LLenny's Podcast
← All episodes
Sarah Tavel (Benchmark, Greylock, Pinterest)27 December 2023

The hierarchy of engagement

8Frameworks
14Insights

Episode overview

Sarah Tavel explains the Hierarchy of Engagement: identify a core action, make the product improve with use and costly to leave, then build self-perpetuating growth and re-engagement loops. She applies the framework to Pinterest, Evernote, YouTube, TikTok, and failed or fragile social-product loops. She then presents the Hierarchy of Marketplaces—focus on a constrained market and “happy GMV,” tip that market through growth and happiness loops, and only then expand toward dominance. The discussion also covers market currents, marketplace defensibility, supply heterogeneity, continual disruption, and why underestimated markets can produce large companies.

Key ideas

  • A consumer product should define one core action that demonstrates users understand its value and strongly predicts their return.
  • Retention improves when the core action makes the experience better over time and creates accumulated value users would lose by leaving.
  • Self-perpetuating products convert user activity into network effects, organic acquisition, re-engagement, or other compounding loops.
  • Marketplace founders should optimize for retained, satisfied transactions—“happy GMV”—instead of treating total GMV as sufficient evidence of durable value.
  • The marketplace sequence is focus, tip, and dominate: prove minimum viable happiness in a constrained market before scaling broadly.
  • Growth loops acquire participants, while happiness loops rank, reward, and retain strong suppliers and remove suppliers who harm buyer experiences.
  • A market can tip only when its structure supports it, including fragmented and heterogeneous supply, limited competition, and enough local saturation.
  • The most promising markets often resemble currents created by changing conditions: momentum and a strong why-now can matter more than apparent market size.

Transcript available · source text is retained privately and is not published

Frameworks in this episode

Strategy4 steps

Happy GMV and Minimum Viable Happiness

Track only the GMV that produced a retained customer, and boil the thimble until it clears the bar

Read →
Innovation4 steps

Markets as Currents, Not Bodies of Water

Chase the change dynamic pulling the market, not the size of the market

Read →
Strategy5 steps

The Hierarchy of Engagement

Three stacked levels — core action, accruing benefits, self-perpetuation — that decide if a consumer product endures

Read →
Entrepreneurship5 steps

The Hierarchy of Marketplaces

Focus, tip, dominate — the only sequence that produces a marketplace worth owning

Read →
Strategy5 steps

The Tippability Test

Check supply fragmentation, supply heterogeneity and incumbent competition before you fund a marketplace

Read →
Innovation4 steps

Three Ways to Find Marketplace Whitespace

Unbundle a low-NPS segment, own an ignored niche, or change the atomic unit of supply

Read →
Marketing5 steps

Tipping Loops: Growth Loops and Happiness Loops

Two symbiotic loop types — one grows the marketplace, one keeps it happy as it grows

Read →
Productivity4 steps

Top-Down / Bottoms-Up Core Action Analysis

Cross two analyses — return-propensity ranking and product purpose — to find the one action worth optimising

Read →

People & resources mentioned

Attributed to the moment in the episode. Timestamps are approximate.

People · 7

  • Sarah TavelMentionsSarah is a partner at Benchmark where she focuses on investing in consumer and marketplace startups; previously, she was Pinterest's first product manager.

    “today my guest is Sarah tavl Sarah is a partner at benchmark”

    ▶ Watch at ~0:30approx.
  • Lenny RachitskyMentionstoday we've got another very special compilation episode something I've been pulling on more and more with the podcast and the newsletter

    “Sarah thank you so much for being here and welcome to the podcast”

    ▶ Watch at ~3:00approx.
  • Mike WilliamsMentionsFounder of Everything Marketplaces who suggested questions for the interview.

    “I want to give a shout out to Mike Williams who's the founder of everything marketplaces”

    ▶ Watch at ~39:00approx.
  • Fabrice GrindaMentionsDescribed as the leader of OLX.

    “this online classified company called OLX led by FIS grinda”

    ▶ Watch at ~44:00approx.
  • Sean EllisCoinedAssociated with the product-market-fit survey question about disappointment if a product disappeared.

    “I like Sean Ellis's question of like how disappointed would you be if this product disappeared”

    ▶ Watch at ~57:30approx.
  • Bill GurleyCoinedI think it might have been Bill Gurley someone tweeted this is the best time in recent memory since 2008 to start a company

    “my partner Bill Gurley talks about how great marketplaces create the new incumbents”

    ▶ Watch at ~1:13:00approx.
  • Reid HoffmanCoinedSarah Tavel's former Greylock partner, credited with a maxim about strengths and weaknesses.

