she led Greylock's investment in Sonder and Gixo (acq). Before Greylock, Sarah was the product lead for search, recommendations, machine vision, and pin quality at Pinterest. As one of the first 25 employees, her first order of business was to launch Pinterest internationally and close the Series C financing. Sarah then moved into product, becoming Pinterest’s founding PM for search and discovery, and launching Pinterest’s first search and recommendations features. She also led three acquisitions as she helped the company scale through a period of hyper-growth. Sarah graduated from Harvard College with a degree in Philosophy. How do you build an enduring, profitable marketplace?
Segments Timeline
Introduction to Marketplaces
Sarah Tavel introduces her presentation on the hierarchy of marketplaces, emphasizing the importance of interaction and engagement. She shares her journey in developing the content, highlighting the patterns observed in marketplaces and their relevance to various sectors. This segment sets the stage for understanding the complexities of building a successful marketplace.
"thank you so much for coming to this um i i presented another presentation i had done for on the hierarchy of engagement i called it at another give conference and it was a lot of fun because it was y..."
The Challenge of Marketplaces
Tavel discusses the inherent challenges of building a marketplace, particularly the need to create two businesses simultaneously: one for supply and one for demand. She emphasizes the difficulty of maximizing chances for success and introduces the concept of a hierarchy that will guide the discussion on marketplace strategies.
"you know the as i've been as i was putting this presentation together and it took just so you know like this wasn't something that i was like oh i just have this hierarchy i'll just write it down into..."
Understanding Marketplace Dynamics
In this segment, Tavel outlines the three levels of marketplace strategy: focus, tipping the market, and dominating the market. She stresses the importance of starting with the goal of domination and working backward to develop effective strategies for achieving that goal.
"but so i'm gonna i'm gonna dive in please please uh you know interrupt me if you have questions again i will i will try to um go fast and so i can get through things but um but so that i can have time..."
The Importance of Focus
Tavel dives into the necessity of focus when building a marketplace, addressing the 'chicken or egg' problem of supply and demand. She warns against the common mistake of optimizing for transaction growth instead of creating meaningful value for buyers and sellers, particularly emphasizing the happiness of the buyer.
"the question that i think about um a lot is how do you maximize your chances of of getting to that place where you've that you've won i'll skip this but a lot of marketplace experience a lot of um ins..."
Redefining Success Metrics
Tavel critiques the traditional focus on Gross Merchandise Value (GMV) as a success metric, arguing that it can be misleading. Instead, she introduces the concept of 'happy GMV,' which prioritizes the happiness and satisfaction of buyers over mere transaction volume, illustrating this with real-world examples.
"to if you kind of think of domination which is that is a goal like you want to be number one by a wide margin that's when you build the the business that i described before in order to get that you ha..."
Case Studies: Uber and DoorDash
In this segment, Tavel compares Uber and DoorDash to illustrate how transformative product experiences can disrupt established markets. She highlights how Uber's focus on user experience allowed it to succeed in a competitive landscape, while DoorDash's strategic focus on underserved markets enabled it to outperform Postmates.
"and so let's start with that focus um so you know everybody like one of the things that is really difficult about marketplaces and everybody talks about this is like solving the chicken or the egg pro..."
The Power of Niche Focus
Tavel discusses the advantages of targeting niche markets, using examples like Goat's focus on secondhand sneakers. She explains how identifying and dominating an overlooked vertical can lead to significant competitive advantages, contrasting it with broader, less focused strategies.
"really what your goal is is to grow transactions that make your buyers and sellers but particularly your buyers like with the marketplace you need supply yes but like it really is about the value prop..."
Building Trust Through Policies
Tavel emphasizes the role of product policies in enhancing marketplace success. She uses Goat's commitment to authenticity as a case study, explaining how establishing trust through clear policies can differentiate a marketplace and disrupt larger competitors like eBay.
"city but you know the like what you know what did uber do uber had this transformative product experience and so it didn't matter how much bigger taxes were like scale was irrelevant to uber's ability..."
