Marketplace Penetration-Benefit Test
Plot supplier penetration against consumer benefit before you build a marketplace.
- Difficulty
- Easy
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 85%
Recounted from a conversation with Bill Gurley, this is a quick diagnostic for evaluating two-sided marketplace ideas. You plot what percentage of potential suppliers you've signed on the x-axis against the benefit delivered to consumers on the y-axis. A good marketplace shows a benefit curve that keeps climbing meaningfully as you add more suppliers. A weak one shows benefit flattening out early, meaning after a small percentage of suppliers are onboarded, additional suppliers add little value, and the model is likely to plateau rather than compound. Patrick uses this mental chart as a first-pass filter any time he evaluates a marketplace pitch.
Origin
Prompted by a founder pitching a marketplace connecting obituary writers with individuals wanting a professionally written life retrospective; Patrick asked Bill Gurley for a gut check.
Core principles
- 01A marketplace's quality should meaningfully improve as supplier penetration increases
- 02If the benefit curve flattens after a small share of supply is captured, the marginal supplier stops mattering and the moat is weak
- 03Simple two-axis mental charts can quickly filter marketplace ideas before deeper diligence
How to run it
- 1
Identify the two sides
Clarify who the suppliers are and who the consumers are in the proposed marketplace.
- 2
Define the x-axis: producer penetration
Estimate what percentage of the total addressable supplier pool you can realistically sign on.
- 3
Define the y-axis: consumer benefit
Assess how much the service quality or value to consumers improves as more suppliers join.
Pro tip Interview a handful of consumers at low, medium, and high hypothetical supplier counts to sanity-check the curve shape.
- 4
Check where the curve flattens
Determine the penetration percentage at which additional suppliers stop meaningfully improving the consumer experience.
Watch out If this flattening happens early, the marketplace can be replicated easily and defensibility is weak.
- 5
Decide invest/build or pass
Use the curve shape as an early filter—steep and sustained growth in benefit signals a promising marketplace; an early plateau signals a weak one.
In the wild
A founder proposed a marketplace pairing obituary writers with people wanting professional retrospectives written about their lives, since newspapers had cut this service.
→ Gurley's chart suggested consumer benefit would plateau quickly after a modest number of suppliers, signaling a structurally weak marketplace despite compelling sample content.
Common mistakes
Confusing early traction with long-term defensibility
A marketplace can look promising in its first cohort of suppliers while still being structurally weak once the benefit curve flattens.
Is it for you?
Best for
Investors or founders doing a fast first-pass evaluation of a proposed two-sided marketplace business.
Not ideal for
Marketplaces where quality is driven by a small number of premium suppliers rather than broad penetration (e.g., high-end services).
From the transcript
“on one axis, the producer penetration. So what percent of obituary writers do you have signed on? And on the other axis was the benefit…”
“he said once you penetrate at a certain amount, the marginal supplier is not going to make the service better, and that's going to happen…”
From the episode
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