YouSaid · the spoken record

Dan Hockenmaier

lines on the record: 68
first: 2022-10-09
most recent: 2022-10-09
sittings or episodes: 1
sources: podcast

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“Yeah, so on Twitter at Dan Hockenmeyer and then LinkedIn, people should feel free to reach out. I think the most useful thing is we're always growing our team at fair. And so for folks who are interested in this space, I would love to connect with them.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's a good mental. Perhaps another way to say owning a supply is when there's no longer a direct transaction between supply and demand. That's what Open Door took out, for example. Like, you're not transacting with the home seller, you're transacting with Open Door. And so that's my mind no longer marketplace because you also eliminate some of the marketplace mechanics we were talking about.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Marketplace model. On the other end, you have Etsy and Amazon. I think fairs in this bucket, Steam, the video game marketplaces in this bucket where the thing you care about is suppliers bringing you like amazing creative new things. And that's something that big companies are really bad at doing. So they like need the marketplace suppliers to supply this. And so I think those businesses stay in marketplace mode longer, longer term. And in the middle, like I don't exactly know how to call what happens in food delivery. You do want some standardization elements, but you also want the local restaurants. And so like, does DoorDash win or the cloud kitchen model win? I think it's like a little bit harder to understand. But I do think that's kind of the variable that's determining where the future marketplace that are going.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“In marketplace mode, in equilibrium. And you see examples of this already. Like people talk about Open Door as a marketplace, but it's not. It's an e-commerce website, which has the highest price points you can imagine because you're buying houselets, right? But there's no supplier on the other side. They've already bought the house. So like it's just e-commerce. And I think many marketplaces will go that way. And I think the variable to me that matters in deciding which case you're going to have, whether they consolidate or not, is how much creativity there is in the space. So like how much do you need the supplier to be coming up with interesting new things for your customers to buy? What the customer cares about is actually like commoditization. Like they want the same experience every time. Then you're ultimately going to evolve away from marketplace, I think. Like with ride sharing, basically what I want is like a clean car that shows up on time and gets me there every time. And so like as soon as autonomous vehicles arrive, we're going to fully consolidate that industry.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Beyond that, which, like, for lack of a better term, you could call it like a heavily managed marketplace. But now they're typically doing some work in the value chain, which is distinct from just aggregating domain. So DoorDash and Instacart own logistics. They took over logistics. And as a result, like DoorDash did a much better job than the previous model of seamless of being able to bring on a lot more restaurants and make it much more reliable for the customer as a result. They could charge more to the restaurant. Similarly, Fair, we actually underwrite the transaction. Like we take the risk if that transaction falls through or the retailer defaults, Fair eats that. And so we're playing a much more fundamental place in that transaction. But like as you play this out, like what happens at the end of this continuum? Like ultimately you're charging 100% commission and you're not a marketplace anymore. And so I think as we think about the future of marketplaces, like one important question is which marketplaces are going to tend towards evolving out of the marketplace model altogether and which will stay.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I wrote a blog post on this where we charted the commission that a marketplace charges and the year they were founded. And if you put those on the x and y axis, there's this very clear up and to the right trend. Like newer marketplaces are charging higher commissions and they're doing more work to justify those commissions. And so like broadly the evolution looks like kind of like marketplace 1.0 which is all they're doing is aggregating demand. So that's like Zillow and home advisor. They're basically like lead gen. And their commission rate is often pretty low. It's like 5%, maybe 10%. Then you have a managed marketplace like Airbnb or Etsy, which did something like really fundamental on top of that, which is generate trust. So they dead ed supply, like you could probably tell me more about what Airbnb did in this space. But like they made it a safe transaction. And there's a lot of work it takes to make that transaction trustworthy and safe. And so they charge a higher commission as a result. There's then one...”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Like with ride sharing, for example, the absolute dollars of commission on a ride is two or three dollars. Is it worth it for the driver to like figure out how to call the passenger two minutes in advance, go around Uber and pick them up? And maybe you probably see some of that happening, but usually not. But now take like, you know, there's a bunch of people in the kind of material space within B2B marketplaces. They're like, you know, you have manufacturers of, say, beauty products who need to source aerosol cans and all the inputs into making beauty products. There's not that many of these big suppliers and each of their transactions may be tens of thousands of dollars, hundreds of thousands of dollars, millions of dollars. The commission you would charge in that order is too high because I as a supplier would rather just pick up the phone and call this person and save those tens of thousands of dollars. And so like you just run into these kind of like fundamental problems with a marketplace doesn't work anymore.