The Challenge of Competition in Marketplaces
Sarah Tavel discusses the intense competition faced by marketplaces like DoorDash and Postmates. She highlights how DoorDash's focus on underserved suburban markets allowed it to thrive, while Postmates had to contend with a saturated market in urban areas. This segment emphasizes the importance of strategic focus in marketplace success.
"potential gmv than any of the suburbs but there was a lot of competition um and they went after a lot of different categories so they really diffuse their focus across cafes restaurants retailers like..."
Authenticity as a Competitive Edge
In this segment, Tavel explains how Goat, a marketplace for sneakers, disrupted eBay by ensuring the authenticity of products sold. She illustrates how policy decisions can significantly impact marketplace dynamics and user trust, using Goat's commitment to authenticity as a key example of creating a competitive advantage.
"ebay which is secondhand sneakers uber going after black cars um and so your your focus and then you want to use like there's always an orientation towards supply side acquisition in marketplaces and ..."
Maximizing User Happiness in Marketplaces
Tavel introduces the concept of 'minimum viable happiness' and discusses how marketplaces can measure user satisfaction. She emphasizes the need for a clear understanding of what makes users happy, using examples like Uber's quick service to illustrate how operational metrics can guide marketplace growth and retention strategies.
"that they were it was like a a startup another startup that was uh running on fumes the the founders were brainstorming um a pivot and then one of the founders got a pair of sneakers he bought off of ..."
Tipping the Market: When to Scale
In this segment, Tavel explains the importance of knowing when to scale a marketplace. She discusses the concept of tipping the market and how to identify when a marketplace has achieved enough user retention and satisfaction to warrant growth efforts. This insight is crucial for entrepreneurs looking to expand their marketplace successfully.
"net revenue retention because the whole point is if someone has a happy experience with you then they should come back to your experience and so maybe it turns out that the four or five on the rating ..."
Understanding Overlooked Markets
Tavel addresses the concept of overlooked markets, using DoorDash's strategy of targeting suburban areas as a case study. She explains how to evaluate whether a market is worth pursuing and the importance of ensuring that the market has potential for growth and repeat business, avoiding dead-end opportunities.
"you're you're going after because you know if you go to travel um you can imagine that the supply side should have actually greater than 100 net revenue retention because you want to find the supply a..."
Identifying Sustainable Market Opportunities
In this segment, Tavel elaborates on how to identify sustainable market opportunities by assessing buyer needs and potential for repeat use cases. She emphasizes the importance of ensuring that solving a problem for buyers leads to further opportunities, thus creating a viable marketplace strategy.
"before yeah yeah nice to connect with you um we're um i'm interested in this idea you're talking where about happiness and a lot of the newer marketplaces you mentioned are more managed than some of t..."
The Flywheel Effect
Sarah Tavel elaborates on the flywheel effect in marketplaces, where initial efforts lead to exponential growth. She describes how increased utilization for both buyers and suppliers enhances the overall experience, creating a self-reinforcing cycle. This segment emphasizes the importance of systematic growth strategies once the marketplace begins to tip.
"that's super helpful thank you so let me zoom in to level two um just because i i don't wanna run out of time for level three so tipping so now okay we've got minimum viable happiness so we've you've ..."
Growth Focus Loops
In this segment, Tavel discusses growth focus loops, which leverage existing buyers and suppliers to acquire new users. She illustrates how satisfied users can become advocates for the marketplace, driving organic growth. This concept is vital for marketplace operators looking to scale efficiently.
"easier and all of a sudden you see two things that happen which is first you start to see that your existing cohorts are retaining better and what i mean is like they're they're like starting to do mo..."
Happiness Loops in Marketplaces
Tavel introduces happiness loops, which allow marketplaces to scale supply without compromising buyer satisfaction. She explains how mechanisms like search ranking and reputation systems can enhance user experience and retention. This segment highlights the importance of maintaining quality while expanding the marketplace.
