Dec 27, 2023 · 1h 50m · lennys-podcast
The hierarchy of engagement | Sarah Tavel (Benchmark, Greylock, Pinterest)
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In this in-depth interview with Lenny Rachitsky, Benchmark General Partner Sarah Tavel unpacks her seminal frameworks—the Hierarchy of Engagement and the Hierarchy of Marketplaces—providing actionable blueprints for building sticky consumer products, defensible two-sided platforms, and enduring tech startups.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Lenny holds 23.7% of the talking time here. How this is scored →
Lenny as informed peer 5.6 Guest teaching 5.1 Guest disagreement 1.2 Lenny pushing back 1.2
speaking balance: gold is Lenny, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:38:16 Sarah nuances crypto market dynamics
Sarah politely rejects Lenny's blanket characterization of crypto as an adverse market current, drawing a clear distinction between struggling DeFi protocols and thriving stablecoin adoption.
Hardest push from Lenny ▶ 13:37 Lenny points out exporter vulnerabilitiesLenny counters Sarah's assertion of insurmountable Evernote lock-in by pointing out that third-party data migration and exporter tools can easily dissolve switching friction.
Biggest teaching moment ▶ 35:34 YouTube's true core action revelationSarah educates Lenny on how Shishir Mehrotra corrected her own misconception about YouTube, explaining that subscribing rather than video watching is the true core action that drives two-sided retention.
Lenny holds their own ▶ 1:14:14 Lenny asserts supply aggregation thesisLenny demonstrates top-tier marketplace expertise by citing his debate with venture capitalist Bill Gurley, arguing that aggregating fragmented, hard-to-find supply is the true core unlock of enduring marketplaces.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Lenny as informed peer | Guest teaching | Guest disagreement | Lenny pushing back | Why |
|---|---|---|---|---|---|---|
| The Hierarchy of Engagement: Level 1 and Core Actions | 5 | 5 | 1 | 1 | Sarah lays out Level 1 of the Hierarchy of Engagement, emphasizing core actions over vanity metrics like MAUs. Lenny summarizes the concept effectively with concrete examples like Snapchat and WhatsApp, while also clarifying industry jargon like NUX. | |
| The Hierarchy of Engagement: Level 2 Retaining Users | 5 | 5 | 1 | 2 | Sarah explains Level 2 regarding retaining users via accruing benefits and mounting loss, citing Pinterest feeds and Evernote. Lenny interjects with a sharp product counter-observation that building a simple export feature can erase switching friction. | |
| The Hierarchy of Engagement: Level 3 Self-Perpetuating Loops | 6 | 6 | 1 | 1 | Sarah details Level 3 self-perpetuating loops and why notification-heavy apps like Clubhouse crumble. Lenny provides knowledgeable context regarding TikTok's unprecedented ad acquisition spending and the destructive K-factor concept. | |
| Retention Analytics, Anonymity Traps, and Discovering Core Actions | 7 | 5 | 1 | 1 | Sarah discusses the retention pitfalls of pure anonymity, cohort smile curves, and Pinterest's internal analysis. Lenny demonstrates substantial domain expertise by referencing his published regression models for activation and North Star metric frameworks. | |
| The Hierarchy of Marketplaces: Level 1 Focus and Happy GMV | 5 | 6 | 1 | 1 | Sarah introduces the Hierarchy of Marketplaces and Level 1 focus, contrasting DoorDash's suburban focus with Postmates' overextended scope to define 'Happy GMV'. Lenny synthesizes this with the concept of minimum viable happiness. | |
| Sponsor Message: Comprehensive Tax Planning with Gelt | 8 | 5 | 2 | 2 | Following an ad read, Sarah describes tipping loops and market saturation using Rekki and Mechanical Turk. Lenny actively contributes deep marketplace theory, sharing his historical debate with Bill Gurley regarding supply aggregation versus demand generation. | |
| The Hierarchy of Marketplaces: Level 3 Dominating the Market | 6 | 6 | 2 | 2 | Sarah explains Level 3 marketplace dominance, market currents, and Benchmark's thesis on underestimated initial TAMs. When Lenny gives an example of crypto tailwinds dying out, Sarah politely pushes back to distinguish DeFi headwinds from stablecoin momentum. | |
| Applying Startup Frameworks to SaaS, DevTools, and AI | 5 | 6 | 1 | 1 | Sarah translates marketplace and consumer frameworks to B2B SaaS, dev tools, and AI startups, breaking down three playbooks for discovering white space. Lenny connects these strategies directly to developer happiness. | |
| Lightning Round: Book Recommendations, Life Mottos, and Rugby | 3 | 2 | 1 | 0 | Lenny conducts the lightning round covering book recommendations, Tesla experiences, Reid Hoffman's motto on organizational trade-offs, and rugby stories in an amicable closing discussion. |
Statements from this episode (23)
Tavel: Social products depend on a core action that drives retention
“What I, what you realize when you look at social products is that there are almost always is this action, which I call the core action. Of that product that forms the foundation of the product. When a user completes this action, it's clear that they both under…”
Tavel: MAU is meaningless without tracking users completing core actions
“But at the end of the day, if you're not doing that action, you're not really a user to the product. And that's why it's, you know, the MAU thing doesn't really mean anything It's really looking at, I think, of users completing the core action.”
