Author: Matias Honorato

Original title: Growth Frameworks from Web2 to Web3

This is a series of articles where DAOrayaki will explore how Web3 founders and builders are using some of the Web2 growth frameworks to scale successful products.

1. Growth Model of Web3

2. Develop a sustainable growth strategy for Web3

3. Build your Web3 growth team

2021 is a record year for cryptocurrency and blockchain companies. We’re seeing a flood of deals and money pouring into the space; global VC investment in Q4 2021 topped $10.5 billion, the most of any quarter last year, and more than all of 2020 combined. First, let's look at the development of cryptocurrencies related to Web3.

I don't see a slowdown in 2022, as we've seen investment funds raising a lot of capital ready to deploy into the space. Some of the most important announcements this year include: Paradigm's $2.5B fund, Andreessen Horowitz's $2.2B fund, FTX $2B investment fund and Crypto.com just recently announced a 500MM fund.

With investors pouring a lot of money into the ecosystem, expectations will be high, and Web3 companies will have to pull out all the stops for growth. Similar to what happened in the Web2 space a decade ago, we should expect to see a flood of companies rushing into the crypto space and scrambling to hire for growth roles (already happening), and scrambling to build teams that can scale successful growth models.

It will be exciting to see how it develops, as I believe Web3 can enable entirely different approaches to growth at every level - from acquisition channels and strategies, UX and onboarding, to retention and engagement levers (more info See future articles). But while decentralization, anonymity, protocol ownership, and user-owned data become the new norm, Web3 also adds a different set of challenges to the field.

As we "speak", new Web3 growth frameworks and playbooks are being created. But what principles and systems from Web2 can we bring to this burgeoning new ecosystem?

A Brief Introduction to Web2 Development

Before diving into what growth means for Web3, let's give a high-level overview of what has been around the growth framework for Web2 companies over the past decade.

Andy Johns has a great quote that helps explain what growth means at the most basic level: "If finance owns the flow of cash into and out of the company. Growth owns the flow of customers into and out of the product" .

As you may have heard before, growth cannot be defined by a specific set of strategies, panaceas, or exact roles within a company. This applies to both Web2 and Web3 products.

Growth is a system between company mission, values ​​and business model that helps you define the following:

1. How do our products grow?

Brian Balfour and the Reforge team did an excellent job of breaking this down further into its essential parts.

Break down into the following:

1. How do we get it?

2. How do we keep it?

3. How do we monetize (Monetize)?

4. How do we defend?

Viewing these questions in the context of the specific growth cycle in your business will help you build an overall growth model for your company.

2. Four basic fits

Not just product-market fit, a well-structured growth model needs to find four basic fits: market-product fit, product-channel fit, channel-model fit, and model-market fit.

3. Growth strategy

Once you understand how our product evolves and fits your community/market, channel and business model, you can define a sustainable and scalable go-to-market or growth strategy.

4. Build a Growth Team

As more and more companies form teams to drive go-to-market and growth strategies, winning in growth will require you not only to have the best approach, but also the best team structure to deploy that strategy as quickly as possible.

Casey Winters (former head of growth at Pinterest/Grubhub) separates these domains in his definition of growth: The purpose of growth is to expand the use of a product with product market fit. You can do this by building a playbook on how to scale product usage. Playbooks can also be called growth models or cycles.

Most product teams are built to create or enhance core value delivered to customers. Growth is connecting more people to existing values.

We could go on for hours trying to narrow down exactly what growth means and how it applies to different types of products, businesses, and teams, and there's already excellent content for you to delve into the topic.

So, now that we have a basic understanding of what growth as a system can solve for your product, let's break it down specifically for Web3 companies.

The Growth of Web3 Companies

How does your Web3 product scale?

You can break down this problem statement into four core questions you need to answer so you can lay down the foundational parts of our growth model:

How do we get it?

Lattice Capital provides a detailed analysis of the proven ways Web3 companies are developing their acquisition strategies today – partnerships, user ownership, and token-driven growth pools are the pillars of a Web3 growth strategy.

However, the strategies outlined above rely on the assumption that their target users are already familiar with or have entered the Web3 ecosystem, without necessarily focusing on how or who will help the next billion users.

The current acquisition strategy of crypto companies is still very confusing and full of unknown factors, especially considering the inherent divide that novices must go through when starting to use Web3, from joining Discord, to building Metamask, buying NFT, finding public bounties and so on. The system remains fraught with disagreements and hurdles that make it easy for "norms" to join and participate in the space, and we're seeing rapid competition among companies to go after the current crypto-educated consumers.

