One of the most outstanding problems that I noticed when working with multiple founders was that they were focused on an idea that was too big.
Here’s what I mean by that – founders start to build a solution towards a really grand vision/idea. They invest time, effort, and energy towards this vision/idea – which is great because that is how you make a lot of impact & sell an idea – but that’s not how you add a lot of value in the short term and how you start to construct a value additive process that should be malleable to external variables such as market movements, consumer-driven trends, and socio-economic factors.
For example, the founders of Apple and Google didn’t start their companies with the notion that they would dominate the majority of the world’s tech economies. They started up with a problem that needed a solution. For Apple, it was to redefine what a personal computer was to consumers beyond what IBM had made the standard, and they did so out of a garage with 2 ambitious computer engineers, namely Steve Jobs and Steve Wozniak.
Google did the same thing: internet search sucked, but they didn’t set out with the goal to completely transform the internet. They started small with the idea of changing the way people discovered pieces of the internet that were meaningful to them, which spurred a flurry of behavior to index and prioritize large portions of what we now know as the internet.
Coming back to the point, Yes, investors love it when you have an ambitious vision/idea such as: “We want to be the leading crypto exchange in the world, processing more volume than Binance or Uniswap”.
But, in addition to this, what will make or break that interaction with investors is if you have a plan/strategy towards the initial step that you’re taking in order to achieve that vision/idea and if it is a step in the right direction.
Key takeaway: It’s all good and well to start with a vision of “hey, we want to be a million dollar business, we want to really transform an industry”, but you need to start somewhere simple and in the right direction. There’s that great saying: How do you eat an elephant? One bite at a time.
Building and breaking the community
A lot of companies build with this great vision/idea and with the ambition of being a unicorn, however, around only 1% of all startups evolve into unicorns. I have dealt with a lot of startups that have that ambition to become a unicorn, but oftentimes the approach they were taking to get there is either wrong or uninformed.
Oftentimes, it’s as simple as the approach to how you capture an audience is wrong. In Web3.0, for example, you’ve got to harness both pull and push mechanisms to win and hopefully retain a community.
In Web2.0, many businesses garnered success in bootstrapping a community using merely a push mechanism – I’m gonna put my stuff out there and people are going to be attracted to it. But just because people are being pushed ads on Youtube or elsewhere doesn’t make them buy the thing. So where’s the pull mechanism? Where’s the incentive to capture people’s interest?
In one of the latest Outlier Ventures’ (OV) cohorts, we had a company that was building a metaverse around an incredibly well-recognised brand with approximately 700k to 1M community of committed consumers. They approached OV because they wanted help to shift their existing community towards their metaverse.
Sadly, we had to advise them that their approach to capturing their audience was incorrect. Their community was purely based on very niche cultural elements which their metaverse disregarded. So, they had to start from the ground up by nurturing what was valuable to their community first from a cultural perspective before even thinking about how to incentivise them to move towards their metaverse.
Most communities are built on a foundation of culture, and if you don’t capture the very essence of a culture that exists in real life in your digital world, you’ll never be able to retain that community. Actually, you’ll destroy that brand which resonated with those communities forever.
One of the ways you can capture the essence of community culture is by actually being a part of this community and deeply understanding the pain points and needs of these people. An example of this is Fragnova, a decentralised gaming network.
As longtime gaming industry veterans and leaders, the members of Fragnova’s founding team know how costly it is to create a successful game. Along with the high upfront cost, this model provides no way for asset creators to be paid royalties for their work.
In order to solve these pain points, Fragnova has created a decentralised network that allows developers to use assets created by others in their games for a royalty. This removes the up-front barrier to game creation while simultaneously providing asset developers with fair payment.
As well as giving developers new features and layers of access, Fragnova also benefits players enabling them to sell or trade their in-game assets with other players between platforms through the Fragnova Marketplace.
Fragnova team was able to discover the very essence of what drives developers and players to be part of a web3 gaming culture. And that knowledge helped them to build a successful community.
Focus groups (physically or digitally) with key community members are a useful tool to discover key cultural elements that will inform your approach to adding value to your product/solution. In such focus groups, one can ask: why they’re part of this community, what they care about in the community, what they hate, what they like, what’s non-negotiable, what’s a red flag.
That’s why it’s really important to know your community, because you can have the sexiest product/solution out there, but if there are elements that are capitalistic in nature, or exploitative, or prescriptive toward a demographic that I highly disagree with – then I’m not going to use your product/solution, and you only gonna discover that once you’ve interacted and engaged with who I am as a consumer via such focus groups.