"growing you can see that you as you go up the chart what happens in the marketplace is that the happiness that you're able to create for the buy side supply side is a function of how much you've penet..."
Maximizing Marketplace Loops
In this segment, Tavel emphasizes the need to identify and maximize marketplace loops to drive growth. She discusses strategies such as incentivizing referrals and creating recognition systems to enhance user engagement. This insight is crucial for marketplace leaders aiming to foster a thriving ecosystem.
"um and i think of this as as tipping loops so um and i and i think there's kind of two loops that two types of loops that work together to create momentum for you systematically um so the first is jus..."
Reducing Friction for Growth
Tavel discusses the importance of reducing friction in marketplace transactions to facilitate smoother operations. She explains how minimizing obstacles can enhance user satisfaction and encourage repeat usage. This segment provides actionable insights for marketplace operators looking to optimize their platforms.
"about hip camp so you're kind of using the existing energy you have from your buyers and sellers to acquire more buyers and sellers for you the the second type of loop is what i call happiness loops a..."
Identifying Overlooked Markets
In this segment, Tavel addresses how to identify markets that are overlooked yet have the potential for tipping. She outlines key factors to consider, such as competition and market fragmentation, that can influence a marketplace's success. This knowledge is essential for entrepreneurs seeking viable opportunities.
"on ubereats because even the restaurants that they would choose were biased towards ones that would perform that that experience um reputation is another classic classic uh loop where you know if a bu..."
Hurdles to Market Tipping
Tavel outlines six critical hurdles that can prevent a marketplace from tipping successfully. She discusses the impact of competition, market fragmentation, and regulation on marketplace dynamics. This segment provides a strategic framework for understanding the challenges faced by new marketplaces.
"these loops are all about the happiness loops and so then your job when you're building a marketplace is to identify these loops and maximize them so before i just said hey make it easy for your drive..."
Navigating Market Challenges
In this concluding segment, Tavel emphasizes the need for marketplace founders to be vigilant about the challenges that can arise during growth. She discusses the importance of maintaining value for both buyers and suppliers to ensure long-term success. This segment encapsulates the key takeaways for building a resilient marketplace.
"it is um you get a super host and then if you get that badge first of all everybody wants that badge because it shows in search and it increases conversion and it feels good to get it and then they ha..."
Identifying Tipping Markets
Sarah Tavel discusses the importance of identifying markets that are susceptible to tipping when building a marketplace. She emphasizes that without the potential for tipping, achieving dominance becomes challenging. Tavel outlines key hurdles to watch for, including competition and market fragmentation, which can hinder a marketplace's success.
"i got was like how do you know if uh the marketplaces that you're going after is overlooked um i didn't i didn't want to go into this part yet but now i get to talk about it because one of the things ..."
The Role of Competition
In this segment, Sarah Tavel highlights how competition affects marketplace dynamics. She explains that having less competition or weaker competitors can significantly enhance the chances of success. Tavel stresses the need for vigilance in maintaining value for both buyers and sellers, especially during periods of hyper-growth.
"so how do you make sure the market you're going after will be susceptible to tipping watch out for these six hurdles and i'm going to go through these super quickly one competition obvious like if you..."
Market Fragmentation Challenges
Tavel elaborates on the concept of market fragmentation and its impact on marketplace viability. She warns that if a market is too concentrated, it becomes difficult to attract buyers and sellers to a new marketplace. This segment underscores the necessity of ensuring a fragmented market to foster engagement and growth.
"the buyers or sellers depending on what side is concentrated to lean in on your marketplace and to care about your marketplace because they've already won and so you have to make sure it's fragmented ..."
Navigating Regulation and Homogeneity
Sarah Tavel addresses the challenges posed by regulation and homogeneity on the buy side in marketplaces. She explains how regulation can either enable or shut down marketplaces and emphasizes the need for diversity in buyer needs to ensure sustained marketplace growth. Tavel uses examples to illustrate how homogeneity can stifle innovation and market tipping.
