The hierarchy of engagement | Sarah Tavel (Benchmark, Greylock, Pinterest)
Sarah Tavill, a partner at Benchmark and former Pinterest product manager, shares two killer frameworks: the Hierarchy of Engagement for consumer startups and the Hierarchy of Marketplaces. She discusses defining core user actions, building retention, creating self-perpetuating loops, and how to achieve market dominance through focused growth.
Deep Dive Analysis
27 Topic Outline
Introduction to Sarah Tavel and her product frameworks
Overview of the Hierarchy of Engagement for consumer startups
Level 1: Defining and identifying the core user action
Pinterest's process for identifying its core action
Level 2: Building product retention through accruing benefits
Level 3: Achieving self-perpetuation and network effects
The critical importance of focus and avoiding anonymity pitfalls
Practical advice for improving consumer product retention
Common founder mistakes in consumer product development
YouTube's core action: Subscribing for creators and viewers
Applying the Hierarchy of Engagement framework
Overview of the Hierarchy of Marketplaces framework
Level 1: Focusing on a constrained market opportunity ('the thimble')
Concepts of 'Happy GMV' and 'Minimum Viable Happiness'
Thumbtack as a counterexample for broad marketplace expansion
Recognizing success and readiness to expand in a constrained marketplace
Level 2: Strategies for tipping the marketplace
Understanding and accelerating tipping loops (growth and happiness)
Market conditions affecting marketplace tipping (concentration, homogeneity, competition)
Indicators of successful marketplace tipping
Level 3: Strategies for dominating the market
The opportunity in underestimated markets with expansion potential
The pitfalls of chasing GMV and losing focus (Etsy example)
Identifying market currents and momentum for easier growth
The imperative to continuously innovate and avoid complacency
Applying marketplace lessons to other product types (SaaS, open source)
Strategies for finding new marketplace opportunities
9 Key Concepts
Core Action
The fundamental action a user performs in a consumer product that signifies they understand its utility and are highly likely to return. It forms the product's foundation, and if not performed, indicates a missing experience.
Retention (Hierarchy of Engagement)
The second level of engagement where the product experience improves the more a user interacts with it, creating a mounting loss if they were to leave. The core action should be the mechanism that makes the experience better over time.
Self-Perpetuation (Hierarchy of Engagement)
The third level where user energy put into the product is converted back into an improved experience, often through network effects or growth/re-engagement loops. This allows the product to grow organically and reduce customer acquisition costs.
Hierarchy of Marketplaces
A framework for marketplace founders to prioritize and focus on key stages of growth, moving from constrained focus to market tipping and ultimately dominance. It emphasizes that GMV alone is a vanity metric and true value comes from market share.
Happy GMV
A metric that focuses on the quality of transactions rather than just volume. It measures the Gross Merchandise Value generated from transactions where both buyers and sellers are genuinely satisfied, leading to retention and enduring value.
Minimum Viable Happiness
The threshold of satisfaction a marketplace must achieve for a core group of users within a constrained market. It signifies that the product-market fit is strong enough to retain users and is a prerequisite for scaling.
Tipping the Marketplace
The moment a marketplace reaches a saturation point in a specific market where growth becomes significantly easier and more organic. It's when the 'boulder pushed uphill' starts to roll down, driven by growth and happiness loops.
Tipping Loops
Mechanisms within a marketplace that work symbiotically to accelerate its growth and ensure user satisfaction. These include 'growth loops' (e.g., referrals, SEO metadata) that bring in new users, and 'happiness loops' (e.g., search ranking, reputation systems) that reward quality suppliers and optimize buyer experience.
Market Currents
A mental model for viewing markets not as static 'bodies of water' but as dynamic forces or 'currents' that can pull a company forward. Identifying and riding these existing dynamics of change makes it easier for founders to build enduring businesses.
12 Questions Answered
The core action is the fundamental user activity that demonstrates understanding of the product's utility and predicts high retention. Examples include friending on Facebook, pinning on Pinterest, or writing a note in Evernote.
The success of a new user experience (NUX) or activation is measured by whether it effectively guides new users to understand the product's mental model and consistently complete the core action.
Self-perpetuation, driven by network effects and growth loops, enables a consumer product to spread organically and achieve mass market scale with very low customer acquisition costs, which is essential for enduring success.
Pure anonymity prevents the creation of a persistent identity, which means users don't experience accruing benefits or mounting loss, making it difficult to build long-term retention and often leading to community breakdown.
Founders often overwhelm new users with too many features or options, diffusing their attention instead of clearly guiding them to perform the single most important 'core action' of the product.
GMV alone doesn't reflect whether a marketplace is building enduring value; focusing solely on it can lead founders to pursue large, unconstrained markets prematurely, making it harder to achieve true market dominance and profitability.
Focusing on a 'thimble-sized' market allows founders to achieve deep product-market fit and 'minimum viable happiness' with limited capital and attention, creating a strong foundation before expanding to adjacent markets.
Success is indicated by high user retention, positive word-of-mouth, and a significant percentage (e.g., 40% or more) of users reporting they would be 'very disappointed' if the product disappeared.
