Co-founder of DeFi Alliance Qiao Wang: Four Common Traps for Web3 Founders

Author: Qiao Wang, Co-founder of DeFi Alliance

Original Title: 《Common pitfalls for Web3 founders》

Compiled by: Hu Tao, Chain Catcher

When founders and their teams come to our office during working hours, they usually seek our advice on topics very specific to their projects.

But just as often, their questions are general enough to be relevant to many other founders.

Let’s address these common questions. They can be roughly divided into four categories:

• PR/Marketing
• Recruitment
• Community Management
• Token Economics

I. PR/Marketing

"Which PR/marketing firm do you recommend?"

"Should I hire a marketer in-house?"

"Any advice on our Twitter/podcast strategy?"

Unhealthily Obsessed with Marketing

For most early-stage founders who ask questions about PR/marketing, my instinctive reaction is, "You are too obsessed with marketing and not enough with your product."

If an early startup fails after five years, it’s not because they were bad at marketing. It will be because they didn’t find a product-market fit.

I’m not sure where this obsession with marketing comes from. Most founders seem to think they are excellent at product development and need help with marketing. In my experience, the opposite is often true. Most founders are simply not obsessed enough with their users. They don’t talk to users regularly. They are not users of their own products. If they don’t do these things, how can they possibly develop unique product insights?

There’s a famous cliché: "It’s not the best product that wins, but the best-marketed product." This may be true for mature companies, but it’s very dangerous for entrepreneurs to think this way. Most of them don’t even have a product worth marketing!

Strategic Advice on Web3 Marketing

That said, here are some specific recommendations regarding PR and marketing.

Do not use external PR/marketing agencies. I currently have a dozen data points from founders who have used external PR agencies and shared their experiences with me. Not a single success story. Do internal marketing. Ask your investors to amplify your message and connect you with the media.

So far, content marketing is the only truly scalable way to get your name out there and build trust with your current and future users. Let them know about your product and industry trends.

Getting on major podcasts and conferences is tough. They only want big names. One way to gain recognition is to develop a great product that many people use, which by definition is not a feasible strategy for early-stage entrepreneurs. Another way is to write high-quality content again.

The main purpose of large one-off marketing campaigns is not actually to attract potential users. It’s to attract potential employees. Your hiring candidates will do their due diligence and see your announcements. But your users will only come and stay if you have a good solution to their problems.

For Twitter, build your personal brand (not just your company brand). People trust personal brands more than corporate brands. Personal brands feel more approachable. Building a personal brand is not the key to success. Many startups have succeeded without celebrity CEOs. But if you enjoy being a public figure, then definitely do it.

II. Recruitment

"Where can I find solid/rust engineers?"

"I need to hire more people. I’m overwhelmed. Do you have any advice?"

The Problem of Expanding Too Quickly or Too Early

Recruitment is one of the biggest challenges faced by startups. But before diving into how to hire the best talent, I want to point out a common mistake first-time founders make: they scale their teams too quickly before any signs of product-market fit appear. As a result, they burn through cash too quickly without making much progress.

When your team expands, you feel good. It boosts your ego. But team size is a vanity metric. It’s a useless optimization metric. In fact, often a smaller A-team can achieve three times the results of a B-team. This is because more people lead to more interpersonal connections, more communication overhead, and it becomes harder to maintain team focus.

Founders often come to me saying, "I hired this community/marketing/product person. But I feel they aren’t creating much value, and I’m spending too much time micromanaging them."

Rather than hiring a mediocre person just to fill a position, it’s better to not hire anyone at all. Due to the additional interpersonal connections, they can actually have a net negative impact on the organization. As a founder, many of your superpowers cannot be replaced by hiring. At least not in the early stages.

If you feel overwhelmed, the best solution is not to hire more people, but to do less. Prioritize, focus, and ignore.

When you start to see signs that users like your product, it’s time to scale more aggressively.

How to Recruit

Let’s delve into the best ways to recruit talent.

When founders ask me how to find engineers (or other talent), my first question is always, "Have you exhausted your personal network?"

