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

27:38Perfect. These are the moments when I should probably turn the mic over to you to talk about. You're honest. But you know, a cohort, you just, what I always like to look at is weekly cohorts for these products, and you look at them in two ways, which is one, for each vintage of cohorts, you're looking at 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 basis of like our users completing the core action, how is that changing over time for each of the cohorts, and then also looking at activity level within those cohorts?

28:29And so what you love to see is the kind of classic smile graph where as the network grows and users start to use a product more and more, you start to see that over time they actually become more retained in the product as opposed to kind of the classic, you know, 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 many times also you'll meet a founder and they will, you know, there was one example I saw, it was kind of a dating app, friend making app, and he was growing at via TikTok, which is not geographically constrained at all.

29:25And so you're growing, you know, he's growing the user numbers, but without focusing on the specific geography, it's going to be really difficult to make that type of product a high retention product. Coming back to the framework, which layer do you find most often as the one founders maybe are under investing in slash, maybe the most important to focus on if you had to pick one of these, or is it super dependent on your situation? What I often feel is that a lot of times product founders, consumer founders, see where they want to get to. You know, they see, they compare themselves to the full expression of a product that you see with other products, you know, Roblox, Instagram, TikTok, whatever it may be, and they want to get there.

30:19But what that ends up, meaning when I knew the user signs up, is that there's almost, there's too much in the beginning 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 the importance, part of the importance of understanding, you know, 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.

31:03And a lot of times in the beginning, there are just so many other things that a product might have, that you're diffusing that attention that they would otherwise have had on the thing that's most important. And so I feel that that's kind of where I always, 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. 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. Yes. To close the loop on this sort of discussion, can you just share again a few examples of core actions slash activation moments just to make this fresh again in people's minds?

31:53And then also just whatever you could share but helping people decide what that is. I know there's like a whole, it's a difficult thing to do well, but any advice for how to find that activation. 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 where we as 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?

32:29And 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 gonna 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.

33:16So 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? We basically ranked that. And what we saw was that if you pinned something, repinning 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.

34:02And 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, if the click through is valuable, you want to 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 pins something doesn't go up, or the number of pins for that cohort doesn't go up, that experiment is not a successful experiment.

34:58Awesome. There's a post -allington in the show notes where there's actually a guide to doing this regression analysis on how to figure out your activation milestone. Basically, what is most causal of retention as you're describing? And I love this example from Pinterest. And either just examples again, you shared a few at the beginning of just examples of great activation milestone slash core user actions. 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 Shashir Mehta, who is the kind of CPO of YouTube, he reached out to me and he said, you know, that's what it was in the early days, but we started to realize that it wasn't actually our core action.

35:50And 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, you know, one of the funny things that will bridge to our next conversation is that all social products are really marketplaces, right?

36:37YouTube 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 worked for me having found creators for whom I, like their content really resonates with me, so much so that I subscribe to their content. And so I loved that example because it also, 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.

37:26Awesome example. And I think it's also good reminder, people change these things. You come up with your best bet. Okay, we tried this for six months. Maybe let's try some else. We've learned something new. Exactly. I'm also going to link to this post I wrote around finding your North Star metric, which this is like such a multimedia conversation with just links for all these topics to go deeper. Essentially I figured out the North Star metric for 30 companies and I feel like the North Star metric of a company ends up often being this core user action. So like Pinterest sounds like those waps, weekly active pinners.

38:00Yeah, pinners, yeah. And YouTube is very. In the beginning we called it weekly active repinners and war. We felt like we were at war so it was good. And it became peace time maybe. Yes, exactly. 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 there may be not growing as fast as they want or they're just getting started as a founder, building consumer product? Yeah, I just I think about consumer founders, product founders, product leaders in these companies that are thinking through the roadmap.

38:37What is some most important things that they need to prioritize the big rocks for the immediate short term? And it's the framework then provides a lens on what to prioritize. And we'll link to the whole framework for people that want to go deeper. Awesome. Okay, so let's move on to your second framework that you call 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 questionite suggestions to ask us. Wonderful, now I'm nervous. Ha, ha, ha. He's Mr. Marketplace. Yes. Okay, so let's start with the same question.