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fragmentation is basically just a measure of how many total businesses are there in the space relative to the transaction volume in that space. And you took the top 5% of suppliers in the space. What percentage of the total volume are they doing? And the higher that percentage is, the less fragmented you are. And the challenge that creates for a marketplace is if there's 10 companies in the space that are doing 80% of the volume. It's very important for me to have a relationship with those 10 companies. But those 10 companies are also big enough to have their own sales teams, have their own internal operations. They just need less from a marketplace. And as a result, they're going to be willing to pay less. You're also probably going to see many more problems with disintermediation, which is when the supplier and the customer go around the marketplace because they can just transact themselves. One principle to use here is like how many total dollars are attached to each transaction in the marketplace. When it goes above a certain amount, it becomes much more attractive to figure out how to go around the marketplace.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“In this area, is that B2B also comes with something else which is much lower fragmentation in many cases, and you need fragmentation for a good marketplace. Like the more concentrated either side of your market is, the more leverage they have, the less likely they are to need you and the less likely they are to be willing to pay a high commission”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I do think we'll see more of them. Part of the reason we've seen fewer is there are fewer potential founders who understand B2B problems because most of them are consumers. And so the consumer use cases are more obvious. So if you take FAIR, for example, when I met the founders, it's probably five years ago now, I immediately understood what they were talking about, but only because I had run the e-commerce business in the past. And I had the experience of dealing with 100 suppliers and line sheets and PDFs going back and forth and pricing not being right and just like how painful it is to be a retail buyer. And they had a solution which was much better and that clicked. But had I had the same conversation five or ten years ago with a team at Convoy, like I don't know anything about trucking. I probably wouldn't have understood why that business is going to work. And so I think there's partly that. There's just the discovery process takes longer for that reason. But I think the reason we won't see a huge explosion”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's right. Initially, it's very difficult. I mean, the average person hires eight or ten new professionals a year, the average homeowner. And so that's decently high frequency, but it's not food delivery or a ride sharing or something like that.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is a good point. Probably what you're solving for is customer LTD, and you can get that in multiple places. There's not that many things which are both high frequency and high dollar value. So you can do both. I do think if you go to a place that is low frequency, it comes with all kinds of new challenges. Because without frequency, customers forget about you. And so what is the hook to get them to come back? Do you have to reacquire traffic? It creates a whole other set of problems. But if you can get it right, like in the Airbnb case, it can work really well.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the market because of that network effect. So broadly, I think there are some pretty interesting examples, places where you can unmundle, but they're rarer than people think.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“BB's example, which they unbundled from Craigslist because they picked off this massive high frequency, high dollar value category in that word. But there's not that many of those examples. And then I think the other source of benefit would be the network effect. So if you go back to LinkedIn, for example, I think actually there's an opportunity, and we see some successful businesses picking off now blue-collar works. There's a company called WorkRise. I think they used to be called RigUp, where they're basically building like a LinkedIn, but for a blue collar work. And that works really well because it's a huge segment. and it's somewhat self-contained. But for most other things, there's a lot of fluidity between the employers and the employees in terms of like who wants to transact with one another. And so if you're an investment banker, you don't really want to be on the LinkedIn investment banker because you're probably in the future. You're going to want some other job. So you want to be in like the biggest network that's relevant to you. And so this is why you can complain about LinkedIn's UI all day, but they have a very strong place.