    “my partner at Greylock Reed Hoffman had this line of every strength has a corresponding weakness and vice versa”

    ▶ Watch at ~1:47:00approx.

Resources · 35

  • BenchmarkMentionscompany

    “Sarah is a partner at benchmark one of the most preeminent Venture Capital funds in the world”

    ▶ Watch at ~0:30approx.
  • GeltMentionscompany

    “this entire episode is brought to you by gal your gateway to smarter Tax Solutions”

    ▶ Watch at ~2:00approx.
  • The Hierarchy of EngagementCoinedother · Sarah Tavel

    “one is focused around consumer businesses and one Marketplace businesses so let's just start with the first framework”

    ▶ Watch at ~3:30approx.
  • FacebookMentionscompany · Meta

    “for Facebook you know the obvious action is friending”

    ▶ Watch at ~6:30approx.
  • WhatsAppMentionssoftware · Meta

    “for WhatsApp might be sending a message”

    ▶ Watch at ~7:00approx.
  • PinterestUsescompany · Pinterest

    “when I was at Pinterest and we shipped was this idea of a picked for you feed”

    ▶ Watch at ~11:00approx.
  • EvernoteUsessoftware

    “I take all my notes in Evernote I dump documents and Evernote”

    ▶ Watch at ~13:00approx.
  • ClubhouseMentionssoftware · Alpha Exploration Co.

    “companies like house party and Clubhouse”

    ▶ Watch at ~17:30approx.
  • TikTokMentionssoftware · ByteDance

    “there's one example that we have so far which is Tik Tock of spending you know more than a billion dollars”

    ▶ Watch at ~20:30approx.
  • InstagramMentionssoftware · Meta

    “Tik Tok and and Instagram which just are these dominant forces right now”

    ▶ Watch at ~22:00approx.
  • SaturnMentionssoftware

    “a recent guest post on my newsletter about this app Saturn”

    ▶ Watch at ~22:30approx.
  • TwitterMentionswebsite · Twitter

    “with pseudo anonymity we have it on Twitter you have it on Reddit”

    ▶ Watch at ~24:00approx.
  • RedditMentionswebsite · Steve Huffman, Alexis Ohanian, and Aaron Swartz

    “with pseudo anonymity we have it on Twitter you have it on Reddit”

    ▶ Watch at ~24:00approx.
  • YouTubeMentionswebsite · Google

    “what we realized was that subscribing was the core action on YouTube”

    ▶ Watch at ~35:30approx.
  • The Hierarchy of MarketplacesCoinedother · Sarah Tavel

    “let's move on to your second framework that you call the hierarchy of marketplaces”

    ▶ Watch at ~38:30approx.
  • Everything MarketplacesCoinedcompany · Mike Williams

    “Mike Williams who's the founder of everything marketplaces”

    ▶ Watch at ~39:00approx.
  • AirbnbMentionscompany · Brian Chesky, Joe Gebbia, and Nathan Blecharczyk

    “you think about companies like Airbnb or Amazon or Ebay or Google”

    ▶ Watch at ~43:30approx.
  • OLXMentionscompany

    “this online classified company called OLX”

    ▶ Watch at ~44:00approx.
  • DoorDashMentionscompany · DoorDash

    “companies like door Dash and Postmates and Uber Eats”

    ▶ Watch at ~48:00approx.
  • GrubhubMentionscompany

    “the incumbents of GrubHub take very different strategies”

    ▶ Watch at ~48:00approx.
  • PostmatesMentionscompany

    “Postmates from the very beginning had very big ambition and went after all the big cities”

    ▶ Watch at ~48:30approx.
  • ThumbtackUsescompany

    “by the way I do use sutech I it's imp planted in my head if that's where to go to find plumbers”

    ▶ Watch at ~56:00approx.
  • REKKIMentionscompany

    “we're investors in a company called REI and Rey is a Marketplace for restaurants and their suppliers”

    ▶ Watch at ~1:00:00approx.
  • EtsyMentionscompany · Etsy

    “Etsy literally gave them business cards so Etsy gave their sellers business cards”

    ▶ Watch at ~1:06:00approx.
  • FaireMentionscompany

    “fair is basically a B2B uh artisanal items marketplace”

    ▶ Watch at ~1:07:00approx.
  • Amazon Mechanical TurkMentionswebsite · Amazon

    “let's take a classic example of like Mechanical Turk”

    ▶ Watch at ~1:17:00approx.
  • UberMentionscompany · Uber

    “Uber went from black cars to Uber X to Uber pool”

