This is a series of articles that will explore how Web3 founders and builders can use some of the Web2 Growth frameworks to scale successful products.
2021 was the year of crypto and blockchain companies. We saw a record-high number of deals and funding pouring into the space; VCs around the world invested more than $10.5 billion in Q4 2021, the most of any quarter last year and more than all of 2020 combined. To get started, let’s look at the development of cryptocurrency as it pertains to Web3.
I wouldn’t expect 2022 to be any slower either, as we’ve already seen investment funds raise significant amounts of capital ready to be deployed into the space. Among the most important announcements of the year were: Paradigm’s $2.5 billion funds, Andreessen Horowitz’s $2.2 billion funds, FTX $2B investment fund, and Crypto.com just recently announced a $500MM fund.
As investors put big money behind the ecosystem, expectations will be high, and Web3 companies will have to go all-in on growth. Similar to what happened in the Web2 space a decade ago, we should expect to see an influx of companies in the crypto space rushing to hire for Growth roles (already happening) and scrambling to put together teams that can scale winning growth models.
It will be exciting to see how it plays out, as I believe that the Web3 enables an entirely different approach to growth at all levels — from acquisition channels and tactics, user journeys, and onboarding experiences, to retention and engagement levers (more on this in future articles). But Web3 also adds a different set of challenges in a space where decentralization, anonymity, protocol ownership, and user-owned data are the new norms.
But, what are some of the principles and systems that we can bring from Web2 into this new thriving ecosystem?
Before we dive into what growth means for Web3, let’s do a high-level overview of a decade of content around growth frameworks for Web2 companies.
Andy Johns has one of the best quotes that help explain what growth means at its most basic level:
If Finance owns the flow of cash in and out of a company. Growth owns the flow of customers in and out of a product.
As you’ve probably heard before, growth cannot be defined by a specific set of tactics, silver bullets, or exact roles within your company. This is something that applies to both Web2 and Web3 products.
Growth is a system that sits between your company mission, values, and business model that help you define:
1. How do we acquire? 2. How do we retain? 3. How do we monetize? 4. How do we defend?
Viewing these questions through the context of specific growth loops within your business will help you put together a holistic growth model for your company.
Is not only about Product-Market Fit, a well-structured growth model needs to find four essential fits: Market Product Fit, Product Channel Fit, Channel Model Fit, Model Market Fit.
Once we understand how our product grows and fits with our community/market, channels, and business model, we can define a sustainable and scalable go-to-market or growth strategy.
As more and more companies put together their teams to push for uniques go-to-market and growth strategies, winning at growth will require you to not only have the best approach but the best team structure to deploy this strategy as fast as possible.
The purpose of growth is to scale the usage of a product that has a product-market fit. You do this by building a playbook on how to scale the usage of a product. A playbook can also be called a growth model or a loop.
He goes on to add:
Most product teams are built to create or improve the core value provided to customers. Growth is connecting more people to the existing value.
We could go on for hours trying to narrow down what growth exactly means and how can be applied across types of products, businesses, and teams, and there’s already excellent content out there for you to dig deeper into this topic.
So, now that we have a base of understanding of what growth as a system is trying to answer for your product, let’s break it down specifically for Web3 companies.
We can break this problem statement down to four core questions that we need to answer so we can lay down the foundational pieces of our growth model:
How do we acquire?
Lattice Capital did a great breakdown of the current proven ways Web3 companies can start framing their acquisition strategy — Partnerships, user ownership, and token-driven growth pools are the pillars of Web3 growth strategies.
But, the tactics outlined above rely on the assumption that their target user is already familiar or onboarded into the Web3 ecosystem, not necessarily focused on how or who will help onboard the next billion users.
The current acquisition playbook for crypto companies is still very turbulent and full of unknowns, especially given the inherent friction that a newcomer has to go through when getting started in Web3, from joining a Discord, to setting up Metamask, buying an NFT, sourcing open bounties, and so much more. The system is still full of friction and barriers for “normies” to easily join and participate in the space, and we are seeing rapidly increasing competition between companies to go after the current crypto-educated consumer.
Winners in the Web3 space will be the ones that can clearly define:
How do we retain?