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Construction workers or just for architects or just for investment bankers, like you could definitely build some set of features that group liked better than like the core LinkedIn experience. But then you have to weigh that against all of the benefits of being broader. And so like the two big pieces of where you get benefits from scale are in your customer LTV. And then I think the network effect you can build. So if you go back to that thumbtech example, we had spreadsheet which tracked hundreds of verticalized competitors where somebody would try to pick off the electrician's category, the wedding category, the lessons category, and very few of them got traction for the simple reason that we could upsell customers into a thousand things. And so our customer LTU is always higher and we would always win when we were bidding against those other customers on SEM keywords that were relevant to that category. So it's like it becomes very hard to compete if you're picking off this kind of like narrow thing unless you find something which that subsegment is itself very high frequency or very high dollar value. So like”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. And in that eBay example, there are now a few quite successful examples of this, like Goat and StockX or two, where they carved out the sneaker category and the key insight was like you couldn't trust the inventory you were getting on eBay. So there's a lot of work you need to do to verify. And those businesses just did it much better than eBay. Broadly, though, I think that we overhyped the idea of unbundling. So I think every six months, I've seen articles and we wrote, this is the unbundling of Reddit. The unbundling of LinkedIn, the unbundling of Facebook, we're going to take all those blue links that you saw on other site and they're all going to become new businesses. And very rarely that thesis plays out. And I think the core logical error in the argument for unbundling is that they overfocus on one type of improvement, which is user experience. And they underfocus on the things that make scale businesses have better economics. And so like to unpack that, if you look at UX, like if you built a LinkedIn for just for”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think the first thing is looking at those core metrics we talked about. Do they have a really liquid, high performance marketplace first? Like that has to be the optimization function. And before you're there, I don't think you should be thinking about some of these expansion levers. And the second would be like show me the customer problem or the reason it's so hard to engage with this marketplace today that we need to build like a deep set of tools or products for this customer to solve. And if both of those things are true, then I think maybe it's quite interesting. But I think more often than not, it's better to focus on the core marketplace”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Some interesting products for healthcare clinics that they're now bootstrapping into marketplace. And so I think it's possible, but I think it's very difficult. And then for a marketplace, the lens you should take is much less about how to drive more monetization, but just how do we create a much better experience for our customers? Because there's some painful thing that they're doing today that we can build for them instead. And so how do we better integrate with the way that they're running their back office or accounting systems is a classic example plus where you can make it much, much better. And in the process, you're often making their lives easier, but you're also making your product much stickier. Your retention will go up as a result of this. And so I think if you take the lens of lets the customer pain we're solving, you'll be much more effective than like, how do we get a few more points of margin out of this customer?”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“So broadly, I will say I think it's easier for a marketplace to go SaaS than is the other direction. And the reason for that is two things. One is it's a new capability to generate demand, which is fundamentally what a marketplace has to do. And it's a higher value activity. This is why the effective commission of a marketplace often 10, 15, 20% is much higher than the effective commission of a SaaS business in the 2% to 3% range. So you're just doing much more of the value chain in the marketplace. And second is the marketplace by definition starts with relationships on both sides, but the SaaS business does not have any relationships with the demand side customer. And so they have to acquire a whole new type of demand to make this work. It's not to say it can't work. There's actually like a classic kind of SaaS bootstrap to marketplace playbook. This is what OpenTable did. I think we actually see some new examples of companies doing this, like one in the healthcare space is solved.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think that's exactly right. And the reason, and this is the right advice, is because everything else follows proving you have a good customer experience. Even if you have very few customers, if your cohorts look really good, they're retaining or even kind of like, you know, like the classic smiling curve where you see more engagement later in the life cycle than you do earlier. That's the thing that gives the company conviction to invest resources against it. That's the reason that BCs are going to want to invest rather than a bunch of kind of low quality GMV in any market.