PM in Web3 - What got us here won’t get us there
it's time to ditch degen product management
Web3 is at a similar point to where the internet was in the 90s - hard to use, confined to an enthusiastic few and frowned upon by most (remember the internet was being worked on since the 70s, but did not get to mainstream adoption till the 2000s). This is easy to miss when the only headlines you see are that the market cap of crypto/web3 is $1.2T (for context, that is the size of Amazon). But the market cap of crypto belies the quality of the product - cos ‘we are so early’.
Btw not a hater…I just compared web3 to the internet, so clearly I am rooting for it. Also, this is me learning live, so pls share your knowledge and wisdom if I am missing anything.
The incredible combination of abundant cash from VCs, retail investors wanting to catch the next big moon-coin and FOMO fueled the rapid growth of web3 products over the last 2 years. You need a PhD in FOMO science to fully understand the crypto market dynamics and as a participant of this last bull run, I believe I at least have a high school diploma in it. So let me start with my thesis on web3 - What got us here won’t get us there.
All web3 is a hackathon,
And all web3 products merely prototypes,
They have their coins and their communities,
And at some point they have to graduate to mainstream users
But how will they do it, sans UX, sans PM?!
- blockchain Shakespeare
Most web3 products are prototypes being tested with a highly forgiving, tech-savvy, financially ambitious user base and learning live.
The only use cases with “successful” products (in quotes because they haven’t crossed the chasm to mainstream users) are decentralized finance and NFTs (for digital art ownership). In time, once they graduate out of this “incubator” and go mainstream to ‘normies’ (crypto-speak for non-crypto folk), they will struggle to solve for usability across demographics.
This is a familiar challenge that web2 silicon valley startups face - their prototypes work great in the tech-forward Bay Area market…because users get tech, are forgiving of UX gaps and want these products to succeed. They however fail to scale in the rest of the world because it is not built for the average user.
I want to talk about three challenges to web3 scaling to mainstream users.
Product Management - how products are built
Utility - what user problems do these products solve
Usability - how intuitive are they to use
There are more challenges, e.g. blockchain technology, regulations etc., that are for another article.
1. Product Management
When there is no defense, anybody can score like Michael Jordan…the moment you play against a pro, you break your ankle trying to defend a crossover.
In a bull market, every altcoin trader is a genius….in a bear market, most get rekt.
Like degen trading, degen PM-ing works only in bull markets.
The last 2 years in crypto was peak frenzy. The perpetual FOMO machine was fed by retail investors and VCs desperate for returns. So it was easy-mode for web3 teams.
In “real” market conditions, the product skills of the teams start mattering - I’m not saying you need to have done official product management before to successfully build a web3 product. But you need to know the principles of product management to succeed in the long run…just like you need to learn how to shoot, dribble and defend, if you want to play basketball beyond your driveway.
Let’s apply some basic product principles to examine the state of web3 products today.
2. Utility
Most web2 companies are networks - which means they need users (of different kinds, e.g. riders and drivers in Uber), to be successful.
The success of the best web2 companies can be explained by the “flywheel effect”, developed by Jim Collins.
It has two core ideas
Successful products are built through a series of small wins (for the customer and hence the business) which compound over time to massive scale
Happy customers bring their friends in. So if you build a product that is easy and fun to use, your customers tell their friends who in turn tell their friends and it becomes a virtuous cycle.
Notice the evolution of Strangers → Prospects → Customers → Promoters, all fueled by a great user experience.
Building out a network of users is key to their success (e.g. riders and drivers in Uber) so in the early days (“bootstrapping phase”), companies do this by spending on sales and marketing (think Uber credits and promotions). They try to get as many users as possible on their network (‘strangers’ who hopefully graduate to promoters) through an excellent user experience before even thinking about revenue.
Web3 offers a different way of bootstrapping the network, as Chris Dixon explains:
Web3 introduces a powerful new tool for bootstrapping networks: token incentives.
The basic idea is: Early on during the bootstrapping phase when network effects haven’t kicked in, provide users with ‘financial utility’ via token rewards to make up for the lack of native utility.“
Token rewards just means that a certain amount of a digital currency is given to the user. In other words, “you use my product, I give you money.”
The idea is that over time, as more people use the product, the network and product improve, and at some point, the financial rewards are no longer necessary.
Neat, right?
But here’s the problem in most web3 products:
The only thing being paid attention to is financial utility. The application utility (aka user experience) is completely ignored. Dixon’s blue line has become the forgotten curve.
Name one web3 product that leads its marketing with how easy it is to use. The marketing on web3 products is around two things
making money (WAGMI - we’re all gonna make it) and
in some cases, ideology (“we are a decentralized <dating app name> - we match you with creeps but yay! you own the data”, “we are OHM, but on the Solana blockchain. Still a ponzi but the performance is wow”)
While tokenomics are a fine bootstrapping method, it cannot be the product itself.
Here’s a thought experiment: Take away the money and do these web3 products exist?
The only thing that remains is ideology, because the UX on these is pretty bad.
Is there any web3 team that is thinking: how can I build a beautiful product experience for problem X that users are facing and oh, it will be decentralized and users will own their data ?
If you’re saying “no maaan, that’s not how revolutions happen…”, here’s an example:
Tesla did not become what they are by selling the ‘good for the environment’ ideology. They built cool cars that drive like a dream and oh, they’re electric and environment friendly.
Web3’s flywheel is broken:
The first half works like a charm - strangers quickly become community fueled by wagmi and the product’s memes like (3, 3); many of them make money and then leave. There is no cycle, let alone virtuosity. Even project founders leave once they’ve made their money (Hi Dani!).
In order to cross the chasm of adoption, web3 has to start delivering user value at some point, evolving its user mix from early token holders to include users who come for the problem the product solves for them. The web3 companies that do this well will have strong product leaders who have solved similar problems in the web2 context.
A successful web3 project will have the following flywheel:
The idea is self-explanatory : use tokens to bootstrap the network, start building in utility early, drive organic growth where users start coming to your product for its utility, not just to make money, build an actual flywheel.
3. Usability
One of the most basic actions that a web3 user takes is token swaps (noobs: exchange one digital currency for another). The web3 community considers token swap experiences “simple and commoditized”.
Here is how it actually works…
This is the chasm that needs to be bridged! And that requires disciplined execution - understanding user journeys, building products that think through the end to end experience for users in this journey (not point solutions), knowing when to value the abstraction of complexity vs optimizing for transparency etc. And above all, a systematic way to research, launch, learn and iterate.
We are entering crypto winter - an excellent time for teams to build great products without bull market FOMO clouding the focus of builders. The ones that solve user problems will emerge from this period like Amazon after the dot com bust. Sadly, most will go the way of pets.com.
Are there web3 companies that are already solving user problems while being all-things-amazing-about-web3? I want to hear from you.