    ▶ Watch at ~1:24:00approx.
  • HipcampUsescompany

    “I unfortun love hip Camp by the way”

    ▶ Watch at ~1:30:30approx.
  • RipplingMentionscompany · Parker Conrad

    “what Parker Conrad's doing with Rippling and this idea of a compound startup is is very different”

    ▶ Watch at ~1:41:30approx.
  • PachinkoRecommendsbook · Min Jin Lee

    “Pachinko is one of the best fictional books I've read in a while I just loved it and so I highly recommend that”

    ▶ Watch at ~1:45:00approx.
  • The Five Temptations of a CEORecommendsbook · Patrick Lencioni

    “I am a sucker for the five Temptations of a CEO and the five dysfunctions of a team”

    ▶ Watch at ~1:45:30approx.
  • The Five Dysfunctions of a TeamRecommendsbook · Patrick Lencioni

    “they're fast reads that are incredibly insightful and I I highly recommend”

    ▶ Watch at ~1:45:30approx.
  • TeslaUsescompany · Tesla, Inc.

    “we are late joiners to Tesla my family and man it is one of those products that you use it for the first time”

    ▶ Watch at ~1:46:00approx.
  • GreylockMentionscompany

    “my partner at Greylock Reed Hoffman”

    ▶ Watch at ~1:47:00approx.
  • Lenny's PodcastCoinedpodcast · Lenny Rachitsky

    “thank you so much for listening if you found this valuable you can subscribe to the show”

    ▶ Watch at ~1:50:30approx.

Spot an error or want something removed? Request a correction or removal.

Insights & moments

The myth-busts, hot takes, explainers, and tools worth keeping.

Myth Buster· 1

Myth Buster50:30

Happy GMV: Why Not All GMV Is Created Equal

Sarah reframes GMV, arguing customers don't care how big your marketplace is or how many transactions you've done — they care how happy each transaction makes them versus the alternatives. She calls the metric that matters 'happy GMV': the experience that leads buyers and sellers to retain. Chasing raw GMV can even push a marketplace in the wrong direction.

  • Customers don't care about your scale or transaction count — only their own experience
  • The real target is 'happy GMV' — transactions that make people want to come back
  • Companies with huge scale still get disrupted by startups with happier experiences
  • A founder should track the happy path and the happy GMV, not total GMV

“actually customers don't care how big you are real right like they don't care how many transactions you've accumulated what they care about is when…”

Sarah Tavel · 50:30

“and so I call it happy gmv”

Sarah Tavel · 51:00
#gmv#marketplaces#retention#metrics

Hot Take· 4

Hot Take04:00

Why MAUs and GMV Are Vanity Metrics

Sarah Tavel argues that the up-and-to-the-right graphs founders love — signups, downloads, MAUs — don't get at whether you're building an enduring product. During the growth-hacking era she noticed founders fixating on the wrong numbers, which became the 'pebble in her shoe' that led to her frameworks. The real question is engagement, not raw top-of-funnel growth.

  • Signups, downloads and MAUs are vanity metrics that mask whether a product actually endures
  • Growth-hacking-era founders got attached to metrics that missed the criticality of engagement
  • The discomfort with vanity metrics is what pushed Sarah to distill her frameworks

“I have an allergic reaction to vanity metrics what people talk about as vanity metrics”

Sarah Tavel · 04:00
#metrics#engagement#startups#product
Hot Take24:30

Why Anonymous Apps Keep Failing

Sarah distinguishes pseudo-anonymity (a persistent identity, as on Twitter or Reddit) from pure anonymity, and argues the latter is a retention trap. Without a persistent identity there's no accruing benefit or mounting loss, and anonymity breeds bad behavior that erodes the community. Talented founders keep trying anonymous products and keep hitting the same wall.

  • Pseudo-anonymity keeps accruing benefits and mounting loss; pure anonymity does not
  • Anonymity creates conditions for bad behavior that pull down the community
  • You can delete an anonymous app and return months later with no different experience
  • Super-talented founders repeatedly fail at pure-anonymity products

“the anonymity creates the conditions for bad behavior and so that starts to pull down the community”

Sarah Tavel · 25:00

“super talented Founders keep hitting their head against that wall because it's it has like the very early fun growth but it just continues to…”

Sarah Tavel · 25:30
#anonymity#retention#social#community
Hot Take1:36:30

Think of Markets as Currents, Not Bodies of Water

Sarah's contrarian take on markets: don't picture a big body of water to conquer — look for currents. A market with real momentum is like a river that pulls a plank of wood forward, making the founders' job easier, whereas a static market forces you to build something big and fancy just to move. It's why Benchmark cares less about market size than about the dynamics of change — and why she's excited about stablecoins right now.

