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hierarchy-of-marketplaces

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Use when asked about "marketplace strategy", "chicken and egg problem", "liquidity", "two-sided market", "tipping a marketplace", "GMV growth", or "Sarah Tavel marketplaces". Helps founders and product leaders build defensible marketplace businesses by sequencing supply and demand. The Hierarchy of Marketplaces framework (created by Sarah Tavel / Benchmark) provides a progression from focused launch to market dominance.

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What this skill does


## Domain Context

This skill implements a proven product management framework. The approach combines best practices from industry leaders and is designed for practical application in day-to-day PM work.

## Input Requirements

- Context about your product, feature, or problem
- Relevant data, research, or constraints (recommended but optional)
- Clear articulation of what you're trying to achieve


# Hierarchy of Marketplaces

## What It Is

The Hierarchy of Marketplaces is a framework for building defensible marketplace businesses. The core insight: **GMV is a vanity metric. Happy GMV is what matters.**

Most marketplace founders race to grow GMV as fast as possible, spreading resources thin across markets and categories. This is backwards. The path to a dominant, profitable marketplace requires working through three levels in sequence:

1. **Focus** - Constrain your market to a "thimble" and achieve minimum viable happiness
2. **Tip** - Reach saturation in your focused market until it tips in your favor
3. **Dominate** - Only then expand to adjacent markets and categories

The key shift: Move from asking "How do we grow GMV?" to asking "How do we make both sides of our marketplace so happy they retain?"

## When to Use It

Use the Hierarchy of Marketplaces when you need to:

- **Launch a new marketplace** and decide where to focus
- **Diagnose why growth is stalling** despite increasing GMV
- **Decide when to expand** to new markets or categories
- **Evaluate marketplace health** beyond top-line metrics
- **Compete against incumbents** with more resources
- **Raise funding** and demonstrate real marketplace value
- **Choose between depth and breadth** in your growth strategy

## When Not to Use It

- You're building a product without two-sided network effects
- You have unlimited capital and no competition (rare)
- The market has no potential for winner-take-most dynamics
- You're optimizing a mature, already-dominant marketplace

## Resources

**Posts by Sarah Tavel:**
- *Hierarchy of Marketplaces* series on Medium

**Books:**
- *Platform Revolution* by Parker, Van Alstyne, and Choudary
- *The Cold Start Problem* by Andrew Chen


## Further Reading

- [Hierarchy Of Marketplaces](https://www.productcompass.pm/p/hierarchy-of-marketplaces)

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