39:13Just 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? It's a framework or hierarchy that is for marketplace founders. It could actually be B2B or B2C or marketplace product leaders that are just continuing, 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 were talking about MAUs and I just felt like it didn't get to the heart of whether they were building enduring value.

40:01And I actually started to realize that GMV was very similar. You know, GMV, it's a metric that it seems like, you know, of course, you can't build a marketplace without growing GMV. And 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 gonna run the right race. It can take you and actually would marketplace as 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 a million dollars of GMV, right?

40:49And I think a lot of people started to feel like you could hit a million dollars 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? Like so, imagine a food delivery company 10 years ago. You could have a million dollars of GMV by getting, you know, focusing on LA or a million dollars of GMV by focusing on Boston. Or you could have a million dollars of GMV by having $500 ,000 here, $200 ,000 here, to, you know, like spreading it out. And so the founders, and I would meet so many founders who'd say, oh, well, I thought we had to prove out that the value proposition resonated in these other cities.

41:36And 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 a million dollars 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 a million dollars of GMV when you're skimming the cream on this big ocean of a market than to be very, very focused on a smaller market and getting to a million dollars of GMV in a constrained market is a lot harder takes longer but is actually the path to building something than doors.

42:16And so I was having the same conversation 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. Awesome. Okay, cool. So you've touched on a number of the important elements of this hierarchy. So let's dive in. 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? Like marketplaces, I mean, you have so much incredible content on this.

42:57They are, 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 it really, it's just, 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 full expression of these models and you think about companies like Airbnb or Amazon or eBay or Google where once you have scale you and have like very dominant market share, you have a product that just is the best place without question of fulfilling this, this need.

43:54And they end up being very profitable cash flowing businesses and you see that and that's the business that you want to build, right? 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 was an abort observer for this online classified company called OLX, led by Fabrice Grinda. And it is, 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.

44:38And so it's just like a very clear, like you don't want to be, you don't 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.

45:21And 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 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. Awesome. So you've 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.

46:08Exactly. Awesome. So let's maybe start with layer one of just focus, which I think is the most counter intuitive step for people building a marketplace where, as you said, normally it's go biggest, fastest possible, get as much to you as possible, just make everyone happy as quickly as you can. And your advice essentially do the opposite, make it very, you have this like great acronym of a Thimble that I think you'll talk about that I love, I always think about. So yeah. And you know, it's part of what's so hard about this idea focus is like, you know, I'm lucky to meet with just incredibly ambitious founders.

46:47And the hardest thing I think about building these market places is that the ambition can often feel like this sun, you know, like the heat of the sun that's trying to warm everything up and you're going after this big, big market, you know, warming the ocean. And I think that really what 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 small constraint market. And if you heat that up really, really hot, then it expands from there.

47:29You know, and part of this is that we have to accept a couple of things, a couple of points of scarcity. One is that you can't raise hundreds of millions of dollars from the start, right? 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 founders' attention. And again, these things are really, really difficult to get off the ground. And the only way that you can do it is by having myopic focus on a mark, on a segment.

48:13And the example that, you know, I always think about, and it's just was a very cool thing that we all got to see, which was when the food delivery wars happened, right? Where you had companies like DoorDash and Postmates and UberEats, and then the incumbents of GrubHub take very different strategies. And what Postmates, you know, I make comparisons to Postmates 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, you know, not just restaurants, but restaurants and Apple and, you know, retail, bicycle.

49:01I remember there were so many things that they went after all at the same time, versus, 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, that just when you have constraint of capital and attention, 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, one after the suburbs, right? In the beginning. And the beautiful thing about the suburbs is that there was very little competition because no one thought that you could do it economically.

49:44And they probably weren't wrong in the beginning. Like DoorDash lost a lot of money in the beginning, fulfilling delivery in a, 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 led 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, you know, when you, 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 and during value.

50:33It's like very clear and there's plenty of examples like a give where there are companies that had incredible scale and still were disrupted by a startup. And it's because like actually customers, you don't care how big you are, right? Like 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 a product leader have to focus on, which is what do I think is gonna be the experience of a buyer seller that leads them to retaining and tracking that as like the happy path and therefore the happy GMV.

