The Ten-Factor Test Bill Gurley Uses on Every Marketplace
Emrah · In 2012, Bill Gurley wrote a checklist for evaluating digital marketplaces that still holds up today. Here is what it teaches founders and investors, and why they read the same word so differently.
The Story
In November 2012, Bill Gurley, a general partner at Benchmark Capital, published a blog post on his site Above the Crowd called "All Markets Are Not Created Equal." At the time, Silicon Valley was flooded with marketplace startups pitching themselves as "the Uber for X." Gurley had already backed eBay, and Benchmark would go on to fund OpenTable, Uber, Zillow, GrubHub and Chegg. He had seen enough marketplace pitches to know that the label "marketplace" told you almost nothing about whether a company would actually work.
So he wrote out ten factors, numbered and specific, that separate a marketplace with real staying power from one that looks good on a slide but collapses under its own economics. The piece is more than a decade old now, but it is still cited constantly in venture circles because the underlying mechanics of marketplaces have not changed even as the industries they serve have.
One example from the article has aged particularly well: OpenTable. In the early 2000s, OpenTable had to install physical reservation terminals inside restaurants, one by one, city by city. It was slow. It was expensive. It looked, on paper, like a broken go to market motion. Gurley used it to make a point that founders and investors still argue about today.
The Idea
Gurley's ten factors, in short, are these. Does the marketplace offer a genuinely new experience compared to the status quo, the way OpenTable and Uber did? Does it create an economic advantage for both sides at once, the way Airbnb and oDesk did? Does technology meaningfully improve the workflow, not just digitize it? Is the supply side fragmented, since a concentrated supplier base can dictate terms back to the platform? How much friction does a new supplier face when signing up? Is the total addressable market large enough, and is the marketplace actually likely to capture a meaningful share of it? Does the marketplace expand the overall size of the market, or just take share from existing channels? How frequently do people transact, since frequency drives word of mouth and brand recall? Does the platform sit inside the payment flow, or does money move around it? And finally, does the marketplace generate a network effect, where each new participant makes the product better for everyone already on it?
Underneath all ten, there is one real question: will this company get structurally stronger as it scales, or will its margins get squeezed the bigger it gets? Gurley's favorite failure mode is what you might call false fragmentation, where a supply side looks scattered on the surface but is actually controlled by a handful of large players who can walk away from the platform whenever the terms stop favoring them.
How Founders Should Read This
For a founder, the most uncomfortable item on this list is usually supplier friction, and OpenTable is the case study that flips the intuition most people start with. Installing physical terminals in every restaurant was not a scalable, self-serve growth motion. It was closer to enterprise sales, restaurant by restaurant, city by city. Most founders staring at that kind of cost structure would try to strip it out as fast as possible: build a self-service signup flow, automate onboarding, cut the sales headcount.
OpenTable's founders went the other direction. They accepted the friction because the software they installed became embedded in how the restaurant actually ran its reservation book every night. Once a restaurant depended on it, ripping it out and switching to a competitor was expensive and disruptive. The friction that looked like a weakness on a pitch deck was, in practice, the thing that made the business defensible years later.
This shows up constantly with founders building two-sided products today. A founder who complains that supplier onboarding is too slow is usually asking the wrong question. The better question is not how do we make this faster, but what does this slowness buy us. If the answer is nothing, it should be automated immediately. If the answer is a real switching cost, a data advantage, or a workflow lock-in, then speeding it up might be trading away the moat.
How Investors Should Read This
An investor looking at the same friction asks a colder version of that question upfront: is this a temporary operational cost, or does it convert into something structurally defensible? If a founder's answer to slow supplier onboarding is "we'll just hire more salespeople," that is a signal worth taking seriously, and not in a good way. Hiring more salespeople is something a well-funded competitor can copy in a single quarter. If the friction disappears the moment a competitor throws money at the same problem, there is no moat, just a temporary head start.
Fund economics sit underneath this. A venture fund needs a small number of its investments to return the entire fund, which means every company has to plausibly reach a scale that matters at fund size. A marketplace with high supplier friction and slow, capital-intensive growth can quietly work against that math, even if the business itself is healthy, because slow compounding rarely gets a company to the outcome a fund actually needs. That is why investors probe the fragmentation question so hard: a concentrated supply side does not just risk losing pricing power, it risks the fund's return profile on that specific check.
The ninth factor, payment flow, deserves the same scrutiny. If transactions can happen off platform, the take rate the business is modeled on erodes over time, and that erosion rarely shows up cleanly in a quarterly revenue number. It shows up two or three years later, in a growth curve that quietly bends the wrong way.
Where the Two Views Collide
Founders and investors can look at the exact same fact, supplier friction, and walk away with opposite conclusions, because they are answering different questions with it. The founder is answering "is this worth pushing through," and friction that protects a hard-won position clears that bar easily. The investor is answering "does this scale into something that returns the fund," and friction only clears that bar if it converts into a measurable, durable advantage.
The gap between those two questions is where a lot of fundraising conversations quietly go wrong. A founder who says "our onboarding is slow but that's just how this market works" is giving the investor nothing to underwrite. A founder who says "our onboarding is slow because we install software that becomes the restaurant's reservation system, and switching costs restaurants real money and disruption to leave" is describing the same fact in a way an investor can actually price. Founders who raise well tend to be the ones who have already done the investor's work for them: naming the exact mechanism that turns their cost into a defensible position, rather than leaving the investor to guess whether one exists.
The Takeaway
Gurley's checklist is over a decade old, and it still works because it forces a specific kind of honesty. Not "are we a marketplace," but "does this marketplace get harder to compete with as it grows, or does it just get bigger." Supplier friction is the clearest test case, because it is the one factor founders most want to optimize away and investors most want to interrogate before writing a check.
If you are looking at a marketplace today, whether you are building one or evaluating one, ask the OpenTable question directly: is the friction here buying us something a competitor cannot easily copy, or is it just slow?
Source: Bill Gurley, "All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces," Above the Crowd, 2012. Read the original article