"regulation obvious like they're you know for a while um you know there's just so many ways in which i've seen regulation shut down marketplaces and enable them and so you just have to be hyper vigilan..."
Cornering the Buy Side
In this segment, Tavel discusses the importance of cornering the buy side in a marketplace. She explains that successful marketplaces create a strong connection with buyers, making them the go-to option for services. Tavel contrasts this with platforms that struggle to retain buyers due to infrequent transactions, highlighting the need for consistent engagement.
"tip the market um, you, know, this, is, one, of the, things that my partner bill talks about a lot which is that there's a lot of marketplaces that aggregate supply but never actually corner the buy s..."
Activating New Suppliers
Sarah Tavel shares strategies for activating new suppliers in a marketplace. She discusses the challenges of competing against established suppliers and suggests techniques to boost visibility for new entrants. Tavel emphasizes the importance of balancing known quantities with potential 'diamonds in the rough' to enhance buyer experiences.
"the experience you need to have otherwise or just lead gen for the supply side okay level two um i've got i think it's 15 minutes or so you've got um about 10. but we started five minutes late so that..."
The 10x Marketplace Experience
Tavel introduces the concept of a '10x better experience' as a key to marketplace success. She uses Airbnb as a prime example, explaining how its disruptive value proposition allowed it to dominate the market. This segment highlights the significance of creating memorable experiences that keep consumers returning.
"people do is they they do have a boost that they do to new suppliers in search to make sure that they're getting exposure to to actual eyeballs um and having some kind of mix there so that me as a buy..."
Winning the Marketplace Race
In this segment, Sarah Tavel discusses strategies for achieving and maintaining market dominance. She explains that being number one by a wide margin is crucial for profitability. Tavel draws parallels with the competitive landscape of food delivery services, illustrating how market share impacts profitability and growth.
"market um and what airbnb had was just so disruptive and just so much better than anything else and cheaper that one experience was enough to own it in the consumer's mind and have people come back to..."
Expanding Use Cases for Buyers
Tavel concludes by discussing the importance of expanding use cases for buyers in a marketplace. She emphasizes that as a marketplace grows, it should seek to enhance repeat usage by diversifying offerings. This segment encapsulates the ongoing strategy needed to sustain growth and engagement in a competitive environment.
"and so you um that's the goal number one by a wide margin the bigger you are the more profitable you'll be and and so you and you want to do that in each market like each market you win and get to dom..."
Expanding Use Cases for Repeat Usage
Sarah Tavel discusses how successful marketplaces like Uber and Airbnb expanded their service offerings to increase repeat usage. She warns against compromising brand integrity for growth, citing Etsy's experience with mass-produced items that degraded trust among users.
"know uber went from black car to uber x to pool they kept on expanding now you i mean then they had scooters but they kept on expanding the use cases that they solved for to get more repeat usage more..."
Focus on Core Markets
In this segment, Tavel advises founders to concentrate on their core markets and avoid overextending into new cities unless they have a significant competitive advantage. She illustrates this with Postmates' aggressive expansion that ultimately wasted resources and diluted their market position.
"now like it's just an unbelievable runaway company um when there is competition what i always tell founders is don't try to take on more cities um if you're not already 2x uh your largest competitor i..."
The Importance of Paranoia
Tavel stresses the need for continuous vigilance in competitive markets. She shares examples of companies that became complacent and were overtaken by more agile competitors, highlighting that maintaining a sense of urgency and paranoia is crucial for sustained success.
"move out of the city if you are greater than 2x your largest competitor in your core then you could basically do that land grab playbook that i talked about but instead of it being a hundred percent t..."
Shopify's Disruptive Strategy
Sarah Tavel explains how Shopify disrupted the e-commerce market by simplifying the process for individuals to start their own online stores. She discusses how Shopify democratized access to e-commerce tools, significantly increasing demand and setting a new standard in the industry.
"raising and so keep pushing that's it so what um i have time for some slides and sarah's going to make me show this but um i uh so any any questions mark steven um you had a couple of questions in the..."