Lessons Learned Growing Successful Marketplaces

Greylock Partners
Dec 18, 2019 · 6 min read
Dan Hockenmaier, Mike Duboe and Lenny Rachitsky

This episode of Greymatter is the third in a series of growth discussions featuring Greylock investor Mike Duboe. In this podcast, Lenny Rachitsky, former growth lead at Airbnb, and Dan Hockenmaier, founder of Basis One and former director of growth marketing at Thumbtack, join Mike to share lessons learned when growing marketplaces from startup to scaleup. They discuss how to design a growth org, processes and frameworks around experiments, building growth models, understanding marketplace liquidity, how to think about disintermediation, and parallels between B2C /B2B marketplaces. Below are a few highlights from the discussion.

Prior to joining Greylock, Mike created, scaled, and led cross-functional growth organizations from Series A through IPO across a span of businesses including consumer marketplaces, retail/online commerce platforms, and social payments networks. His most recent stint before Greylock was leading the Stitch Fix growth team through IPO, and he has advised a number of high-growth startups and VC portfolio companies on growth.

Lenny spent 7 years at Airbnb working on supply growth, instant book growth, improvements to the guest booking conversion, and the host experience. He also built the first attempt at extending Airbnb beyond the home, which today is known as Airbnb Experiences. Lenny joined Airbnb in 2012 via acquisition of a company he co-founded called Localmind which was an early location-based consumer app.

Dan is the founder of Basis One, a growth strategy firm that blends analytics, product, marketing, and user research to help companies answer questions on customer retention, monetization, and go to market strategy. Previously he was the director of growth marketing at Thumbtack, where he joined when the team was around 30 employees.


Growth Org Design

“What we found is so much of growth and marketing is basically a product now, led with data and engineers building infrastructure to automate it and not wing it. So the way we ended up moving things was the performance marketing team is just another team within the guest growth team or the host growth team with a PM leading the team with marketers on the team, data scientists, engineers.” — Lenny Rachitsky, Former Growth Lead at Airbnb

“Customer acquisition, particularly until you get to some level of scale, call it 100 million in revenue, is mostly about getting really good at one thing. And so it’s less about where the team sits and more about giving that team all of the levers to make that work, whether it’s virality or paid marketing or SEO.” — Dan Hockenmaier, Founder of Basis One

“Running great performance marketing is a function of having great creative and generating that with increasing frequency. And then also having great data pipelines, which is actually more of a product/technical/data science problem. So we tried to leverage data science very heavily around what we did there, specifically around measurement and getting smarter around that. But I definitely think that more of the DNA that runs these performance marketing functions will start to look more technical and more like product teams.” Mike Duboe, Investor at Greylock

Running Experiments

We put a team on building our own internal experiment framework, which we called ERF (experimental reporting framework) which was in code similar to that where you wrap changes around this “if” statement and it smartly assigned you to an experiment….The team created these dashboards where you could watch your experiment all day…It had core metrics which were important metrics to the business so that even if you don’t care about review quality, you’ll see that in your experiment and make sure you’re not hurting that.” — Lenny Rachitsky, Former Growth Lead at Airbnb

“We see a lot of the companies we’re working with, particularly ones that were founded in the last three to four years, even if they have incredible engineering and data science teams, are using third party tools for A/B testing…And then you run into issues where if you’re not constantly running a test, you can miss bugs in the code and other things. And so even very smart teams — until they get to a certain scale — are relying on third party tools.” — Dan Hockenmaier, Founder of Basis One

Building Growth Models

“What a growth model needs to accomplish is an understanding of how the business grows, how customers flow through the product, how they generate revenue. And importantly, how that drives a self sustaining loop [which means] what’s the asset that it’s generating as a byproduct and how do you reinvest that asset into more growth? — Dan Hockenmaier, Founder of Basis One

“A lot of companies will start to ideate and get excited about ideas to test and actually start to move the needle on, yet what’s more important is figuring out what is the right needle to actually move and how to prioritize on working on one stage of the funnel versus another, or one potential user group versus another. And the most fundamental piece to have in place before you do that is a growth model.” — Mike Duboe, Investor at Greylock

Marketplaces: Liquidity and Disintermediation

“There’s four steps to cracking the chicken and egg problem…One is you figure out how to constrain your market, whether it’s geographically or category. Two, you figure out if you want to focus on supply or demand, which one you want to concentrate on. Three, you grow supply. And four you grow demand…Almost 80% of marketplaces focused on supply…so the learning there is, unless supply is coming extremely easily, almost surely you should just be focused on supply. — Lenny Rachitsky, Former Growth Lead at Airbnb

“I think liquidity is one of these things where prior to getting there, it’s basically all a marketplace should focus on because the marketplace who hits liquidity first typically wins in that market. And that typically means winner take all or winner take most.” — Dan Hockenmaier, Founder of Basis One

If you have to do too much to police your marketplace, you don’t have great product market fit. You’ve got to create something which makes it so much better to transact, and that value you’re delivering is so much higher than the price of doing business on the platform that they want to transact anyway.” — Dan Hockenmaier, Founder of Basis One

B2B Marketplaces, and SaaS Models evolving to Marketplace Models

“There’s something different about the “word of mouth” dynamic in a B2B market where people are more motivated to seek out services to grow their business. And there’s more established channels to talk about a business…The plus side of that is you can probably be more efficient with acquisition. The negative side is you now have a community to manage and actually your messaging is a little harder to control because it’s happening in established forums where they’re talking about you.” — Dan Hockenmaier, Founder of Basis One

“Can your SaaS product evolve into a marketplace? Your supply may want more demand, and you may want to offer them more demand, but if the demand doesn’t want what you’re offering, it’s not going to work. And so the most important part is just: Do people want this? Is there demand out there and are you solving a problem for people? Because if you’re not, then you’re never going to turn into that marketplace.” — Lenny Rachitsky, Former Growth Lead at Airbnb

Healthy vs, Unhealthy Growth

“The most healthy growth is purely organic word of mouth…Then, channels you’re using that are proprietary to you in some way. So it’s using your own content to drive SEO. It’s incentivizing your own customers to drive referrals, those types of things. And then there’s totally non-proprietary channels like paid marketing. If you strip away the third tier or the third and the second tier and see what you have left, is the business still growing? Is there still something underlying that’s valuable? If not, that’s a difficult situation to be in because I think things like paid marketing are typically best as accelerants rather than as the core growth strategy. — Dan Hockenmaier, Founder of Basis One

“How do you build a company that works out and makes all your stakeholders happy and doesn’t just focus on growth at all costs? So at Airbnb, I think there’s always this spectrum of focus… so there’s a metric your driving like bookings…but there’s all these other [pairing metrics] that matter. Are people having a good time? Are communities happy? Are hosts satisfied or our people creating good memories?” — Lenny Rachitsky, Former Growth Lead at Airbnb

“[There are] companies that drive growth early on with paid marketing and then introduce organic late in the game. I’ve rarely — if ever — seen that work because it’s a very different discipline and it’s just dangerous when it doesn’t work out. If you’re relying heavily on paid, early, unless you have the economics to make CACs work at much worse levels than at early stage, those games typically don’t end well. — Mike Duboe, Investor at Greylock


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