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“One other lesson here which I've learned a few times, which is that product is the thing that matters when expanding. So because of the dynamic we talked about where liquidity is so important and there's like a race to get there, like the first person the liquidity wins, you often see this arms race where people will spend a huge amount of money on go-to-market and incentives to bootstrap the market. And that is an important part of the strategy because it actually does matter who drives liquidity faster. But I've learned over and over and over that that's actually not the main thing. It's who can deliver an incredible end-to-end customer experience first, even if for a smaller number of customers, because that's what creates the flame where actually like customers are really loving it, retain talking about it, and you can then expand from there. And so the other big learning from expanding a marketplace is don't let go to market get too far ahead of product. You need to keep those two pieces in law.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Base where if they try to do something that was like one click further away from this, it would be much less important to them. And so I think that's the way to prioritize new bets.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Go get it. So if you think about Instacart's setup options, it makes much more sense for them to expand into convenience stores, which they have, than into retailer, to traditional retailers, because the convenience store looks much more like their current models of high frequency. Shipping speed matters a lot. Filmment speed matters a lot. And so it's much more likely their current model is going to work there than trying to expand to something else. And that's the right prioritization function for them to think about versus like, is retail slightly bigger market that could be in stores? And the second thing is like, are there places that you can accentuate your network effect by expanding into new markets? And what I mean by that is, are there places where you can use the same supplier or consumer has demand for multiple things? And so it makes your marketplace stronger versus trying to spin up a new network. So like for Uber, it makes all the sense in the world to have Uber Eths because one, they're the same drivers in many cases, but two, the customer wants rides and meals. And so you automatically have this built-in.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I've been fortunate to work on marketplaces that are in these massive, massive industries, which is actually true for a lot of marketplaces because they tend to have winner take all dynamics in really big markets. And so you get these really huge tams. So like, you know, the local services industry for thumbtack or the global wholesale industry for fair, like these are meaningful percentages of global GDP. They're like huge markets. And as a result, they're really frustrating to work on and also really fun to work on because you have this thing where like there's 10 big opportunities that are just one click away from your core business and they all seem like really good ideas to do. So like how do you actually prioritize between doing those different things? And one thing I've learned here is that actually beyond a certain point, TAM or the size of the market actually matters very little because these are all big enough that they would dramatically inflect the curve of the business if you make them work. It's much more relevant to focus on a couple things. One is like how adjacent is that to the business as a proxy for can we actually”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. And in general, Carla's been such an incredible force in growing our team and helping us think more rigorously about marketplaces. This is like one of the things I mentioned at the start that makes Fair so fun is we've got a lot of people like this that are just so fun to riff with on marketplace problems.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you're messing with the core incentives or mechanisms in the marketplace, be very careful, particularly if you've got something that's working on playing with those variables.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Fund more returns and faster shipping for their customers. And so what's the right balance between charging more and maybe kind of discouraging supply from signing up to charging or to giving more benefits to demand and encouraging man to sign up? So this is like a, it's very hard to model that kind of relationship. There's not a simple curve that describes. And so many decisions follow this same pattern. And one thing, one lesson I've learned the hard way a bunch of times on this is that if you think about running a marketplace, you're basically like a gardener. You have to have a very light touch. Like if you're building a SaaS business, you're a construction worker. You're like building the product and the features and selling it and it's this very linear thing for a marketplace. You're like messing with this ecosystem that you don't actually really understand how it works. And sometimes you might do something over here, which like drives this long-term effect two months later and then you're going to be pulling your hair out two months later trying to figure out what you did over here that made that thing happen. And so I think that the main advice is like to tread lightly.