  • Static markets force you to build something big just to make progress
  • Markets with a current pull the company forward like a river carries a plank
  • Benchmark weighs the dynamics of change and momentum over raw market size
  • Stablecoins are a market with a strong current, driven by inflation in local currencies

“I think a lot of people think about markets almost like these bodies of water you know it's like oh it's this big body of…”

Sarah Tavel · 1:36:30

“I'm a huge believer in stable coins and I think that's a market where you have a we have a real current with inflation in…”

Sarah Tavel · 1:38:30
#markets#timing#stablecoins#investing
Hot Take1:28:30

Benchmark Gets Excited When a Market Looks Too Small

Contrary to most investors' TAM obsession, Sarah says Benchmark gets excited about opportunities that look small from the outside — Airbnb, Etsy and Hip Camp were all underestimated for years. Underestimated markets have little early competition, which makes them easier to tip. Her open invitation: if others are telling you your market is too small, they'd love to meet you (as long as adjacent markets give room to expand).

  • Airbnb, Etsy and Hip Camp were all underestimated markets that grew far beyond expectations
  • Underestimated markets lack early competition, making them easier to tip
  • The market can't be a cul-de-sac — you need adjacent markets to expand into
  • Hip Camp grew as hosts reinvested earnings into structures, opening up glampers

“we always say to the founders out there if other people are telling you the Market's too small um we would love to to get…”

Sarah Tavel · 1:29:30
#tam#investing#airbnb#hip-camp

Story· 6

Story35:30

YouTube's Real Core Action Isn't Watching — It's Subscribing

Sarah publicly assumed YouTube's core action was watching a video, until YouTube CPO Shishir Mehta reached out to correct her. Their analysis showed subscribing was the true core action: creators care about YouTube because that's where they grow an audience, and subscriptions create accruing benefits and mounting loss. It's a rare example of one action that strengthens both sides of the network.

  • Watching a video was the early core action, but YouTube's own analysis pointed to subscribing
  • Creators build accruing benefits and mounting loss as subscribers accumulate
  • The best core actions serve both the supply side (creators) and demand side (viewers)
  • All social products are really marketplaces — YouTube has creators and viewers

“what we realized was that subscribing was the core action on YouTube and it makes so much sense when he said it”

Sarah Tavel · 35:30
#youtube#core-action#marketplaces#retention
Story12:30

Evernote: Incredibly Retentive, But No Growth Loops

Sarah, a self-described lifetime Evernote user with thousands of documents, uses it to illustrate the difference between retention and growth. The more she uses Evernote the more she has to lose, making it extremely retentive — but it has no loops that pull in other people. Collaborative journals didn't work, so Evernote had to pay to acquire users and tapped out at level three.

  • Evernote gets more retentive the more you use it — thousands of documents create lock-in
  • It has no loops: using the product doesn't make it better for anyone else
  • Collaborative journals failed as an attempt at a loop
  • Without loops, Evernote had to spend money to acquire users and stalled at self-perpetuation

“there's no Loop where when I use a product I want to pull you into the product they tried at some point to do collaborative…”

Sarah Tavel · 17:00

“people keep telling me I should I need to move on to notion or something else but not yet I uh I will remain a…”

Sarah Tavel · 13:30
#evernote#retention#growth-loops#network-effects
Story18:00

How Push-Notification Overload Broke Clubhouse and Houseparty

Sarah explains why Clubhouse and Houseparty broke down even though their flywheels should have spun faster with more users. Both were real-time products that depended on push notifications, so the more people you followed the more notifications you got — until you started ignoring them all. That's the tricky nuance of the self-perpetuating level.

  • Real-time products relied on push notifications to signal the moment to engage
  • Following more people meant overwhelming notification volume
  • Users start ignoring notifications, so the flywheel breaks down despite more users
  • This is the subtle failure mode at the self-perpetuating (level three) stage

“even though the flywheel should be spinning faster it starts breaking down and that's the the real tricky Nuance in in this level three”

Sarah Tavel · 18:30
#clubhouse#houseparty#notifications#flywheel
Story49:30

DoorDash Won the Suburbs While Postmates Went Broad

In the food-delivery wars, Postmates chased big ambition from the start — many cities and categories beyond restaurants — while DoorDash controversially focused on the suburbs, where nobody thought delivery was economical. By picking a market with almost no competition, DoorDash could make both sides of its marketplace happy enough to retain, even while losing money early on.