51:29Amazing, 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 wanna create. And when you're building this marketplace, this symbol of water that you're trying to boil into something incredible that what's the minimum version of that that creates really happy customers. That's right, yes. And it's kind of the way to think of it is like obviously when you're a marketplace founder, like you know that in order to build something indoors, you're gonna have to grow, right? But in the beginning, 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 wanna get to a point where there's a certain percentage of people that retain after having done a transaction.

52:24And 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. Awesome. And again, it's difficult, it's easy to say, it's difficult to do as a founder. It's so hard. 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 starting in a city if it's location oriented or if it's all online, pick like one niche to focus on, like at sea it was like craft fair, goods, right?

53:02Exactly. And sometimes as we saw with postmates, sometimes it's both, which is geography and category. It's again, you just, you have, you only have to assume scarcity of your capital, of your attention, of your customer's 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. This entire episode is brought to you by Gelt, your gateway to smarter tax solutions.

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54:24With their technology, you'll stay ahead, making the most of every tax benefit. Ready to elevate your tax strategy? Visit joingelt .com slash Lenny today. With Gelt, you'll save more and stress less. Again, that's joingelt .com slash Lenny. Join gelt .com slash Lenny. Redefine your approach to taxes with Gelt. I wanna talk about what it looks like when you've got it working and it makes sense to start expanding, but before I do, there's one counter example I found in my research, which is really interesting, which is thumbtack, where they, from the beginning, went national and across many categories.

55:04And the founders admit, maybe that wasn't the right idea. It took them, I think, 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 they're... I'm gonna 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, you know, 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.

55:49And if it's a plumber, you use that so infrequently that every time you are gonna, like, look for a plumber, you're gonna start a Google, right? You're not gonna assume I'm gonna 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 is the trickiness that thumbtack, you know, level two will articulate some more of that trickiness.

56:26Awesome. By the way, I do use thumbtack. I've, it's implanted in my head if that's where to go to find plumber's and stuff. That's great. I mean, those found a door marker. He is an incredible, incredible founder. 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. Just like what tells you, it's like cool. I think we've got this very focused symbol. How do we know it's time to go? Yeah, I think it's very much that you just start, you see people retaining. You see people, you just feel that where like people are texting you or emailing or whatever it is that they've had a great experience and you see them coming back.

57:12And that's, and you see a greater, you know, you're not going to make everybody happy. That's like, what's all except 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. Awesome. It's essentially the very fuzzy product market fit question. And I'll link to a few posts that help people get there. I guess is there anything you want to add there? I mean, I love, you know, 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 black, put this on this. I like Sean Ellis's question of like how disappointed would you be if this product disappeared?

57:53And 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 you, that should tell you you're on the right track. Awesome. Okay, let's talk about layer two around tipping the marketplace. So layer two I think will actually illuminate, again, the importance of that constraint focus for layer one. You're doing all these things that don't scale, that you've written so much about Lenny, about kickstarting 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.

58:36And 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 a some kind of saturation point in a market. You've reached an experience, you've kind of kept on working on the product experience, you've taken a lot of friction out where and you keep on growing, growing, growing, and you're doing that in service of increasing happiness. And this is a really important thing. Like the growth that you're doing should be, 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.

59:20And I think of the people talk about the flywheel as liquidity, I 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, right? 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.

1:00:01You might see your cohorts get a little bit better. You start to see some organic growth. And let me kind of 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 Recky. And Recky is a marketplace for restaurants and their suppliers. And it's imagine in the beginning, this kind of app that you could use and almost look 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 or an email, whatever it is, they could use this Recky app and it would make it a lot easier for them to do that.

1:00:49And then of course, the marketplace elements is that then they'll be able to discover other suppliers on Recky if they need them. Now in the beginning, Recky 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 Recky. And it's like 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 Recky, that order would then go to the supplier that that restaurant normally ordered from.

1:01:31And so instead of getting the voicemail, the supplier would start to see a nice kind of order form that was from the restaurant and kind of provided by Recky, powered by Recky. And what would happen is that as Recky grew more and more in London, these suppliers started to get more and more of their restaurants ordering via Recky. And then some of the early suppliers started to be like, well, this is so much easier for me. Like I would much rather get this order form from Recky 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.