The winners in the Web3 space will be those who can clearly define:

1. Where is the product in the scope of centralization and decentralization?

2. Is this a network effect driven business?

3. What does success look like? (user growth, TLV, developer activity, transaction volume, connected wallets, etc.)

How do we retain it?

Retention is the foundation of any growth strategy. For Web2 companies, retention rates are the basis for measuring product-market fit, and positive retention rates often help lead to more acquisitions and revenue for the company.

One of the biggest challenges I see between Web2 and Web3 growth is user retention and how we look at it. Why? User or customer retention in Web2 is driven by our ability to attract and "resurrect" specific users via email, push, in-app (basically lifecycle marketing). But in Web3, there is no concept of "user" as an identifiable individual, and we cannot locate them through traditional lifecycle strategies.

For example, you can only rely on wallet addresses as unique "user" identifiers, not emails. The problem is that individual users can use multiple wallets to access your dApp, which may reduce the accuracy of your data.

Defining what "identity" means in Web3 is one of the most challenging and interesting areas of the field in the coming years. As it turns out, user ownership and governance, on-chain activity, and community engagement are some of the fundamental mechanisms shaping the future of loyalty/retention programs for Web3 companies.

My guess is that many of these questions will start to be answered this year. Emerging verticals such as NFTs, DeFi, and DAOs over the past two years will have to iterate and innovate quickly on how to address customer churn and user retention in order to, when macroeconomic conditions may be contrary to the current optimism in the crypto market, Maintain its current "up" trajectory.

How do we profit?

For Web2 and Web3 companies, "monetization is not just about price" and as stated in Reforge's Experiment + Beta program, they have a great framework for addressing this.

When we think about all the elements of a monetization strategy, we need to be aware that the decisions we make around each specific element will more or less divide people who become paying customers or product users, unlike Web2 and Web3 Companies are all about.

"If the user is very familiar with the content we charge and understands very well, it will have low disagreement, but if the content we charge is brand new in the market and not well understood, an unknown, it will have high disagreement." --Reforge

So far, large centralized Web3 companies such as Opensea or Coinbase have used "well known and very well understood" monetization strategies such as transaction fees or listing/selling fees, which reduce the divergence of new users joining and using their platforms.

But in terms of new revenue streams, Web3 opens up a wider range of possibilities for decentralized organizations. For example, look at how "free-to-X" DAOs, games, Web3 social networks, etc. convert their funds into currency through DeFi strategies, breaking the common concept of "if you don't pay for the product, you are the product", which will is an interesting thing.

How do we defend?

This chart from Statista shows how quickly new Web3 and encryption companies have emerged over the past few years, and there are no signs of this trend slowing down anytime soon.

Although Web3 and Crypto are still very young industries, their competitiveness has been proven. For example, LooksRare, which drove $100 million in NFT sales on its launch day, is now a serious competitor to Opensea.

"Growth = speed, speed is the competitive advantage in today's market". --Matt Bivons

As more competition enters the space, current distribution channels will become less effective.

We're seeing some really interesting things happen in terms of user ownership, network participation, token economics, etc. But the walls of defense in the Web3 ecosystem will have very similar foundations to the growth of some of the most successful Web2 companies we've seen; network effects, strong communities, and organic growth loops.

Build our growth model

In short, your growth model is a system or cycle that represents the qualitative or quantitative levers that inform the growth of your product.

Answering the questions we've encountered in this post will set the stage for your company to clearly define and communicate the strategy, goals, metrics, priorities, and teams needed to achieve sustainable and rapid scale.

"When I ask 'how is your product developed? ’, this is one of the most common mistakes founders make. The answer is usually a long list of linear strategies. This is usually because there is no assumption in the question about what the growth engine is, so they try to do it by piecing together a lot of small things. Compensation.” — Brian Balfour

The traditional Web2 growth framework can serve as a practical guide to get started and provide a proxy for how successful products grow. Product mission and purpose, incentives, and a thriving community seem to be the pillars of the current Web3 growth model, but there is still much to discover, test, and learn as more and more mainstream users join the space.

"At Safary, a community of Web3 growth experts, we're defining what growth looks like in web3."

In the next article, we will use a framework to break down these current models and define the principles of a sustainable and scalable growth strategy.