AL #016: Why Crypto Founders Fail
How our industry decided to prioritize token launches over Product Market Fit
This newsletter will be a little different.
I just launched a free email course called Revenue Before Tokens.
It's targeted at crypto Founders who want to accelerate their path to Product Market Fit.
I named it “Revenue Before Tokens” because I wanted to address flawed thinking.
Thinking that has been harmful to crypto Founders.
Many of these Founders end up in one of several zombie states:
They won some hackathons & grants, built something cool cause they were promised that it’s a “public good”. Unfortunately, it was never good enough to raise capital
They raised capital but instead of delivering value to customers, they optimized for perception & eventual token value expecting a follow-on round. The round never came. Neither did the token
They launched a token but the market collapsed. Now the DAO structure is preventing them from raising funds to keep going
They ended up in regulatory trouble which made it near impossible for the original core team to take necessary operational actions
They were told to build infrastructure, realized it would have no users and pivoted to building use cases instead. But it's too late
These failure modes have one thing in common – the company focused on tokens before revenue.
How did we end up here?
How we got hooked on tokens
It always starts with capital.
Venture capital becomes liquid 7-10 years after first investment when a company can IPO.
This requires tech companies to have a path to revenue early on as pure reliance on outside capital is difficult.
Crypto pioneered the token model.
Investors realized they could generate a return much more quickly, within 2-5 years.
In a market that was inherently up & down and had very little sustainable demand, the second model had much more appeal.
So investors ran with it.
The industry then weaponized several otherwise meaningful narratives for the purposes of encouraging token launches:
We were sold about the power of DAOs and crowdsourced intelligence
We were taught the virtues of decentralization
We were convinced about the importance of narrative above reality.
Building assets vs. building businesses
Crypto Founders started thinking like bankers:
Obsessing about information that the public receives
Eliminating revenue to inflate usage numbers
Focusing on partnering with investors and market makers to get credibility
Telling customers about the long-term vision, but playing the short game instead (usually checking out & launching a seed stage fund).
When they should have been:
Focusing on customers, not potential investors
Delivering value to the customers and finding sustainable business models
Discovering more efficient ways to get and spend capital
Playing the long game, but serving customers here and now.
Luckily, for many it's not too late to do the right thing.
But it requires a different approach.
And it's not that complicated.
I’ll tell you the gist of it now.
You’ll find the rest in the Revenue Before Tokens course.
Step 1. Pick your most compelling way to make money
Out of all the products/protocols your company currently offers, pick the most promising to build your business around.
Cut or put the rest on ice.
This could be the product with the most organic demand, the product with the best inherent margin and/or least competition.
Step 2. Build an organic flywheel
For the product to succeed, you need a way for customers to discover it.
For customers to want to use the product, you want evidence that it’s good.
An organic flywheel is a way to deliver on both promises. You build a traditional marketing funnel on one side (likely fueled by social media).
And you treat all the interesting, successful and challenging things happening in your business as an opportunity to tell your story.
The more customers you get, the more stories you can tell.
The more stories you tell, the more customers you attract.
This is the essence of an organic flywheel.
It’s so important I wrote a dedicated chapter about it in the course.
Step 3. Find the bottleneck
Now that you have a flywheel, you can visualize how people convert from one stage to the next.
This allows you to find & improve bottlenecks.
Only when you understand your flywheel and your current bottleneck should you start thinking of solutions.
For more detail on this process, check out the earlier post Release your Bottleneck.
Step 4. Focus >50% of Founder time towards eliminating the bottleneck
The final step is to take massive action.
Don't keep 90% of the Founders’ attention focused on building the product if there are no customers to do a demo for.
Whatever the bottleneck is, the non-technical Founder should likely be all in on fixing it.
Try everything that could work starting with the highest impact highest likelihood of success tasks.
This is a very simplified process but you’ll be surprised how far divorced it is from how most crypto Founders approach their business.
To learn more, you'll want to check out the Revenue Before Tokens course:
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