1:02:12And so then the sellers, the suppliers would reach out to Recky and be like, hey, here's a CSV of all of our customers. Can you reach out to them and onboard them to Recky? Because I'd much rather have my orders come via Recky than the way I'm getting them. And so you go from this moment of like the hard, high cost of sales, like pounding the pavement to getting a list on a silver platter of restaurants to onboard. And that's that feeling of tipping, right? Where all of a sudden something goes from being really freaking hard to so much easier. It feels a lot like how people describe finding product market fit.

1:02:55Things start to feel like you're not pushing anymore and it's just coming to you. Yes. 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 get to this place? Because it sounds like getting Recky, it was like this feature they built of just a recommending, hey, you should check out Recky and maybe other suppliers would help you have a 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?

1:03:31I don't think Ronan predicted that that was what was gonna happen, right? And your 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, right? And so I think this is very much like part of the, 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.

1:04:27The first are the growth loops. And so we just talked about an example with Recky. There are many examples of this, hip -camp and other marketplace. I'm lucky to work with, if you and I went camping on hip -camp and I booked a treehouse on hip -camp and you're gonna 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 treehouse and any of the sites around it. And so I'm the person that hip -camp acquired but then I pull you into my experience and that's a great buyer to buyer growth loop.

1:05:12There's kind of 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, right? Uber drivers would tell their friend, oh you should start driving for Uber, it's great. But then Uber incentivized it with a referral bonus and you started to see Uber drivers like literally writing blog posts about how much they loved driving for Uber because some of them were making more money getting the referral bonus than actually driving. And so you're trying to find these growth loops and you maximize them.

1:05:56Awesome, 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 an 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 like craft fairs and pitched sellers, hey join in 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. Etsy literally gave them business cards. So Etsy gave their sellers business cards that made them feel like, oh I'm a real, like made them feel professional but the link on it was to their Etsy store.

1:06:39I 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 or basically a restaurant sign up for DoorDash and then they tell all the customers, you want to order? Your 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. Yes, and it just shows how accretive DoorDash was to both sides of the market in that example. And then fair is an awesome example too. It sounds similar to Recky as you described where fairs basically a V2B artisanal items marketplace where we teach shops by like nice candles and blankets for their store to sell.

1:07:23And 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. They sign up for fair and it makes it easy for you to buy their stuff. And then the other side, a candle maker, the worker tells all the places they sell to, hey, you should use fairs, 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 fair and then everyone's on fair. So yeah, there's a lot of ways to do it. I love it.

1:07:53And 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 like the kidneys for your marketplace as you grow. The happiness loop, the idea is like you have a lot of new sellers coming in and of course you have new buyers but you wanna make sure that you're matching your buyers with the sellers that are gonna give them the best experience, right? And so normally like in a consumer social product churn is heartbreaking. Like once a user churns, they're almost never gonna come back and you're with a consumer social product, you're trying to get to massive scale.

1:08:38But when you're building a marketplace you actually, there's a healthy amount of churn that you want on the supplier side because there are just gonna be suppliers who aren't gonna 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. Like 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 wanna reward and to churn out the ones that you don't. And of course your job is to do your best to set all the sellers up for success but it's an inevitability.

1:09:24And so there's two kind of great examples I think of as in these happiness loops which is around search ranking and then reputation. Search ranking is just a very obvious one which is like 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 a kind of an interesting example that ended up actually changing but still is illustrative is that Uber eats in the very beginning of their journey thought that their advantage in the market was gonna 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.

1:10:14And so in the search ranking they rewarded restaurants that prepared the food quickly. And so answer the Uber Eats request and then actually got the food out as fast as possible so that Uber Eats became synonymous with like 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. Okay, so we've been talking about tipping of the marketplace. Is there anything else there that you wanna share before we move on to the third layer? Yeah, there's kind of two other things that come to mind, one just as a reminder and then one as a caution.

1:11:02So the reminder is in order to tip a market you have to reach a saturation point in that market, right? That 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 wanna focus on a constrained market. Let's take growing food delivery product in Des Moines, Iowa versus LA or New York, right? When you're growing in a small city and you're focused on restaurants you're gonna 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.

