The Wisdom Wall

“There aren't that many that helped you become a billion dollar company. It's basically sales, virality, what I call like content loops, which is we distribute content directly to, you know, Google or to social networks to bring more people in, and then those people create content and then you redistribute that, or…”

“And the challenge with paid is It always looks better yesterday than it does today, unless you have a network effect business where the product quality is getting better, faster than the quality of people you're bringing are getting worse, right? Cause you always target the best users first and paid. So generally it…”

“It's generally lower take rate. If you have a take rate model, it's gonna be more like five percent versus 15%. And then of course you're paying the payment processing. It's harder to build a massive scale business. So you see fewer venture wins in that category. Whereas if you own demand, which is generally the most…”

“I generally advise founders against marketplaces phase two of the company. So there are a lot, a bunch of people were like, ah, SaaS to marketplace transitions. That's the model. And I'm like, name an example in the last 10 years where that's actually worked. Because running a SaaS business is not simple.”

“I don't think cross-site network effects really kick in until you're like past 50% of the demand, probably even more than that.”

“I just don't think there's a way that a public company that raised like a hundred million in IPO is going to outcompete. Companies that have raised four billion dollars each, I think, in Uber and DoorDash like to crush you.”

“I think one thing marketplace founders need to be Careful about is if you are aggregating supply and demand in the market and someone else is aggregating the same supply and offering it at lower cost or with a higher frequency type of transaction, you need to copy them immediately or you are going to get disrupted.”

“TAM is kind of a misleading metric for marketplaces, because in all the biggest marketplaces like Uber and Airbnb, it looked like there was no TAM.”

“So what needs to happen is that the product needs to get better faster than the users you acquire get worse. And network effects are really the only scalable solution that can make that happen.”

“One is discounting to product market fit does not get you to product market fit. So in a marketplace, you are selling people on the value of the selection, on the value of, you know, the service. And if you then give a five dollar discount, then you start changing the value prop to saving money on service instead of…”

“A bunch of people tried to copy Uber's launcher strategy, and then a bunch of people like almost went bankrupt doing it because it's really expensive and they weren't raising billions. You didn't really understand what your playbook required. You were just kind of carbon copying a very different, you know, marketplace…”

“Marketplaces are not really usually winning on the software itself. Only if the software helps you find more selection on the demand side or brings you more money on the supply side.”

“So then there's the example of, okay, you actually have an asset that can be leveraged for the marketplace. And generally the way those models win, whether it's, you know, Airbnb or like Hipcamp is a company that I spent a lot of time working with. You're asking that supplier to generally do very little at all to…”

“I think Toro has done better than GetAround if I've paid attention correctly. And part of the reason why is GetAround built a bunch of infrastructure to make it easy for hourly rentals. And Toro is, wait a minute, there's no money in that. We should optimize everything around daily. So at least their AOV is higher when…”

“marketplace businesses need to get sophisticated around data, usually a lot more quickly than other models. And part of the reason for that is Once you're doing more than one category or more than one city or neighborhood, the aggregate data doesn't really tell you anything anymore. The only trends that are interesting…”

“If you're going to be low frequency, then you need to be high AOV. And if you can't be high OEOV, then you need to be high take rate on the low frequency. And if you can't get any of those to work, then chances are that a marketplace is not going to be an optimal model.”

“Part of their unique advantage is they were able to build a product where brands can onboard their existing retailers for free and not pay any commission, but they can manage that workflow. And then that allowed FAIR to cross sell those boutiques to other brands to cheapen the cost of acquisition.”

“in today's environment where like paid is pretty hard to get an edge on any sort of edge you have will generally get competed away by competitors coming into the market. You're looking to see that someone's not going to rely on paid or sales for everything unless they have way higher frequency, you know, way higher…”

“Virality is, you know, mainly how consumer social companies have, have grown, but you get like a really fast curve, but then it asymptotes generally more quickly because all the people that reject the invites the first few times, they're not gonna necessarily accept the value prop the seventh time. You need something…”

“Part of how they got traction, mostly selling to direct consumer e-commerce companies. Is they found these nodes in the DTC e-com community that know all the other founders and they convinced those people that it was a great product. And so it's kind of like almost becomes a B to B influencer model where these nodes in…”

“the difference between a marketplace and what I would call like a SaaS network is that a marketplace is primary value prop to the supply is that you bring the demand.”

“for Grubhub, that's basically never true because the kitchen is essentially always an underutilized fixed asset. They can always pump out more food. 99.9% of restaurants can pump out more food. It's the front of the house that gets constrained because they're filled with reservations.”

“What you're seeing with a little, a little bit more of the next generation of marketplaces is it requires more products to be in a position to drive demand scalably. Maybe you need to build out some workflow products. Or maybe you need to build out some sort of free management software to kind of unlock the ability to…”

“You have kind of ephemeral inventory, generally not a lot of data on the consumer side as to what consumer preferences are, because historically you haven't been collecting it. So then your ability to match And drive true discovery is initially very bad.”

“Uber early on was all about legitimacy. These are licensed drivers. It's a black car, all this kind of stuff. And Lyft was like, oh yeah, it's like your neighbor and it's fun and it's friendly and it's safe. And then I think Uber was smart to say actually their positioning is not what matters, what just matters is the…”

“And I think that's normally what a low frequency marketplace looks is you're just grinding on SEO and conversion all day, every day. And there isn't really that opportunity to build that non-transactional product like Zillow has to create engagement. So essentially Google's always your front door, which is scary, but…”

“The flip side of that is it creates a dynamic where only power sellers remain that can do all the standards. So the more, you know, individuals a lot of times can't keep up with the demands of the marketplace. And you certainly eBay is a prominent example of that, but it's common in most marketplaces.”

“And I believe in most consumer businesses, that is the most important number, which is how many you activate, meaning, and for those of you who are like, what does that mean? Of the people who sign up and try the product, how many have built a habit where they're going to continue to use it over time?”

“The frequency maps to their business model, not to how good our software is, right? The music festival person's not going to start putting on music festivals every week. Like, it's just not possible.”

“And it allowed them to use their supply that, that was signing up for Uber, but maybe didn't have a good enough car, or maybe the person was too young. So it allowed them to get some more efficiency on their supply acquisition as well.”

“I think Zillow has always been a really interesting one in that, you know, real estate's incredibly low frequency, but this estimate means everyone feels like they have a relationship with Zillow all the time if you are a homeowner. So it's a way for them to stay top of mind in a way that low frequency marketplaces are…”