Adjacency-and-Network Expansion Test
Prioritize marketplace expansion by adjacency and network reinforcement, not by the size of the adjacent TAM
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 90%
When a marketplace has many one-click-away expansion opportunities in a huge market, TAM stops being the right filter because they are all big enough to inflect the curve. Instead prioritize by how adjacent the opportunity is (a proxy for whether you can actually win it) and whether it reinforces your existing network effect. And keep product in lockstep with go-to-market.
Origin
Lessons Dan Hockenmaier learned repeatedly working on huge marketplaces like Thumbtack (local services) and Faire (global wholesale).
Core principles
- 01Beyond a certain point, TAM matters very little — every adjacent market is big enough to dramatically inflect the business
- 02Adjacency is a proxy for whether you can actually go get the market
- 03Expansions that let the same supplier serve the customer, or the same customer demand multiple things, reinforce the network
- 04Product, not go-to-market spend, is what ultimately wins expansion; keep them in lockstep
How to run it
- 1
Stop ranking by TAM
Recognize that adjacent opportunities are all large enough to inflect the curve, so relative market size is a weak differentiator.
- 2
Score by adjacency
Favor expansions that look like your current model (frequency, shipping speed, development speed) because your existing playbook is more likely to work there.
Pro tip Instacart expanding into convenience stores fits its high-frequency, speed-sensitive model far better than traditional retail, even if retail is a bigger market.
- 3
Score by network reinforcement
Prefer expansions where the same supplier or the same customer's multi-demand strengthens your existing network rather than requiring you to spin up a new one.
Pro tip Uber Eats works because it is often the same drivers and the customer wants both rides and meals — a built-in supply base.
- 4
Keep product in lockstep with go-to-market
Do not let go-to-market spend and incentives race ahead of product; the winner is whoever delivers an incredible end-to-end experience first, even for fewer customers.
Pro tip Good cohorts on a small base — a smiling engagement curve — is what gives the company and investors conviction to pour in resources.
Watch out Spending huge sums on incentives to bootstrap liquidity matters, but it is not the main thing; a great experience for a small number of customers creates the flame.
In the wild
For Instacart, expanding into convenience stores makes far more sense than traditional retailers because convenience stores look like the current model — high frequency, shipping speed matters, development speed matters — so the existing model is more likely to work, regardless of retail being a slightly bigger market.
→ Adjacency-based prioritization steers expansion toward markets the current playbook can actually win.
Common mistakes
Prioritizing the biggest adjacent TAM
Past a certain point all adjacent markets are big enough to inflect the business, so chasing the largest one ignores the more important question of whether you can actually go get it.
Letting go-to-market outrun product
Winning the liquidity race with spend does not matter if the experience is poor; whoever delivers an incredible end-to-end experience first — even to fewer customers — creates the flywheel.
Is it for you?
Best for
Marketplace leaders at large-market companies choosing among many adjacent expansion bets.
Not ideal for
Early startups still finding liquidity in their core market, who should not yet be expanding.
From the transcript
“beyond a certain point Tam are the size of the market actually matters very little”
“how adjacent is that to the business as a proxy for can we actually go get it”
“are there places where you can use the same supplier or a consumer has demand for multiple things”
“product is the thing that matters when expanding”
“don't let go to market get too far ahead of product you need to keep those two pieces in lockstep”
From the episode
Developing a growth model + marketplace growth strategy
Dan Hockenmaier (Faire, Thumbtack, Reforge)