Marketplace Expansion Adjacency

Expand marketplaces based on model adjacency and network effect accentuation, not TAM

Dan Hockenmaier
Developing a growth model + marketplace growth strategy

Marketplace Expansion Adjacency

"Actually beyond a certain point, TAM or the size of the market actually matters very little because these are all big enough that they would dramatically inflect the curve of the business if you make them work." - Dan Hockenmaier

What It Is

When large marketplaces evaluate expansion opportunities, the temptation is to prioritize by TAM (total addressable market). But in massive markets, everything is "big enough"—the real question is whether you can win.

This framework prioritizes expansion based on two factors:

  1. Model adjacency: How similar is the new market to your existing operations?
  2. Network effect accentuation: Does expansion strengthen your existing network or require building a new one?

How It Works

The TAM Trap

Large marketplaces often operate in enormous industries:

  • Thumbtack: Local services (huge percentage of GDP)
  • Faire: Global wholesale (massive B2B market)
  • Uber: Transportation + delivery (billions of rides/deliveries)

When every adjacent opportunity is "big enough to matter," TAM-based prioritization fails. All 10 options look good on paper.

Adjacency Assessment

Ask: "How similar is this expansion to our current model?"

Instacart example:

  • Convenience stores: Similar model (high frequency, speed matters, fulfillment critical)
  • Traditional retailers: Different model (lower frequency, different logistics needs)

Even if retail is a bigger market, convenience stores are more likely to work because the existing model transfers.

Network Effect Accentuation

Ask: "Does this expansion use my existing network or require a new one?"

Uber Eats example: Eats accentuates the core network:

  • Same drivers in many cases
  • Same customers want both rides and meals
  • Built-in supply base from day one

An expansion one step further from this would require building new relationships on both sides.

How to Apply It

  1. List Expansion Options

    • What adjacent markets could you enter?
    • Don't filter by TAM initially

  2. Score Model Adjacency

    • How much of your current playbook transfers?
    • What new capabilities would you need?
    • Where would you have to "learn from scratch"?

  3. Assess Network Effect Leverage

    • Does expansion use existing supply?
    • Do current customers want this too?
    • Or do you need to acquire new participants on both sides?

  4. Prioritize by Winability

    • Rank by adjacency + network leverage
    • Ignore TAM above a threshold
    • Focus on "can we win here?" not "is this big enough?"

When to Use It

  • Annual strategic planning: Deciding where to expand next
  • M&A evaluation: Which acquisitions strengthen vs dilute your network?
  • Resource allocation: Where to put new pods and teams
  • Investor conversations: Explaining expansion strategy beyond TAM

Key Insight: Product Over Go-to-Market

Dan emphasizes a critical lesson:

"Product is the thing that matters when expanding...I've learned over and over and over that [go-to-market] is actually not the main thing. It's who can deliver an incredible end-to-end customer experience first, even if for a smaller number of customers."

The temptation in marketplace expansion is to out-spend competitors on incentives and marketing. But:

  • Spending creates liquidity races you might not win
  • Product creates flames that grow organically
  • GTM without product is building on sand

Keep go-to-market and product in lockstep—don't let GTM get too far ahead.

Example: Thumbtack's Verticalized Competitors

Thumbtack offered 1,000+ categories. Competitors constantly tried to pick off specific verticals (wedding, lessons, electrical).

Why Thumbtack won:

  • Could upsell customers into 1,000 things
  • Higher LTV supported higher acquisition bids
  • Adjacent categories strengthened each other

The verticalized competitors couldn't match LTV even with better category-specific UX.

Caution: Adjacency Has Limits

Pure adjacency isn't enough—the opportunity must still be:

  • Large enough to matter to your business
  • Strategically important (not just easy)
  • Something you can differentiate in

Source

  • Guest: Dan Hockenmaier
  • Episode: "Developing a growth model + marketplace growth strategy"
  • Key Discussion: (00:42:48) - How to prioritize marketplace expansion
  • YouTube: Watch on YouTube

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