Sarah Tavel - Consumer & Marketplace Investing - [Invest Like the Best, EP.168]

Episode Summary

Executive Summary: Patrick O'Shaughnessy interviews Benchmark GP Sarah Tavill on why focused marketplaces, consumer products, and niche vertical software win: by creating liquidity, trust, and core actions that build network effects. She uses food delivery, Airbnb, Pinterest, and new startups to show how small wedges can become durable businesses.

Main Topics: Marketplace incumbents can be unseated (Priority: 10/5): New entrants win by finding a different supply unit, fee model, or geographic wedge. Tipping requires focus and liquidity (Priority: 10/5): Start narrow, build network effects, and optimize for the action that drives retention and supply quality. Consumer products are being unbundled (Priority: 8/5): Incumbents like YouTube, LinkedIn, and Facebook face niche, participatory alternatives. Scaling changes the operator’s job (Priority: 8/5): Hypergrowth brings org resets, existential moments, and the need to ignore vanity metrics. Data should serve the core action (Priority: 9/5): Track many things early, but govern the business by one or two metrics that matter most. Vertical software frees hidden information (Priority: 8/5): Companies like Recce win by making opaque workflows legible and easier to transact. Identity, trust, and assets create stickiness (Priority: 9/5): Products get stronger when users build persistent value they don’t want to leave behind.

Key Arguments: Food delivery shifted because Postmates/DoorDash attacked Grubhub's supply gap. Airbnb/Booking won by using new supply units or economics, not by copying incumbents. The best marketplaces start with a constrained, often greenfield, market. Tipping a market means becoming the default as network effects lower CAC. Retention loops improve liquidity quality by rewarding good suppliers and shedding bad ones. Core action is the single user behavior most tied to retention and network effects. Power-user requests can harm product clarity and block mainstream growth. Consumer is still open because technical/platform changes create new experiences. Vertical software succeeds by making opaque, real-world workflows legible and efficient. The right data focus is the one metric most tied to user retention and value creation.

Data Points: Grubhub market share: 60% or something - Described as the dominant incumbent before DoorDash surpassed it. DoorDash funding: $2 billion - Cited as part of the private-market funding race in food delivery. Postmates funding: $900 million - Used to illustrate the scale of capital spent in food delivery competition. Booking fee structure: 10, 15% - Sarah contrasted Booking.com's lower take rate with Expedia/Priceline's 30% rake. Expedia/Priceline rake: 30% rake - Explained why small independent hotels couldn't afford to list there. Pinterest response rate to core action: 98% chance - Users who pin something to a board were highly likely to return the next week. Pinterest power-user feature usage: 0.1% of users - Rearranging pins on boards was heavily requested but rarely used. Recce market share: double-digit percentage - Company described as already reaching this level in London and growing. Pinterest growth interruption: exponential to linear - Growth changed after Facebook shut them off in news feed and acquired Instagram. Pinterest time to recover: six, nine months - It took this long to find a new way to grow after the platform shock.

Pivotal Quotes: "it feels alive" — Bill Gurley (referenced by Sarah Tavill): Sarah endorsed Bill's advice that early products must feel alive to indicate real market pull. "You want to become the default." — Sarah Tavill: Her definition of marketplace tipping and the end state of network effects. "what a friend is, is adopting your ends as my own." — Sarah Tavill: She explained the philosophical idea behind board members and investors supporting founders.

Implications: Founders should look for narrow wedges, one core action, and hidden workflow pain; the remaining question is which emerging consumer or vertical markets can still tip next.