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a good question. So I think that effectively every decision you make at a marketplace has a second order consequence that you need to think through and maybe third and fourth order order consequences at that. It takes something like pricing. It's like this is a pretty complicated topic no matter what. But if you're looking at a SaaS business and you're trying to figure out how to price your subscription, theoretically, you can draw a curve which says as my price goes up, fewer are going to convert. And so just find the optimal point on that curve where we're managing the tension between more customers versus more revenue per customer. But if you take a marketplace, typically you're charging commission on the supply side and the sensitivity, their sensitivity to that commission is much harder to understand because theoretically, if they can transact at a rate that makes them money, like they'll sign up all the way to that highest possible commission you could charge. The more you charge, the more you can fund benefits for your customers. So if Amazon charges a higher commission, they can fund”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, there's a lot of nuance by business, but the basic formulation is CAC for the side you're focused on. So let's take Uber again, for example, CAC to acquire a rider. And then an additional amount of CAC loaded on for the supply, the drivers that you're acquiring times the ratio of drivers to supply you're acquiring at that time. So basically like, do I need one driver for every 10 passengers? Like we then take the cack of that passenger times 10% of a driver. That gives you cak. And then you compare that to the LTV, the customer. And that allows you to calculate payback period. Now, there's a lot of nuance when you get into an actual marketplace because often they're referring other sides of the marketplace or other things are happening, but that's the basic formula.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“One exception to this would be are there externalities which you can't capture in this equation. So for example, if you have too little demand for Uber drivers, at some point, do they just become disillusioned with the service, switch to Lyft, talk badly about it on social media? You do have to look out for like extreme low supplier demand scenarios. But generally, my view is build really strong ROI models that account for this and then just push through your threshold.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. One is I've actually become less and less focused on pure marketplace balance metrics. They're important to monitor. So ratio of buyers to sellers, some of these other things. But actually the thing that matters is can you write an ROI equation for acquiring supply and demand, which fully internalizes the marketplace dynamic. And so I mean by this is like if you're acquiring a new customer, you need to include the CAC of acquiring that customer, but also the cak of acquiring the supply for that customer to purchase, which is based on some ratio between the two. And similarly, on the supply side, that business can't make a sale unless you also acquire the customer to acquire them to transact with them. And so if you have dual-sided ROI equations, which are appropriately capturing this dynamic, I actually think you can somewhat ignore marketplace balance and just push your acquisition all the way out to the payback period that you're comfortable with on either side. I think the”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. And the culmination of those two points is you only should acquire supply to the extent you understand how it impacts demand. And so, for example, if we go back to this liquidity metric, there is some point for a market for Uber where you don't want more supply because you're no longer reducing wait times or doing something that improves the customer experience in a meaningful way. And similarly to the kind of pet store example on Amazon, there's some amount of supply where you're probably no longer incrementally improving the pet buyer's experience. And so it's probably not worth investing those dollars. And so supply is critically important, but it has to be framed from what is the customer benefit that I'm driving.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“And say, I have this customer for you that I can give to you at a rate that's going to make you money. They're always going to say yes. And so demand is the currency. And so when you think about trade-offs or how to optimize a business, I think taking the perspective of the customer or the demand side is always the right one.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, the answer is obviously both to some extent. I think you can't ignore either side. I do think, though, that on average, when you hear advice about where to focus, people overrotate on supply and actually are under focused on demand. And I think there's a couple reasons for this. One is supply is disproportionately important early on because it is the product. Like until you have enough supply, you don't have anything. And so you do have to focus on it to a high degree early on. And two is often the supply side of a marketplace is using the product more deeply. There's more product surface area and you need more product resources on the supply side. However, I think this tricks people into thinking that that's the optimization function or you think you should think more about supply. I think ultimately demand is the only thing that matters. If you are successful at aggregating the demand in your industry, you will have the winning marketplace. Because if you go to a supplier, you know, a restaurant or an electrician or a driver.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, you typically have some form of business on the supply side of a marketplace. Like maybe it's a pseudo business that's effectively a consumer, but you can almost always measure some formal share of wallet on the supply side of a marketplace no matter what. On the consumer side, if you're a B2B marketplace, you typically have a cleaner share of wallet metric, but it's not always the case for consumer businesses.