Retention is the foundation of any growth strategy. For Web2 companies, retention is the basis of how Product-Market Fit is measured, and often a positive retention rate helps drive more acquisition and revenue for the company.
One of the biggest challenges I see between Web2 and Web3 growth is user retention and how we think about it. Why? User or customer retention in Web2 is driven by our ability to engage and “resurrect” specific users via email, push, in-app, basically Lifecycle marketing. But in Web3, there’s no concept of “user” as an identifiable individual, and we can’t target them through traditional Lifecycle strategies.
For example, instead of emails, you can only rely on wallet addresses as a unique “user” identifier. The issue is that an individual user can access your dApp with more than one wallet, which can make your data potentially less accurate.
Defining what “Identity” means in Web3 is one of the most challenging and interesting areas for the space in the coming years. User ownership and governance, on-chain activity, community engagement are proving to be some of the underlying mechanics that will shape the future of the loyalty/retention programs for Web3 companies.
My guess is that this year many of these questions will start getting answered. The rising verticals in the last two years, like NFTs, DeFi and DAOs will have to quickly iterate and innovate on how they address churn and user retention so they can sustain their current “up-and-to-the-right” trajectory as macroeconomics conditions might play against the current bullish sentiment of the crypto markets.
How do we monetize?
For both Web2 and Web3 companies, “monetization is much more than just price” as is stated in the Experimentation + Testing program from Reforge, and they have a great framework to address this.
As we think of all the elements of the monetization strategy, we need to be aware that our decisions around each of these specific elements create more or less friction for someone becoming a paying customer or a user of our product, which relates to both Web2 and Web3 companies.
If what we are charging for is really well known to the users and very well understood, that's low friction, but if what we're charging for is pretty new in the market and not well understood, an unknown, that creates high friction — Reforge
So far, the big centralized Web3 companies like Opensea or Coinbase have utilized “well known and very well understood” monetization strategies like trading fees or listing/selling fees, which has reduced the friction for new users to join and use their platforms.
But Web3 offers a much more broad end of possibility for decentralized organization In terms of new revenue streams. For example, it will be interesting to see how “free-to-X” DAOs, Games, Web3 social networks, etc., will be able to monetize their treasury through DeFi strategies and break the common idea “if you are not paying for the product you are the product.”
How do we defend?
This chart from Statista shows how rapidly new Web3 and crypto companies have emerged in the last few years, and there’s no sign that this trend will slow down any time soon.
Even though Web3 and Crypto are still very nascent industries, competition is already proving to be fearless. For example, LooksRare drove $100MM of NFT sales on the day of launch and currently stands as a serious competitor to Opensea.
Growth = speed and speed is a competitive advantage in today’s markets — Matt Bivons
As more competition comes into the space, current distribution channels will become less effective. Who is not currently dealing with Discord fatigue or distrusting most Airdrops?
We are seeing some really interesting things happening with user ownership, network participation, token economics, etc. But defensible walls within the Web3 ecosystems will have a very similar foundation to what we saw drove growth for some of the most successful Web2 companies; network effects, strong communities, and organic growth loops or flywheels.
In a nutshell, your growth model is a system or loop that represents the qualitative or quantitative levers that inform your product growth.
Answering the questions we went through the article will set a path for your company to clearly define and communicate the strategy, goals, metrics, priorities, and team to sustainable and rapidly scale.
"This is one of the most common mistakes among founders when I ask "How does your product grow?" The answer is typically a long list of linear tactics. It is typically because there is no hypothesis on what the growth engine is, and as a result, they are compensating by trying to cobble together a lot of little things." - Brian Balfour (Founder/CEO at Reforge, Ex-VP Growth at HubSpot)"
Traditional Web2 growth frameworks can be a practical guide to get started and offer a proxy of how successful products can grow. Product mission and purpose, incentives alignment, and a thriving community seem to be the current pillars of the Web3 growth models, but there’s still so much to uncover, test and learn as more mainstream users get onboarded in this space.
At Safary, a community of web3 growth experts, we’re defining what growth looks like in web3.
In the following article, we will break down these current models using the four “fits” framework and define the principles of a sustainable and scalable growth strategy.
Thanks to Jkey and Jim Kazliner for their contributions to this article.