The Tippability Test
Check supply fragmentation, supply heterogeneity and incumbent competition before you fund a marketplace
- Difficulty
- Advanced
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 91%
Not all markets can be tipped. Before committing capital to a marketplace, test the structural conditions: is supply fragmented (rather than concentrated in fat, happy incumbents who will never lean in), is supply heterogeneous (so each incremental unit still improves the buyer's experience), and is the market free of entrenched competition and delivery cultures that make tipping impossible? Fail these and the flywheel will never spin no matter how good the execution.
Origin
Sarah Tavel's Level 2 caution from the Hierarchy of Marketplaces — she says her post lists six conditions and names these in conversation. The supply-concentration point builds on her Benchmark partner Bill Gurley's observation that great marketplaces create the new incumbents. She and Gurley publicly debated on Twitter whether supply or demand matters more, and reconcile it here as a sequencing question.
Core principles
- 01Great marketplaces create the NEW incumbents — existing incumbents are fat and happy and will never lean in on you.
- 02Concentrated supply means no hungry sellers, no flywheel, no tip.
- 03Homogeneous supply means the next incremental unit does not improve the buyer experience — so clones can match you cheaply.
- 04Heterogeneous supply (Airbnb) means the value of more supply is effectively unbounded, which is what lets you escape competition.
- 05Entrenched competitors and existing local behaviour (New York restaurants running their own delivery fleets) can make a market untippable.
- 06Supply and demand both matter, in sequence: supply gets you started, supply fragmentation gets you a chance to tip, cornering demand builds the enduring value.
- 07Even a tipped market can be untipped — dominance is never permanent.
How to run it
- 1
Test supply concentration
Ask whether the supply side is fragmented and hungry, or already concentrated among incumbents. You need suppliers who want to lean in on your marketplace because they are not currently winning.
Pro tip Ask directly: who in this supply base is currently losing, and would a new channel change their life?
Watch out If supply is concentrated, nobody is fighting for demand, so more sellers will not improve pricing or experience for buyers, and no flywheel forms.
- 2
Test supply heterogeneity
Ask whether the Nth incremental supplier actually changes the buyer's experience. On Airbnb every listing is different and everyone has particular preferences, so more supply is close to unboundedly valuable. On Mechanical Turk, whether there are 100,000 turkers or five million barely changes anything for the buyer.
Pro tip This is often the real reason B2B labour marketplaces struggle — bigger than the fragmentation problem people usually blame.
Watch out Homogeneous supply means a clone can assemble enough supply to serve a market segment as well as the scaled incumbent — which is exactly what happened to Mechanical Turk.
- 3
Test the competitive and cultural context
Assess who is already entrenched and what local behaviour exists. Attacking New York food delivery meant fighting GrubHub plus Seamless, in a city where restaurants ran their own delivery fleets and delivery culture was already set. The suburbs had none of that.
Pro tip Choosing where to start IS a tippability decision — an untippable market can become tippable simply by choosing a different geography or segment.
- 4
Sequence supply then demand
Bring supply online first, because that is what opens the opportunity. Rely on supply fragmentation to give you a chance at tipping. Then, for long-term enduring value, corner the demand side so buyers come to you without considering alternatives.
Pro tip Expect to oscillate — great marketplace operators are constantly rebalancing which side needs attention, and geographic marketplaces vary city by city.
Watch out If buyers do not transact often enough to form a habit, you cannot corner demand. Thumbtack's plumbers-and-DJs frequency means the buyer starts at Google every time.
- 5
Re-run the test after you win
Treat tippability as a live condition, not a one-off gate. Consumer expectations only rise; a dominant marketplace that stagnates gets disrupted.
Pro tip GrubHub was disrupted partly because, as a public company, it could not access capital like private rivals AND was too slow to change the atomic unit of its supply to fleets it fulfilled itself.
Watch out HomeAway/VRBO were dominant before Airbnb. Network effects are not a moat you can sit behind.
In the wild
Mechanical Turk's supply is essentially interchangeable labour. Whether the platform has 100,000 or five million turkers barely changes the experience for a buyer, so scale conferred almost no advantage.
→ Copycats and clones assembled just enough supply to serve a market segment as well as the scaled original — the flywheel never protected it.
Every Airbnb listing is different and every guest has their own preferences, so there is no practical ceiling on the value of more supply.
→ The flywheel never slows, which is what let Airbnb close off and escape competition.
In the suburbs there was no competition and delivery culture had not been set. New York had GrubHub and Seamless entrenched, restaurants with their own delivery fleets, and an established culture. Same product category, radically different tippability.
→ The market you choose determines whether tipping is even physically available to you — which is why Level 1 focus and tippability are the same decision.
Common mistakes
Assuming any market can be tipped with enough execution
Tippability is a structural property of the market. Concentrated or homogeneous supply means the flywheel is mathematically unavailable, and no amount of capital or product craft fixes that.
Blaming B2B marketplace difficulty on fragmentation alone
The usual complaint is that B2B supply is too concentrated to need a marketplace. Tavel's view is the bigger problem is homogeneity of supply — the next unit of supply not changing the demand-side experience.
Resting on network effects once dominant
The history of marketplaces is a history of disruption. Expectations constantly rise; stagnate on experience and you get disrupted, network effects or not.
Is it for you?
Best for
Marketplace founders and investors deciding whether a given market is structurally worth attacking, before capital is committed
Not ideal for
Non-marketplace businesses, or founders who have already tipped and are executing the Level 3 land grab
From the transcript
“not all markets are susceptible to tipping”
“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…”
“you have this homogenity in the supply where it's not clear that adding the next incremental unit of Supply actually changes the experience for the…”
From the episode
The hierarchy of engagement
Sarah Tavel (Benchmark, Greylock, Pinterest)