1:11:59And so I love, I think it kind of 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 can 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?

1:12:48Like there are, we've all experienced this, I'm sure Lenny with the companies that you work with, 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 gonna lean in on your marketplace.

1:13:37They're already fat and happy, but you wanna have these hungry suppliers who lean in, right? But if there's already concentration in your marketplace in the ecosystem, the market that you're playing in, then you're not gonna have sellers lean in and you're not gonna 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 like a critical, critical point. Bill Gurley and I actually had a little Twitter debate once about supply versus demand and which one's more important.

1:14:20And he had this, basically his pitch was like, all that really matters in the end to build the successful marketplaces. Can you find the demand? Can you bring the demand to your marketplace? Makes all the sense in the world. Like 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 is 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, like 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.

1:14:57So I think that is really important just like to double down on this point that what makes a 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 a marketplace work. I think you're both right. Yeah, I think we're both right. We're both right. Because in the beginning, in the beginning, the only way you get to, yeah, the only way you get started with a 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.

1:15:42But 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 marketplace that I work with, it's a constant, like I have to focus more on the demand side right now. Okay, now we gotta 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. Yeah, especially if it's a geographically -oriented marketplace like a DoorDash.

1:16:19Sometimes you have more customers than restaurants. Sometimes you have too many restaurants, not enough customers. So it's very city -dependent. Airbnb, we had basically many attempts at a dashboard of which market is supply constraint, which is demand -constrained. Along the same lines, I think it's also something I think about it 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 gonna pick one of these 10 and I don't need you. Is that true?

1:16:50Is that how you think about the challenges of B2B marketplaces? There's definitely that. But I think actually the bigger challenge would be to be marketplaces is on the homogeneity of the supply. When you think about a lot of labor marketplaces, let's take a classic example of the mechanical Turk. What you need in a marketplace for that flywheel, I have a graph in my slides where you kind of show that the more you penetrate the market, the happier you're able to make your customer. That's, you should have an exponential experience where the flywheel doesn't slow down. Now you take Airbnb as an example.

1:17:35You can't, 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 gonna be there's such heterogeneity in the supply for Airbnb that that's what has led 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 100 ,000 Turkers or 5 million Turkers, it probably doesn't really change the experience for somebody who is using Mechanical Turk.

1:18:34And that's why in the early days at Mechanical Turk, you saw a lot of other copycats or clones at 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. Awesome, I'm glad we got into that. We're getting real dirty about Marketplaces exactly what I was hoping for. You said they had something else you wanted to share along these lines. And there's so many other examples of reasons why a marketplace won't tip competition. Like again, you go after New York's, 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.

1:19:22You 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 gonna be so much harder for you to tip that market, right? And so being, I think you have to be really context aware when you're building a marketplace of what your competition's gonna be so that you see if there is a path for you to actually tip the market. And even if you've tipped a market, it may get un -tipped like Uber comes in and starts to eat your lunch, no pun intended, right? Like it doesn't last forever.

1:19:59You have to keep fighting for it. Well, and it's such an important point which is that you can never rest on your laurels when you're building a marketplace. Like the history of Marketplaces is one in which you have a marketplace that feels dominant and then gets disrupted by a competitor home away, VRBO being disrupted by the likes of you at Airbnb. I wish I could take credit for a hit. Yeah. So one way I think about as you're talking about this idea of tipping is a simple way to think about if tipping is happening, if you're tipping 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 gonna order food, travel, look what I, I think you see two things.

1:20:44You see one, the cohort's getting better. So people start using you more, right? Like as a supply side gets more diverse, you have more and more use cases that you start to be able to serve. And so that, you know, you get the demand side leaning and 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. Awesome. So essentially cohort retention starts going up because it's more and more valuable.

1:21:32And more people are coming to you just word of mouth or through some loops that you build. Exactly. Awesome. Anything else on this layer slash level of the hierarchy before, okay, cool. Let's talk about dominating the marketplace and what that looks like and how you, how you do that, how do you dominate a marketplace and win Sarah Tauho? So yes, level three. And this is the one I feel like every, you know, every founder who starts a marketplace, like they're chomping at the bit, right? To be able to really focus now on growth. Because you know, all along I feel like it's been, and we've been holding you back of just like focus, focus, focus.