A marketplace 'tips' when it reaches a saturation point in a market where growth becomes significantly easier and more organic, moving from a high-effort sales process to one where participants actively seek to join.
Marketplaces are susceptible to tipping when there is fragmentation and hunger on the supply side, allowing for a differentiated experience. They are resistant if supply is concentrated or homogeneous, or if there's strong entrenched competition.
Marketplaces achieve dominance by first honing a repeatable playbook in a constrained market, then aggressively expanding within that market, creating new use cases, and blitzscaling into adjacent markets, always aiming to be the undisputed number one.
Underestimated markets often lack competition, allowing a startup to achieve market dominance more easily. These markets, while appearing small initially, can have significant expansion potential into adjacent, larger opportunities.
18 Actionable Insights
1. Identify Core User Action
For consumer products, pinpoint the single, most important action a user takes that demonstrates product utility and predicts their return. This ‘core action’ should be the North Star for your product roadmap and new user experience (NUX).
2. Optimize NUX for Core Action
Design your new user experience (NUX) to clearly guide users to understand the product’s mental model and successfully complete the defined core action, avoiding diffusion of attention.
3. Build Product Retention
Ensure your product gets better the more a user engages with it, creating accruing benefits and ‘more to lose by leaving.’ The core action should directly enhance the long-term user experience.
4. Create Self-Perpetuating Loops
Convert user engagement into product growth by maximizing network effects and implementing growth/re-engagement loops, where user actions naturally pull others in or bring dormant users back.
5. Focus on Constrained Market
When building a marketplace, concentrate your ambition like a ’laser beam’ on a small, constrained market (a ’thimble’) to achieve deep product-market fit and ‘heat it up white hot’ before expanding. This conserves capital and founder attention.
6. Optimize for Happy GMV
For marketplaces, prioritize ‘happy GMV’ – transactions that result in high buyer and seller satisfaction and retention – over simply maximizing gross merchandise volume.
7. Reach Minimum Viable Happiness
Work relentlessly to remove friction and optimize the product experience until a significant percentage of users retain after their initial transaction, indicating you’ve reached a ‘minimum viable happiness’ threshold.
8. Actively Tip Marketplace
Once ‘minimum viable happiness’ is achieved in a constrained market, identify and accelerate ’tipping loops’ (growth and happiness loops) to reach a saturation point where the marketplace becomes self-perpetuating and easier to grow.
9. Dominate Market Segments
After successfully tipping a market and establishing a repeatable playbook, aggressively expand into adjacent markets or use cases, but always with the discipline to dominate each new segment rather than spreading resources too thinly.
10. Track Cohort Retention
Implement rigorous cohort tracking (e.g., weekly) to honestly assess user retention and activity levels, aiming for a ‘smile graph’ where retention plateaus over time rather than continuously dwindling.
11. Ride Market Currents
Instead of viewing markets as static ‘bodies of water,’ identify underlying ‘currents’ or dynamics of change that provide momentum, making it easier for your company to be pulled forward and endure.
12. Assess Market Tipping Potential
Before attempting to tip a market, assess its conditions: look for non-concentrated (fragmented) supply and low competition. Avoid markets with high supply homogeneity or concentration, as they are less likely to tip.
13. Gauge PMF with Sean Ellis
To measure product-market fit, ask users ‘How disappointed would you be if this product disappeared?’ Aim for at least 40% responding ‘very disappointed’ as a strong indicator.
14. Never Rest on Laurels
Recognize that consumer expectations constantly rise; continuously innovate and improve your product experience to avoid stagnation and disruption, even if you have strong network effects.
15. Target Underestimated Markets
Look for market opportunities that others perceive as too small, as these often have less competition and significant potential for expansion into adjacent, larger segments (e.g., Hipcamp’s growth from hardcore camping to glamping).
16. Avoid Pure Anonymity
Pure anonymity in social products hinders retention by preventing users from building a persistent identity with accruing benefits or mounting loss, making the product less sticky over time.
17. Cultivate Founder Focus
As a founder, maintain intense focus on the right metrics and exhibit intellectual honesty about what’s truly working or not, rather than being swayed by vanity metrics.
18. LLMs for Supply Expansion
Explore how large language models (LLMs) can automate the onboarding and management of long-tail supply, potentially opening up new marketplace opportunities that were previously too labor-intensive.
4 Key Quotes
I think a lot of people think about markets almost like these bodies of water, you know? And it's like, oh, it's this big body of water that we're going after. And I actually think that the most interesting markets, you have to think of them like currents where you're just trying to, there's something happening in the market that's creating this current where you can have like a plank of wood that you put on the river and it's going to pull you forward versus a market that doesn't really have that momentum to it. You're going to have to build like something really big and fancy to make any progress.
Sarah Tavel
You can never rest on your laurels when you're building a marketplace. Like the history of marketplaces is one in which you have a marketplace that feels dominant and then gets disrupted by a competitor.
Sarah Tavel
As people say, if when something grows really quickly, it also can collapse really quickly.
Sarah Tavel
Every strength has a corresponding weakness and vice versa.
Reid Hoffman