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Do think Cheryl is different for this reason. Like, if you could tell me we could grow GMV 10% by getting 10% more customers or by getting 10% of more of our current customers wallet, I would take the latter because you now have a deeper relationship with them, which tells you something more about the future retention and defensibility of the marketplace. So I think it's basically a measure of depth rather than breadth. And I will take depth every time in the marketplace”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“And ideally, you want that customer to commit to using just this marketplace and the higher share of wallet is, the more likely that is. But I will say that it's very hard typically to get this to happen on both sides of the marketplace simultaneously. So often you have to pick your leverage point. Which one do you think you can actually drive very high share of wallet on?”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Basically, cut scope down to specific geography or a specific category so you could focus on generating liquidity in that area before you can then scale it elsewhere. So this is like the number one, I think, metric for a marketplace. And then the last one I'll give it is share of wallet. So this is effectively for your buyer, how much of their total spend are you getting on your marketplaces versus those alternatives for your seller? How much of the business that they're doing is you versus others. So for Uber drivers, If they spend X amount of hours driving per week, how much are you getting versus Lyft or DoorDash or something else? For a retailer on fair, if they're buying to stock their store, how much of the product on their shelf came from Vera versus from somewhere else? These are very important metrics for us to understand. One, for the obvious reason that like as it goes up, your LTVs go up and you have a much better business. But probably more importantly than that, the higher it is, the less likely a customer is to multi-tenant, meaning use another marketplace or another service.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Suppliers looking to sell something, how often can they do that thing that they're trying to do? And ideally, you want to express this metric in the form of a dimension or a type of product experience that customer really cares about. So for Uber or Lyft, wait time is a classic example. As you add more supply, the average wait time per customer goes down. And there's some magic moment around four or five minutes where it really clicks and is now just a much better service than calling a traditional taxi or something else. For a commerce markup, typically it's some form of conversion rate or search to fill metrics. So if I go look for this thing on Amazon, how often can I find it and convert? And so by articulating what the customer cares about and where this threshold is, you can tell when you have a liquid marketplace. And essentially until you have a liquid marketplace, really nothing else matters. And so this should be the primary thing you're focused on defining and then building tours. And this is why you hear a lot of advice to marketplaces to”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I can give you a couple. Pretty obvious ones or basic ones, and a couple that are a little bit more nuanced. So in that first bucket, certainly you need to look at some measure of GMV or transactions. You need something that brings together both the supply and demand side to make sure it's working and that's typically your ultimate North Star, of which everything else flatters up to. I think the second would be a deep understanding of unit economics because the dynamic I talked about where they're hard to get started means that most marketplaces in the early days have pretty poor or maybe even negative unit economics. Instacart famously was losing money on every order. Uber was losing money on every drive. And so I think understanding that and the components that lead up to it is a very important part of understanding MarketPoint. So those would be the two kind of obvious ones. I think other two that I would look at beyond that, number one is liquidity. And this is a really broad term that people define in a bunch of different ways. The definition I would give is how reliable is the marketplace. If a consumer is looking for something or”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Appreciate that. I mean, I think there's a few folks in this community who've worked with a bunch of marketplaces, and you start to see the same topics over and over. So it's really fun to riff with that group on these topics.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think everything is just harder. Every question is more complex. And so that's made them, I think, really fun to work on for me.