Leveraging your personal network is by far the most effective way to recruit talent. Nothing comes closer. Fundamentally, in the early stages, you don’t have a strong brand. So it’s hard for people to trust you. The only people who trust you are those in your personal network.

List the best people you know, amplify your startup with them, and ask if they are interested in joining. It may feel awkward to ask a friend to work with you, but you absolutely must step out of your comfort zone. If they aren’t interested, ask them to introduce you to three people they know and respect who might be interested.

Have everyone on your team do the same.

In my last startup, I invited one of my best friends to join me. I had known him for 10 years. It was very awkward, and it took me a month to convince him. He eventually joined me. He also convinced one of his former colleagues to join, and so on. The network grew exponentially.

The second best way to recruit talent is through your community, meaning people who know you but whom you may not know.

If you have a Discord/Telegram community, ask your community if they or their friends are interested in working with you. If you have Twitter/newsletters, post your job there. Ask your allies (like investors) to retweet. If one of your investors has a large Twitter/newsletter audience, ask them if they can help share your job.

In hindsight, this should be obvious. You want to leverage your loyal followers, not those who don’t even know you.

Only after you have completely exhausted your personal network and community should you consider using recruitment platforms like Advices, TrimByter, StAdvOffice, etc.

A final tactical piece of advice for finding blockchain engineers is: for you, hiring experienced Web2 engineers and training them is much easier than finding experienced Web3 engineers. Now, in 2022, we see that Web2 talent has the highest interest in transitioning to Web3. On the other hand, Web3 engineers are too wealthy, too comfortable, or starting their own ventures.

III. Community Management

"How do I engage the community?"

"How do I manage FUD?"

"When should I hire a community lead?"

There’s an eternal meme in crypto, such as "the community is the moat," "the best community wins," "we are a community-driven project," and so on.

I want to talk about the other side of this. Not necessarily because I think these statements are wrong, but because I want you to critically think about these phrases that people use blindly. I want you to think from first principles about whether you should have a dedicated community manager and why you even need a Discord or Telegram.

What I’m saying is that an actively engaged community is not the source of a great product. An actively engaged community is a result of a great product.

We have seen this time and again. When prices rise, the community gets excited and contributes actively. The same community collapses and fractures in a bear market. Over the long term, price has a reasonable correlation with your product performance.

Therefore, you shouldn’t try to force engagement and enthusiasm into your community. There’s a more natural way to engage your community, which is to first treat them as users.

Find volunteers to test your product. Solicit product feedback from them. Ask your community what pain points they are experiencing. Update them on your progress and roadmap. Educate them on how to use your product, as your user experience may be confusing.

In this way, you will constantly engage with the community while gaining valuable product insights. Over time, the improved product will further strengthen the community.

The best community person I’ve encountered is Kain from Synthetix (he was part of our founding team). That’s exactly what he did. He would constantly talk about the product with the Discord community. He would answer questions within minutes. Another great example is Liu Jie from Mcdex (he’s also an alumnus of the Alliance). I’ve seen him answer product questions repeatedly in Telegram at 11 PM local time.

Note that the common theme between these two examples is that the community person is their own founder.

I’m not saying every founder should live in Discord around the clock, but community management is one of the roles that founders are not easily replaced in. Not to mention that what founders are truly doing through community management is user research. This is another responsibility of founders that cannot and should not be replaced.

In the early stages, founders are best as de facto community managers.

IV. Token Economics

"Is there a script for token design?"

"How should we incentivize users with tokens?"

"What should the vesting schedule look like?"

"How should tokens be split among the community, team, and investors?"

"Is there a standard template for token vesting?"

Unhealthy Obsession with Token Economics

Before diving into token economics, I want to point out another common mistake made by Web3 founders: they are overly obsessed with token economics.

I’m not saying tokens aren’t important. After all, tokens as a go-to-market strategy are one of the key value propositions of building Web3. With token incentives, solving the chicken-and-egg problem and enhancing critical mass has never been easier.

But "go-to-market strategy" is the key phrase here. Again, most startups don’t even have a great product in the market yet! If you use tokens as a user acquisition strategy without a good product, you are essentially wasting your marketing budget. This is a very expensive marketing strategy because supply is limited, and mistakes are irreversible.