1:22:09And 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, right? Like it's not always the case that the dynamics of one market is the same elsewhere. I'll take Recky as an example. In the London food scene, there's like 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 gonna work.

1:22:55So 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? You know, 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 kind of very personal decision that's 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 wanna do at the same time to grow.

1:23:48The first thing is that you wanna 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 within the same market. And so what I mean by that is Uber went from black cars to Uber X to Uber pool. 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 kind of answer more use cases in that market that you can do, especially if you don't have a lot of competition.

1:24:35And then the third vector of growth is you wanna then try to get as many plates spinning and 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 gonna create is gonna come from dominating the market. And so you don't wanna plant a thousand flags, a thousand markets at the same time, spread yourself to thin and not decidedly win anyone market. You're trying to put, you know, you always wanna put more wood behind fewer arrows. The more scale that you have, the more cities or categories where you have, you know, the flywheel starting to spin and you're starting to see the tipping point happen, the stronger your company will be, right?

1:25:31Each 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, well, 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. And again, the reason this is so important is most founders that are ambitious start with this, right?

1:26:15They'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. Yes. And it's like such an important point because don't forget, like, you're always going to be vulnerable to competition, right? And so let's say you have a million dollars and you spread that million dollars of go -to -market cost 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 going, you know, being able to get more capital and more, you know, expense that they can put to work to grow those cities.

1:27:04And 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. And this is the reason that Uber went big and raised so much money invested so much to scale so fast versus lived, 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 one. In the market, DoorDash versus Uber, it's still very one and two -ish. So I think a lot of people look at these companies are like, they raise so much money, they're losing so much money, they're never going to work.

1:27:45But 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 doesn't mean always works, like, you know, DoorDash, even though they're bigger than Uber, from what I understand, they're not like, I don't know, would you consider they're dominant? Or is it still like a big challenge? You know, I don't know. I don't know. What is clear is that they've built an incredible company, right? Like, it's just an incredible, they've done an incredible job of doing what they do. And it is a crowded market still.

1:28:20Yeah, so you can still build like 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, or cash flow. That's right. 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 longterm. 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.

1:28:57I would underline it even which is that, we get excited about the markets, the opportunities that might seem small from the outside. I love it. Can you speak to that and help people understand? I mean, do you remember the early days of Airbnb? Like how big could this get? It wasn't there that early. Yeah, but like you knew of it. And like Etsy also underestimated for years and years and years, hip -camp. Like 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.

1:29:38And 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're, you know, we love these types of markets and we always say to the founders out there, if other people are telling you the markets too small, we would love to get to know you. I think a lot of founders will love hearing this. I think it's all so important to add something you've shared with me as it's important for there to be adjacent markets that are big for you to have the potential to expand it. Right. And yeah, it's just, it's such an important point.

1:30:13Like the market itself, it can't be a cul -de -sac. Like you're, you need to start somewhere that has the potential to grow beyond that. But in the beginning, it's gonna look small. Let me give you the example of hip -camp. Hip -camp when we invested was literally land, you know, it was land where people, I don't know, let me if you're a camper, unfortunately. Love hip -camp, by the way. Okay, well, amazing. Well, if you have a tent and a sleeping bag and you know, you're not afraid to put your, you know, a thermos and a, you know, running river and, and clean the water, then like that was the early days of hip -camp.

1:30:53It was for the hardcore camper, which itself feels like a very small market, right? 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 hip -camp, and I stayed at one of these, uh, hip -cams, and it's just such an incredible experience. The hosts started to make a little bit of money from hip -camp. 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 treehouse or a yurt. And so what happened with hip -camp is that in the beginning, it was going after this like very different market segment, but as they became successful, made their land owners money, those land owners invested that money back into their land and started to open up the market opportunity for hip -camp into people more like me, there are glampers that want that experience in nature, but maybe don't want to pitch a tent to have it.