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Why is a marketplace a good business? I think the first thing is it's like a perfect scent for the venture model, which is why everybody's so interested in them, right? They're very hard to get started, super capital intensive to get started. But once they're rolling, they're very hard to stop. You get these kind of compounding defensibility and gains that makes them very hard to stop. And as a result, as a marketplace grows, you see these crazy things in the metrics, which you don't see for most other businesses. So typically as you acquire more and more customers, you're acquiring the marginally good fit customer over time and your CACs go up, your LTVs go down, it gets harder and harder. Marketplace is actually the inverse, like the supply liquidity is improving, the experience is improving. So often actually, as you see later cohorts in marketplaces, cat goes down, LTB goes up, you see this crazy inversion where the business gets better and better over time. And so that's, I think, one of the reasons they're such great businesses. I think to your question on why they're fun to work on,”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, yeah, the flip side is absolutely true, right? Working on early user experience is highly impactful, you often see product teams say we should work on resurrection because we have this huge pool of users that has churned out. Like if we get just 1% of those people back, it's going to be such a big lift. The problem is that pool of users is the group of people who has tried the product and decided they don't want to use it. And so it's very hard to convince them otherwise, it's usually much higher leverage to focus on new users. And as a result, typically you want to wait to spin up resurrection efforts until you've exhausted some of these earlier funnel efforts.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think one of the most common analytical failure modes is this pattern, which is our best users do X. So why can't we make other users do that same thing and then drive future attention? And it almost never works that way because there's something unique about that customer, their experience, which is driving it. And so these correlational exercises, I put very little weight in because I've rarely been able to move bucket B into the better bucket A, for example. So I think it's much more about understanding where the real drivers of value are, how to create that really good first run experience to prove to them.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't know that's not how it works. They might think we just, I just make $3 an hour on this platform and they're never going to come back. And so if you can target streamlining that experience or homogenizing that experience, it's typically very helpful. This is why you see both of those companies dueling it out to guarantee the highest.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very often, I think the biggest wins in retention come from inflecting the early user experience. So if you're three, six, 12 months out, usually a customer has formed a pretty strong opinion about whether or not they like this product and they have a pretty good understanding of it. But in that very first experience, you have a lot of opportunity to teach them about why this is a valuable product and kind of prove to them that it's valuable. And so the experiments that have been most effective have been typically focused on very early life cycle. And one really valuable lens is to look for variability in that experience. So for the first week or month, which customers are having a bad experience, what shouldn't be? So if you take like lyft or Uber, for example, an Uber driver signs up for the service, some of them, just by luck of the draw are going to make a pretty bad hourly rate because like customer canceled on them or they were just in a low density area. There was some problem with their experience.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think retention is a tough metric to work on because it is the culmination of the entire product experience. Like whether people come back or not, it has to do with everything that they experience along the way. And so I think the primary advice is actually if you were trying to remove a retention style metric, rarely should you go right to the source and send them more email or push notification or something like that. It's really actually about understanding what is the customer experience and what matters to them. And in a marketplace context, it's often depth of supply or the interaction they have with supply. So you're actually you actually should be working more on core product levers than you are on, call it growth product levers to move retention. So it's a deep understanding of that customer journey and where you actually have the opportunity to deploy it.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Building this model helped us internalize that we needed to shift a bunch of kind of resources from top of funnel to deeper in the stack and that ultimately let us build a much better customer chain.”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, the first time this was very eye-opening to me, probably the first one I built was one we built at Thumbtack in partnership with our finance team. And it made it so immediately obvious that we were like exceptionally sensitive to the repeat rate of new customers. We typically, if you think about Thumbtack, we offered a thousand categories. This is a local services marketplace for people to hire electricians or plumbers or wedding planners. And almost all the traffic came from very targeted SEM or SEO on a specific kind of thing. So they hired a leadership. Initially, it was very hard for us to then go upsell you into something else. But the rate at which we did that made all the difference because it radically changed the LTV of that customer, which then fed back into how much we could go pay to acquire new customers. And so we had a team that was primarily focused on optimizing that initial flow. So SEO and conversion rate, we'd shipped hundreds of experiments to increase our conversion rate. We had done much less on the life cycle piece. Like how do we cross-sell you into these other things?”
2022-10-09 · Lenny's Podcast · Developing a growth model + marketplace growth strategy | Dan Hockenmaier (Faire, Thumbtack, Reforge) · IDENTIFIED FROM THE TRANSCRIPT · source