Business model design Market analysis Product vision
Summary

Sarah Tavel introduces the Hierarchy of Marketplaces, a framework for building successful marketplaces that prioritize creating happiness for buyers and sellers. She argues that Gross Merchandise Value (GMV) is not a meaningful metric and that the focus should be on making participants happier than any alternative in the market.

 

Tavel emphasizes that happiness is a competitive advantage, even for large incumbents, and that it is the true moat for marketplaces. She suggests viewing growth as a means to increase the average level of happiness per transaction, rather than the ultimate goal. The framework is presented in three levels, with the first level focusing on achieving “Minimum Viable Happiness.” Tavel suggests that marketplace success depends on creating more happiness in the average transaction than any substitute. She introduces the concept of “thimbles,” highlighting the importance of choosing the right starting market and gradually expanding to adjacent markets that align with the mission.

 

Tavel proposes “net revenue retention” as a measure of happiness, acknowledging its imperfection but considering it the best single measure. She advises founders to monitor Minimum Viable Happiness closely, as it is dynamic and can change based on market evolution and the introduction of new substitutes. In conclusion, Tavel advises marketplace founders to prioritize happiness over GMV, focus on quality growth, and carefully choose their starting market while considering adjacent opportunities.

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