  • Postmates went after big cities and many categories at once, spreading itself thin
  • DoorDash focused on the suburbs where there was little competition
  • DoorDash lost money early because suburban delivery times were long
  • Focusing on an overlooked market let it make both sides happy and retain them

“the beautiful thing about the suburbs is that there was very little competition because no one thought that you could do it economically”

Sarah Tavel · 49:30
#doordash#postmates#focus#food-delivery
Story1:01:30

The Moment Rekki's Marketplace Tipped

Sarah shares how Rekki, a marketplace connecting restaurants and food suppliers, tipped. It started with an expensive salesforce knocking on London restaurant doors, but as more chefs ordered through the app, suppliers grew to prefer the clean order forms over listening to hours of voicemails. Eventually suppliers handed Rekki CSVs of their own customers to onboard — the market went from pounding the pavement to receiving lists on a silver platter.

  • Rekki began with a costly salesforce cornering chefs in London kitchens
  • Suppliers preferred Rekki's order forms over voicemails and texts from chefs
  • Suppliers began sending Rekki CSVs of their customers to onboard for them
  • Tipping feels like product-market fit — the market comes to you instead of you pushing

“the suppliers would reach out to recky and be like hey here's the CSV of all of our customers can you reach out to them…”

Sarah Tavel · 1:02:00

“getting a list on a silver platter of restaurants to on board”

Sarah Tavel · 1:02:30
#rekki#marketplaces#tipping-point#supply-side
Story1:32:00

How Etsy Lost Its Way Chasing GMV

As Etsy ran up to going public, it started chasing GMV growth and let mass-produced goods onto a platform that stood for handmade goods. Sarah recalls being driven crazy at Pinterest by a seller spamming mass-produced scarves. The drift beyond what Etsy stood for eroded trust with handmade sellers and buyers and likely contributed to a CEO change.

  • Etsy chased GMV ahead of its IPO by allowing mass-produced goods
  • It drifted beyond the handmade-goods identity it stood for
  • The shift caused a real backlash and erosion of trust from sellers and buyers
  • It likely precipitated the CEO change to the leader who later rebuilt Etsy

“they started to have a lot of mass-produced goods on Etsy it drove me crazy at Pinterest”

Sarah Tavel · 1:32:30

“it was just very clear that Etsy had kind of lost its way in that in that moment”

Sarah Tavel · 1:32:30
#etsy#gmv#trust#marketplaces

Tool· 2

Tool57:30

Use the Sean Ellis Question, Not NPS

For measuring early product-market fit, Sarah says she dislikes NPS and prefers Sean Ellis's question: how disappointed would you be if this product disappeared? If at least 40% of people say they'd be very disappointed, you're on the right track. It's a sharper signal than NPS for whether you've made a core of users genuinely happy.

  • Sarah dislikes NPS for measuring product-market fit
  • The Sean Ellis question asks how disappointed users would be if the product vanished
  • A 40%+ 'very disappointed' response signals you're on the right track

“I don't like NPS for this uh and I have a whole blog post on this I like Sean Ellis's question of like how disappointed…”

Sarah Tavel · 57:30

“if you have at least four 40% of people respond that they'd be disa like very disappointed then you're on the right track”

Sarah Tavel · 57:30
#product-market-fit#nps#metrics#surveys
Tool1:45:00

Sarah Tavel's Book Recommendations

In the lightning round, Sarah recommends Pachinko as one of the best fictional books she's read in a while. For founders she's a sucker for The Five Temptations of a CEO and The Five Dysfunctions of a Team — fast reads she calls incredibly insightful despite their grocery-store-aisle covers.

  • Pachinko — one of the best fiction books she's read recently
  • The Five Temptations of a CEO — recommended for founders
  • The Five Dysfunctions of a Team — fast, insightful read for founders

“Pachinko is one of the best fictional books I've read in a while I just loved it and so I highly recommend that”

Sarah Tavel · 1:45:00
#books#recommendations#founders

Takeaway· 1

Takeaway21:00

TikTok Spent $1B on Ads — But Only After Nailing Retention

Sarah notes TikTok is the one example of a social product that spent more than a billion dollars on user acquisition — but crucially, only after it had built a retentive product and understood its loops. Every other major social product grew organically. It shows how hard it is to buy your way into becoming a new social network.

  • TikTok spent over $1 billion on paid acquisition to reach its scale
  • It only spent that capital after nailing the first two levels — retention and loops
  • TikTok already had millions of organic users before the big ad spend
  • Every other social product grew organically by maximizing loops

“so they didn't actually put money like user acquisition spend behind tikt until they had a product that was retentive”

Sarah Tavel · 21:00
#tiktok#growth#paid-acquisition#social