Lessons from Sarah Tavel

Sarah Tavel, a prominent figure in the venture capital world and a general partner at Benchmark, is known for her insightful frameworks on product development and marketplace dynamics. Her experience as an early product manager at Pinterest has deeply informed her investment philosophy.

On the Hierarchy of Engagement

Sarah Tavel's Hierarchy of Engagement is a framework for building enduring consumer products. It consists of three levels: growing engaged users, retaining them, and finally, creating self-perpetuating loops.

"I think of user engagement as the fuel powering products." [1][2]
"The hierarchy has three levels: 1) Growing engaged users, 2) Retaining users, and 3) Self-perpetuating." [1][2]
"Growing users without growing users completing the core action is the empty calories of growth." [1]
"Your focus needs to be on growing users completing the core action." [1]
"Your product can't start if people aren't completing the core action." [1]
To build an enduring product, you have to take users through the three levels of engagement. [3]
"The best products take that fuel and propel the product (and with it, the company) forward." [2]
Social products have a core action that forms the foundation of the product, such as friending on Facebook, pinning on Pinterest, or sending a snap on Snapchat. [4]
The completion of this core action signifies an engaged user, and other actions are secondary to this core action. [4]
It's crucial to ensure that users stick around after completing the core action. [4]
Products should improve with increased usage, creating more value for users. [4]
The goal is to make the product self-perpetuating, converting user activity into a better product experience. [4]
"The strongest virtuous loop is the network effect. The more a user pins, the better Pinterest understands the user's interest, and is able to create a better discovery experience which leads to the user pinning more." [3]
"To implement the Hierarchy of Engagement framework: Start with the core action, the fundamental user engagement step. Then emphasize retention, making the product more valuable with continued use. Finally, achieve self-perpetuation through network effects and growth/re-engagement loops." [5]

On the Hierarchy of Marketplaces

This framework is Tavel's guide for building successful marketplace businesses, emphasizing genuine value creation over simple growth metrics.

"The marketplace that wins is the marketplace that figures out how to make their buyers and sellers meaningfully happier than any substitute." [6]
The Hierarchy of Marketplaces challenges the focus on just growing GMV (Gross Merchandise Volume) and emphasizes building enduring value. [4]
"To increase happiness marketplaces need to grow. But the growth must be in service of increasing happiness." [1]
"Level 2 is about reaching a new happiness threshold where you are just so much better than any substitute that the market “tips” in your direction." [1]
"To implement the Hierarchy of Marketplaces framework: First, focus on a constrained opportunity and nail your niche. Gain saturation in that market until you reach a tipping point (you'll know you've reached a tipping point when cohort retention increases and organic word of mouth is happening)." [5]
"The more you reduce friction in the transaction, the easier it will be for you to scale beyond your early adopters." [1]

On Startups, Growth, and Strategy

Tavel offers pointed advice for founders on focus, strategy, and the realities of building a company.

"Focus is crucial for building successful companies." [4]
"Spend money very very carefully until you have product market fit. You want as lean a team as possible before you get there." [7]
"There is no point of hiring more than the bare minimum team (usually just the co-founders) before you figure out what users want. Then you scale." [7]
"This idea of escaping competition is something fundamental to all the companies that I invest in." [8]
"Is this a company that can dominate a market, become just so much better than any substitute that they become the defacto standard in the space?" [8]
"Our deep belief at Benchmark is that our job is not to predict the future, but to try as best we can to see the present clearly." [9]
"In a startup, change is a feature, not a bug. That org change? That's a good sign, not a bad one." [10]
"The best founders have the courage to do the hard thing or have the hard conversation, and not postpone it to tomorrow." [10]
"What I always remind founders is that pain today postponed until tomorrow is going to be harder. It's like taking a loan out on the pain." [8]
"The simple truth is it's a lot easier to introduce diversity into your company when you're five people trying to hire a sixth than when you're 15 people trying to hire the 16th." [10]
"Find a fast current, not a large body of water." [11] This quote emphasizes finding a market with momentum rather than just a large market.
"You have to have a level of paranoia in this space. You are constantly evolving your strategy so that you are able to escape competition." [12]

On Venture Capital and Investing

Tavel provides a window into her mindset as a venture capitalist, from evaluating companies to the nature of the job itself.

"Ultimately when evaluating an early stage company, I say it's a combination of art and science. The art is understanding how products work, the science is knowing how to measure it." [7]
"The earlier the company, the more it is about art, which in this case is assessing what I think of the product and the use case." [7]
"You can only lose one times your money. and the hardest most important thing to really think about when you're investing. is what could go right." [13]
"I always joke that you trade stress for anxiety when you go from operating to... becoming an investor." [12]
"If you choose the wrong metric, you end up optimizing for the wrong thing." [8]
"You want to make sure that the judgment of the people that you bring around the table is super high and that they're going to push you in the ways that you need to be pushed and want to be pushed." [8]
"Our way of thinking of things at benchmark is that each of us makes one or two new commitments a year and so it is this kind of stars aligning." [14]

On Artificial Intelligence

Tavel has written and spoken extensively on the impact of AI, particularly on how startups can compete and create value.

"AI startups: Sell work, not software." [11]
"How to escape competition — Building enduring application-level value with LLMs." [11][15]
"Startup weapons against ChatGPT: focus and a tight feedback loop." [11][15]
"Why does the business model of foundation models remind Sarah of the food delivery business?" [14] This question highlights her skepticism about the standalone business models of foundational AI.
"Why does Sarah believe that sustainable value-creating companies will be in the application layer?" [14]
"I am not coming up with new prompt ideas every day. and so that's I think that's a problem for two reasons one is I may not remember to use the tool. and then two uh people don't necessarily have a reason to check every day." [16]
"I just think someone's going to create a UGC [user-generated content] type community where their people who are really really good make it so much easier for the rest of us to really take advantage of this this technology." [16]

On Career and Learning

Tavel's reflections on her own career path offer valuable lessons on learning and growth.

"The two-dimensionality of a learning curve conflated two things: how quickly I could learn, and how quickly a job could teach." [1]
"More often than not, how quickly a job can teach is what slows down a person's learning curve, not the other way around." [1]
"At a fast growing startup, your learning cycle is incredibly fast." [1]
"My advice: find a place with a fast learning cycle, and a steep learning curve." [1]

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