Luckily enough we’ve got a community team at OV that is very bullish on the idea of focus groups and really testing the hypothesis of what is valuable to your potential community members given the various thematics that your product/solution falls within.
So, with every product/solution that comes through the OV program, there is a community team encouraging them to really test, using focus groups, whether they’ve got material evidence as to why they are going after their community in the way that they are doing. Because otherwise they will be just shooting in the dark and that’s a significant risk. It threatens the reputation of what founders have built so far, their money, time, and resources – that’s irresponsible.
And investors will never invest in you if you are deemed to be irresponsible.
How important is timing?
Many startups build and launch their solutions really fast because they believe they’re limited in time, resources, and competitive advantage, and thus if they don’t rush – they won’t win.
It’s a misnomer that there’s no time. It’s irresponsible to think that there’s no time. What really matters is to understand what your end goal is, who your consumer is, and what they care about. Because if you do that work properly – you’ll build trust, loyalty and commitment to a community who are only gonna help you grow.
If you hypothesise and make a wrong judgement over who your community is and what they want because you don’t have time – you might be successful in the short term, but people won’t care for you in the long term. In fact, the number one reason why startups fail is due to misreading market demand — this is found in 42% of cases.
A great analogy I like to use is, It’s like dating someone who you deem fits your preferences as a score of 3-out-of-5. Essentially, you know you’re not going to spend the rest of your life with them, but you don’t necessarily want to expend more energy searching for someone that’s perfect, so you just enjoy someone to date for the summer and have to go to the beach with (short term). It’s the same thing.
Key takeaway: Take your time to do the necessary work to understand who your consumer is, how your product/solution fits their value set, and what your approach is going to be in the short run vs evolving over time to enforce the idea of trust, loyalty, and commitment.
How to survive if you want to pivot
When a startup pivots to solve an entirely different problem, what are the chances of success?
Well, if your vision/idea is incredibly grandiose and unrealistic, then managing potential pivots becomes something that is not considered, and you can steer the ship straight into the iceberg…figuratively speaking.
But if your approach is to make slow and incremental value additions toward that vision/idea, the company becomes agile and way more adaptable to external variables that are likely to influence the direction that you take in order to get to the end vision/idea.
For example, in one of our cohorts just before the crypto bear market hit, we had a company that was building mini social investment DAOs. Effectively, offering the infrastructure for communities of people to build mini-DAOs around a common idea/principle/investment/vision and thus use the DAO to formalise actions around that commonality. Then the bear market hit, and the community they had built this idea to cater to weren’t able to fund the growth necessary for the company to be a success. So, they pivoted, and were able to do so because they hadn’t doubled down on their vision/idea.
They took off the application layer piece which was the social investment DAO layer, and kept the infrastructure layer. Essentially, pivoting to a DAO tooling business.
This was only a successful example of a pivot because the founders were able to retain agility in their business and adapt it to the market environment given the way it was set up. They had kept the application layer lean and the infrastructural layer as the foundation upon which many various applications could have been built.
It is common to see companies, especially Web3.0 companies, leverage third-parties for various facets of their business. However, if you are leveraging a third party, really think about the fact that, if that third party goes under, does that materially threaten your business? Web3.0 is an industry where companies live and die on a day-to-day basis. Unfortunately, 90% of all startups die. In Web3, the numbers are even higher. So take that risk heavily into consideration, because it may not be your doing or the market’s resulting in a potential pivot…it may be someone you rely upon.
It is not unrealistic to understand this material risk and conclude that you’ll build what you leverage that third-party for yourself. Raise money with the sole intention of saying – Hey investors I’m currently leveraging a third party. Here’s the material risk exposure to the business if anything goes wrong, I need money to fund resources in order to build that product/service myself. Because then, not only have you removed that risk,but you’ve potentially got an asset that is convertible into a monetary and IP value.
You can do a lot with technological infrastructure, so build that infrastructure first, then keep the application layer lean and adaptable.
In this section, you learned about problem-solving, from identifying your problem to finding your community to pivoting your product. Here are our top tips:
- Don’t be intimidated by Web3.0. It’s probably the most easily accessible market and industry for entrepreneurs to penetrate. It offers more support by means of collaboration with other builders and founders than Web2.0 or Web1.0 ever did.
- Competition isn’t the name of the game in Web3.0. Community, networks, and mutually beneficial support is.
- Build infrastructure! Applications built on top of this will be subject to fluctuations such as market conditions, community needs, competition, and trends.