1:32:04And so that's kind of one of those examples of an under -est -made market that ends up growing beyond that. There's warning stories here too. I always think of Etsy. So like Etsy, I remember, actually, when I was at Pinterest, being driven crazy by Etsy because Etsy was all about handmade goods, right? 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. And it drove me crazy at Pinterest because there was this one, you know, seller of these scarves that was clearly a mass -produced scarves.

1:32:47And 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 they 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. Yeah, we had a, the VP of Product from Etsy on the podcast and we talked about it actually, but that transition was like, because it's pretty dramatic.

1:33:32They went from very warm, fuzzy, cozy vibes to like, we need to build a business that lasts. Let's, yes, let's change the way we operate. Well, we're in this topic of, we'll get you excited about marketplaces. This is something Mike suggested ask you. So I love that you get excited when it's a small market, very contraignant. 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 markets. It's a couple of things. One is, and I'm thinking actually of what 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.

1:34:14Maybe 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, I always, we can talk about currents later if we want to, but that there's, 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 when 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.

1:34:50And 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 like, you really feel what a founder is either trying to fool you or fool themselves with vanity metrics versus the true intellectual honesty and the intellectual rigor of like, what's really working in my business?

1:35:34What's not working? Where are we focused to make that the best it can be? And man, that is always, you know, that's how you build long -term and during value. And it's something that I think it's consistent across all the founders I'm lucky enough to work with. 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 way that you can ride having great focus and also focusing on the right metrics.

1:36:15Like I have 100 % agree. And it's also interesting like it can be a marketplace it cannot be. And I think people often over wait, how much? Like I am building a marketplace. And I need to think of everything from this marketplace perspective versus like 95 % of your challenges, questions, hurdles are gonna be just whatever you start up has to deal with. And then there's a bit of like specific to marketplace. And I want to just double click on the current thing because it's very related. Just like a lot of people, and this is back to, or maybe our contrarian take on markets. I think a lot of people think about markets almost like these bodies of water.

1:36:51You know, 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 you're just trying to, there's something happening in the market that's creating this current where you can, you can have like a plank of wood that you put on the river. And it's gonna pull you forward versus a market that doesn't really have that momentum to it. You're gonna have to build like 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, or what are the dynamics of change?

1:37:33What's the current and momentum that's gonna pull the company and make the job easier for the founders to actually build something that endures. Essentially, a why now is a lot of, it was how a lot of people think about this, right? Yes, yes. I love just the visual of a current. There's a startup I invested in as an example of the opposite that got into, that's a crypto marketplace sort of thing. And they started it when crypto is really great. And they continue 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.

1:38:07And it's an example of the, like you gotta recognize when the wave is going in the opposite direction and everything is pulling you away from success. It's not the opposite of what you're describing. Yes, I might have a new one 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. Like no one, you know, the treasuries where they are, the opportunity in DeFi isn't as material as it once was. With stablecoins, I'm a huge believer in stablecoins. And I think that's a market where you have a real current with inflation and so many local currencies.

1:38:49There's real demand for stablecoins, a 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. 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 want to share around. The hierarchy of marketplaces, either on the top. Okay, we did it. Amazing. 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?

1:39:27Maybe just this kind of the code, 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 like 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 we talked about with Airbnb and Homeaway, DoorDash and GrubHub, you know, GrubHub wasn't able to for different reasons. They were a public company.

1:40:11And 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. I think GrubHub is a great example 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.

1:40:54They grow up, Hubbub isn't willing to spend. Awesome. So I guess the advice there's just don't take for granted your success, even if you have amazing network effects. That's right. 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?

1:41:24What are some of the takeaways as well? At Benchmark, I'm lucky to, that we, you know, I have partners who look at very different types of companies that I look at. And we meet such an 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 like a specific developer's need in the beginning and solving it really freaking well and then expanding from there with SaaS. You know, I think maybe the fascinating exception kind of similar to your thumbtack exception. I think what Parker Conrad's doing with Ripling and this idea of a compound startup is very different.

1:42:05And actually, he has a level of ambition that is both like the sun and a laser at the same time. And so you, you know, that's kind of an 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 kind of leveraging large language models to build products is that focus on a constrained market to start is the way to win. I like that. Like basically it's happy developer in the case of DevTools or happy enterprise user. Just like 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.