Tavel: Retention requires accruing product value and increasing user switching costs
“The test for me of whether you're building a product that has the ingredients to create a retentive product on a micro level, just at the user level, is that the product should get better the more you use it, and you'll have more to lose by leading it.”
Tavel: Pinterest's 'Picked for You' may be first algorithmic social feed
“It was actually, it may have been the first algorithmic feed that was in a social product because suddenly your home feed wasn't just things, people that you followed.”
Tavel: Evernote tapped out because it lacks self-perpetuating user network loops
“Now, as much as I love Evernote this is a place where Evernote obviously falls down, right? There's no loops that they can take advantage of that. When I use the product, I make it better for you. There's no loop where, when I use a product, I want to pull you…”
Tavel: TikTok spent over $1B on UA only after achieving retention
“There's one example that we have so far, which is TikTok of spending, you know, more than a billion dollars. Once they figured out Actually the first two levels in order to grow. So they didn't actually put money, like user acquisition spend behind TikTok unti…”
Tavel: Purely anonymous apps fail to build sustainable retention and network effects
“The challenge when you have pure anonymity is that you don't have that accruing benefit or mounting loss that, that happens. I don't know if you ever played with secret, but it's similar to Tik TOK or something like that. These are the types of experiences whe…”
Tavel: Pinterest users who pinned had over a 90% next-week return rate
“What we saw was that if you pin something, repin something, which is finding something on Pinterest, I'm using those synonymously or click through, you had an incredibly high probability that you would come back. So if someone's pinning something, they're comi…”
Tavel: YouTube analysis revealed subscribing, not video watching, was its core action
“Shashir Meta, who is the kind of CPO of YouTube, he reached out to me and he said, you know, that's what it was in the early days. But we started to realize that it wasn't actually our core action. And we did a lot of analysis On YouTube. And what we realized …”
Tavel: Marketplace profitability scales with dominance over number two competitor
“The more dominant a marketplace is relative to the number two in its space, the more profitable that business is.”
Tavel: DoorDash won food delivery by targeting uncontested suburban markets
“DoorDash on the other hand, famously and very controversially went after the suburbs, right? In the beginning. And the beautiful thing about the suburbs is that there was very little competition because no one thought that you could do it economically. And the…”
Marketplace GMV is a vanity metric that does not indicate enduring value
“GMV is really actually a vanity metric. It doesn't get at the core of whether you're building enduring value. It's like very clear. And there's plenty of examples I could give where there are companies that had incredible scale and still were disrupted by a st…”
Tavel: Sean Ellis 40% test beats NPS for finding product-market fit
“I don't like NPS for this. And I have a whole blog post on this. I like Sean Ellis's question of like, how disappointed would you be if this product disappeared? And I think it's, if you have at least 40% of people Respond that they'd be like very disappointed…”
Tavel: Etsy distributed physical business cards to drive early seller loops
“Etsy literally gave them business cards. So Etsy gave their sellers business cards that, that made them feel like, oh, I'm a real, like made them feel professional, but the, and the link on it was to their Etsy store.”
Tavel: Marketplaces need healthy supplier churn to protect buyer experience
“When you're building a marketplace, you actually, there's a healthy amount of churn that you want on the supplier side. Because there are just going to be suppliers who aren't going to create a great experience for the buyer, and you can't do anything about th…”
Tavel: Marketplaces cannot tip without reaching market saturation
“In order to tip a market, you have to reach a saturation point in that market, right? You can't tip a market before you've penetrated it to some saturation level.”
Tavel: Enduring marketplace value requires cornering demand
“The only way to build long-term enduring value with a marketplace is to corner the demand side.”
Tavel: High supply heterogeneity allowed Airbnb to escape competition
“There's such heterogeneity in the supply for Airbnb that that's what has let Airbnb really close and escape competition.”
Tavel: Concentrated GTM spend in one city beats spreading capital across ten
“If you have a million dollars and you spread that million dollars of go to market costs across 10 cities spreading yourself really thin. You have a competitor come in and guess what? They put a million dollars into one city. They're going to win that city.”
Tavel: Global currency inflation creates strong tailwinds for US dollar stablecoins
“With stable coins, 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 and so many local currencies. There's real demand for stable coins, a US dollar stable coin that it comes in many differ…”
Grubhub was disrupted because public market scrutiny blocked private capital tactics
“GrubHub wasn't able to, for different reasons. They were a public company. And so they couldn't, couldn't access capital in the same way that the private markets could, but they were too slow. To change the atomic unit of their supply to have delivery that the…”
Tavel: LLM startups win by focusing on a constrained market first
“Again and again, what you see, and I think a lot of this for new companies kind of leveraging large language models to build products is that focus on a constrained market to start is the way to win.”
Tavel: LLMs could unlock new marketplaces by automating long-tail supply onboarding
“Like, LLMs may make it possible to bring on a supply Type that maybe the long tail that was just, it was too much effort to reach out to them, onboard them, but maybe if you automate that work, you actually create an opportunity to expand the supply in a way t…”