Sarah Tavel on the Hierarchy of Engagement, the Hierarchy of Marketplaces, and Market Currents
Sarah Tavel (partner at Benchmark, formerly first PM at Pinterest) and Lenny Rachitsky on two interconnected frameworks for building enduring consumer and marketplace products — how to identify the core action that predicts retention, how to structure a marketplace for compounding advantage, and why she thinks about markets as currents rather than bodies of water.
Key ideas
- Hierarchy of Engagement. Three levels every consumer product must climb: L1 — get users to complete the core action (the single behaviour most predictive of long-term retention); L2 — create accruing benefits and mounting loss (the product gets better the more you use it; leaving costs more); L3 — self-perpetuating network effects (supply generates demand generates supply). Most products fail at L1, not L2 or L3.
- Core action defined. The right core action is the one where: (a) completing it proves the user genuinely understands the product, and (b) users who complete it in a given week return the following week at a high rate. At Pinterest, it was pinning; at YouTube it turned out to be subscribing, not watching.
- Hierarchy of Marketplaces. Three analogous levels for marketplace businesses: L1 — achieve liquidity in a focused niche (the ‘thimble’ strategy: be the dominant player in a tiny pool first); L2 — tip the market (reach the tipping point where supply and demand are self-sustaining); L3 — dominate the category through accumulation of supply and demand effects.
- Market currents. ‘The most interesting markets, you have to think of them like currents where there is something happening in the market that is creating this current where you can have a plank of wood that you have put on the river and it is going to pull you forward.’ Size matters less than momentum; a current-driven market makes the founder’s job easier.
- Anonymity is a retention trap. Persistent identity (even pseudo-anonymous) creates accruing benefits and mounting loss. Pure anonymity prevents both — users can delete and return to the same experience — so it reliably fails to sustain retention, regardless of early viral growth.