1:42:52Basically someone that wants to build a marketplace trying to figure out where is there an opportunity for new marketplace. DevT 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? It's kind of fun to ask the question like whether LLMs changed the game and are open up new surface area. So like I, in my post I wrote about three ways that you can kind of look for a new opportunity. And 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.

1:43:30eBay being a horizontal marketplace, the sneakers being a low NPS part of that and you get goat, right? The second is finding a niche that no one else is paying attention to and like the at C examples we gave, the hip -camp stories and bringing that online, taking friction away and showing those actually a bigger market than you think. And then the third is changing the atomic unit of the supply so that kind of like Rob Hub, the atomic unit there was a restaurant that has its own delivery fleet and then Postmates, DoorDash, UberEats came in and said actually it's any restaurant will provide the delivery fleet and so they opened up the available supply.

1:44:18Now when I think about LLMs, I think there's a real opportunity for the third one, right? Like 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.

1:45:01So I haven't seen anything yet, but I am definitely on the hunt. Very cool. Turn it into AI corner, which I love. Okay. Well with that, we reached our very exciting lightning round. Are you ready? I'm ready. What are two or three books that you've recommended most to other people? 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 like in the grocery store aisle, but their fast reads are incredibly insightful and I highly recommend.

1:45:46Is there a favorite recent movie or TV show that you really enjoy? I'm not a, I don't watch stuff. So I'm not a good, I could candidate there. Highly respect that. Is there a favorite interview question that you like to ask candidates, which usually we can, we can transform into when you're talking to founders and trying to decide if you want to invest? I always love hearing the journey people take and specifically how they've made decisions along the way, like what drives them from each step. I think that's always very eliminating. The other favorite product you recently discovered that you really love whether it's an app or physical product that you use often anything real cool or fun.

1:46:30I'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 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. I completely agree. I've gotten so used to, we have a regular car in a Tesla and the fact that you don't need a key anymore, you just walk out and open it because it has your phone next. I just, my wife's like, forgot she left the key in the in our Subaru just because she's like, oh, shit, I need to take the key out. It's just sitting there running.

1:47:11Yeah, so used to just the casual just walk up open. Yes, 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 in life that you find useful? My partner at Greylock, Reid Hoffman had this line of, every strength has a corresponding weakness and vice versa. And there's so much wisdom there. Like we always make, we see our own strengths and we see our weaknesses, but not realize that they actually come, go together, like you can't have one without the other. Similarly, like strengths, you know, in organizations, like a decentralized organization can move really quickly and the corresponding weakness of that is that it can feel chaotic and disorganized.

1:47:59On 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, these, they come together, it's just so useful to be aware of that. Awesome. Final question. I believe you played rugby at some point, is that right? Yes. 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? Well, what people might be surprised of, especially if they meet me, is that I was actually a really good tackler.

1:48:44And I think I broke my nose a couple times and have more injuries that I would care to remember, but I definitely inflicted more injuries on other people than I received. And I think the rugby is, it's just, there's a camaraderie that comes with rugby. And the one thing I'll confess is that, we always joke that the rugby team, it's not a rugby team, it's a drinking team that has a rugby problem. No, amazing. Those times are behind me. Oh, man. It sounds like an awesome person to have in your court when you're a founder, the best tackler in town. Yes. Amazing. Sarah, I'm not surprised this went as long as it did.

1:49:31Thank you so much for being here. Two final questions. Where can folks find you in line if they want to reach out and maybe ask follow questions and how can listeners be useful to you? I appreciate that. I'm Sarah at Benchmark, you, I'm on Twitter, SarahTable, and I have a substack, SarahTable .com. If you're a founder, you're working on something. Don't be shy. I were in the business of meeting with people like you. And so I love, I always love to get stimulated by new ideas and people. Just to focus people, even more there, is there stage you like? Is there markets anything people should know of like what's right for you?

1:50:09We at Benchmark were 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. Awesome. Sarah, thank you so much for being here. Thank you for having me. 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 a leaving review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at Lenny'sPodcast .com.

1:50:49See you in the next episode.