Moreover, the danger of launching token incentives too early is that you will never know if you truly have product-market fit. You won’t know if users are coming for the product or for the monetary rewards. You will have a glorious moment when all your user metrics spike, but it will be fleeting.

During the summer of DeFi in 2020, many of the best products, such as Uniswap and Curve, had already found product-market fit before they received tokens. Some great products even had liquid tokens before their products launched. But they did not use token incentives.

Therefore, it’s best to prove product-market fit without tokens.

See if you can make 100 users truly happy without giving them token rewards.

If your product is based on network effects and has cold start problems, first consider traditional Web2 growth strategies.

If you really need tokens to enhance network effects, don’t overuse them. Don’t try to design a multi-year incentive plan (like Satoshi did with Bitcoin, which is an exception, not the rule). Release incentives in moderation and intermittently.

Trying to design a complex algorithmic multi-year incentive plan is futile because you will inevitably make mistakes. Hell, even Ethereum is still changing their token economics eight years after their white paper was published. Theory combined with practice is what wins.

In short, prioritize your product over tokens. (An obvious exception to this rule is if the token is the product itself or a component of the product, like Maker.) Have a rough plan for how to distribute tokens among the team, investors, community, and treasury. Have some rough ideas about what utilities you want the tokens to have. But don’t over-design it before you have a product that 100 users love.

Strategic Advice on Token Economics

When you are finally ready to spend time on token design, it seems like a daunting task. You might wonder, "Is there a template?"

The simple answer is no, there is no template.

Token design should absolutely follow first principles based on the unique needs of the product. Every product is different, so every token design should be different. Remember, tokens are a go-to-market strategy, so whether a specific go-to-market strategy makes sense depends on the specific product.

I would introduce founders to the leaders in their category. For example, I would ask DeFi founders to study Curve. I would ask game developers to learn from Axie. But their models should not be blindly copied. Use them purely for inspiration, as their products are different from yours.

Speaking of industry standards, I can tell you what the average token distribution looks like among teams, investors, and communities, as well as what the average vesting schedules are. But averages are not necessarily optimal values. What’s popular may not be suitable for you. For instance, I have long criticized the absurdly short vesting periods (1-2 years) implemented by many projects. This is a terrible incentive misalignment.

Tactically, start conversations with top exchanges early. They all have different needs, and their needs change a lot over time. Their needs will often directly impact your token design.

At this point, while you shouldn’t be obsessed with the price of your token and where it’s listed (because your product becomes important again), being listed on top exchanges is very valuable. It helps expand token distribution and increase liquidity, essentially providing free and ongoing marketing.

This is a very popular meme, but I don’t necessarily think the community should receive a much larger allocation than investors and the team. (I also don’t agree with the opposite view.) Tokens should be allocated to each group based on their current and future contributions to the network. Most projects reserve 20% to 60% of tokens for the team and investors, with 40% being the average. But once again, you should think from first principles.

Don’t be too stingy with your early employees. Be prepared to pay top talent a significant amount of tokens. I don’t think it’s crazy for an early top employee to have 1/5 of what the founder has. I’ve had several founders come to me distressed about this, but you should focus on making the pie as big as possible rather than worrying about a few percentage points of difference in the size of the pie you have.

If you really want to instill confidence and show that you are in it for the long haul, then your token vesting schedule should reflect that. If you shorten the vesting period or give yourself and/or investors preferential treatment, you choose to be the worst investor. Top investors rarely care about vesting, but the worst investors want to sell quickly.

If you decide to launch a token, securities laws will come into effect. (Even if you are not a token project, anti-money laundering, derivatives, and tax laws may apply to you.)

Generally, if you talk to 10 different lawyers about a specific topic, you will get 15 different answers. This is because many lawyers are new to the field and don’t really know what they are doing. But also due to regulatory uncertainty, even the best lawyers may have different opinions because they have different tolerances for risk and interpret the law differently.

Fortunately, we have an experienced in-house legal team that happens to be token experts. They cannot represent you, but they can provide valuable business advice and connect you with the best lawyers in the field who can represent you. Then your job will be to talk to some of them and triangulate their views to make the best legal decisions.