Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge)

Oct 9, 2022 1h 4m 21 insights Episode Page ↗
Lenny's podcast features Dan Hockenmeyer, Head of Strategy & Analytics at FAIR, discussing growth models and deep marketplace growth strategies. He shares insights from scaling Thumbtack and consulting for numerous startups.
Actionable Insights

1. Marketplace: Light Touch Gardening

When managing a marketplace, adopt a ‘gardener’ mindset with a light touch, especially when altering core incentives or mechanisms, as changes can have delayed, complex, and hard-to-trace consequences.

2. Build Growth Model for Understanding

Build an analytical growth model, typically in a spreadsheet, to force a deep understanding of how your business truly grows and to identify key levers, as the process of building it provides significant value.

3. Prioritize Customer Retention

Prioritize efforts on customer retention, as even small improvements can have a disproportionately high impact on overall business growth and LTV compared to larger gains in other areas like acquisition.

4. Optimize Early User Experience

To significantly improve retention, focus on optimizing the early user experience and onboarding, as this initial phase is crucial for demonstrating product value and influencing long-term customer behavior.

5. Address Early Experience Variability

Identify and address variability in the early user experience (first week/month) to ensure a consistently positive initial interaction, thereby improving retention by preventing early disillusionment.

6. Track Marketplace Liquidity

Define and relentlessly track marketplace liquidity (reliability of transactions for both sides) as your primary metric, as achieving liquidity is fundamental before other growth strategies become effective.

7. Demand is Marketplace Currency

While supply is crucial early on, ultimately prioritize aggregating demand, as demand is the ‘currency’ that attracts and retains suppliers, making the customer perspective paramount in optimization.

8. Product Leads Marketplace Expansion

When expanding a marketplace, ensure product development and an excellent end-to-end customer experience lead or stay in lockstep with go-to-market efforts, as product quality is what truly drives retention and organic growth.

9. B2B Marketplaces Need Fragmentation

For B2B marketplaces, ensure there is sufficient market fragmentation (many small players rather than a few large ones) on both the supply and demand sides, as low fragmentation leads to less leverage for the marketplace and higher risk of disintermediation.

10. Beware B2B Disintermediation Risk

Be wary of B2B markets with low fragmentation, as dominant players have less need for a marketplace, are less willing to pay high commissions, and are more prone to disintermediation (transacting directly outside the platform).

11. Use Growth Model for Planning

Utilize your growth model in quarterly or annual planning to create a ‘common currency’ for evaluating and comparing the impact of different product or growth initiatives, enabling better resource allocation decisions.

12. Develop Dual-Sided ROI Equations

Develop dual-sided ROI equations for both supply and demand acquisition that account for the interdependencies of the marketplace, allowing you to optimize acquisition based on your desired payback period.

13. SaaS Growth Model Building Blocks

For a SaaS business, start building your growth model by focusing on three core components: acquisition channels (traffic, spend, conversion), customer retention (activation, survival rates), and monetization (monthly/annual fees).

14. Marketplace Growth Model Complexity

For transactional or marketplace businesses, expand your growth model to include transaction frequency, average order value, unit economics (COGS), and critically, supply acquisition, retention, and the interaction between supply and demand.

15. Track Share of Wallet

Measure ‘share of wallet’ for both buyers and sellers to understand the depth of engagement, as higher share of wallet indicates stronger relationships, increased LTV, and reduced multi-tenanting.

16. Prioritize Adjacent Marketplace Expansion

When expanding a marketplace, prioritize new markets or verticals that are highly adjacent to your core business and that accentuate existing network effects, rather than solely focusing on total addressable market (TAM).

17. Marketplace to SaaS is Easier

Recognize that it’s generally easier for a marketplace to add SaaS features than for a SaaS business to become a marketplace, primarily because marketplaces already have established relationships with both supply and demand.

18. Marketplace SaaS: Solve Customer Pain

When a marketplace considers adding SaaS products, focus on solving significant customer pain points and improving their overall experience, rather than solely aiming for additional monetization, as this approach increases stickiness and retention.

19. Vertical Unbundling Criteria

Consider unbundling a vertical marketplace from a horizontal one only if the niche offers high order value, high frequency, and a largely self-contained network that doesn’t heavily rely on the broader horizontal network for its value.

20. Avoid Early Resurrection Efforts

Prioritize efforts on new user acquisition and early onboarding over resurrecting churned users, as it’s generally more effective to engage fresh users than to re-convince those who’ve already decided against the product.

21. Avoid Correlational Analytical Failures

Avoid the common analytical pitfall of assuming that if your best users exhibit certain behaviors, you can simply make other users do the same to improve metrics; correlational exercises rarely translate into actionable changes.