What DeFi Founders Can Learn From Web2 by Mike Silagadze | Devcon SEA

[Music] hello uh all right so this is going to be a uh a quick one um uh so I I'll try to go fast but hopefully keep it comprehensible so yeah my name is Mike Sadam founder and CE of ethery uh and my lens on the uh the crypto space is that I come from a web to uh back ground and so one of the things that I want to talk about is what are some of the lessons that web 3 Founders can learn from uh the web 2 Universe uh so just to give you a little bit about uh my background uh I got into crypto super early bought some Bitcoin back in uh 2011 that's like the actual confirmation email uh it was about a dollar per Bitcoin at that time there weren't even exchanges I had to just PayPal some money to a random guy on an internet Forum uh which was fun uh then around the same time I started a company called Top Hat uh which was a web 2 uh company in B2B SAS so specifically we were doing um uh education software for universities so which is a very challenging Market to be in uh spent about 10 years uh growing that company uh it ended up being pretty successful we got it up to around 450 employees with 65 million Revenue uh and then sold it in 2021 uh it was a great great outcome uh and so then I decided to do pretty much the exact opposite as far as you can get from education software which was my first Passion crypto and started ethery around 2022 uh and that's gone uh remarkably well we've been humbled at at all our success we the number four def5 protocol uh by by tvl at least about 8 billion in tvl given current eth price um um and yeah run 30 million revenue and growing super fast you know couldn't be more excited about it uh one of the reasons I would say that ethery has been successful is because uh we've taken sort of the discipline and mechanics of operation of the business and brought it to the uh uh the defi world and so what I want to do is just talk about you know what what are some of those lessons so you know the curse of crypto is that there's way too much money uh in the space uh you know there's just a ton of gambling money coming from the great uh you know casinos in the sky uh and that actually the effect that ends up having is crowding out uh real product development because it basically eliminates the need in many cases for getting product Market fit if you're doing you know a web 2 more traditional SAS type of business the the cycle of that business looks roughly like this you acquire a customer you get the customer to give you dollars uh you then keep that customer by you're providing a good service then you reinvest that back into R&D and then the customer is happy and there's a nice positive feedback loop uh in web 3 it looks a little bit different uh usually you uh you know you find a project that's really cool cool maybe a nice Dex uh you launch a token uh you vest your tokens you cash out and then you're done uh it's a great business model super easy to uh make really you know shocking amounts of money uh doing it that way but when the main business model is basically printing casino chips uh and then taking a rake uh you know this is why we can't have nice things so uh so what I'd like to do is talk about like what are some of the principles that you can use uh to uh to construct uh projects that actually have some sustainability and the reason they're important is because there's actually I guess what I would say is almost a science around this stuff uh um uh that that goes into putting together these businesses that are sustainable so that you can answer this question you know is your project a viable project does it have some sustainability or is check check or Ponzi uh okay so here's some quick definitions so we're going to run through this really fast CAC is is cost of customer acquisition or customer acquisition cost arpu is average revenue per user churn is basically how much you retain uh you know one cohort of customers to the next time period net dollar retention is how many dollars you're retaining from one time period to another LTV is lifetime value so these are kind of like the key I mean there's probably dozens of other metrics but these are the key ones that you need to remember and the main question is are you even measuring these because if you're not even measuring measuring these things uh you're you're probably more in the or you're you're lending yourself more to being in the Ponzi Camp uh okay so what ises that what does this look like well this is the the fundamental kind of mechanic of customer acquisition you spend a bunch of money let's say you spend $5,000 to acquire a customer and then every month you get a little bit of money from that customer maybe it's a DEX you spend some money to acquire them Sal was a marketing BD whatever and then the user trades and that generates revenue for the project over some period of time until the customer turns at some point and so at some point you know you go from negative let's say you spend $5,000 to acquire the customer and then the customer pays pays themselves back over time you go to you know cash flow positive and then ideally if you at some point pay back the cost of acquisition the project actually makes sense so the the rough Benchmark is that your LTV divided by your CAC needs to be greater than three why there's lots of reasons for that but to be you know a top quartile kind of company you want to make sure that your lifetime value of your customer is worth more than 3x the cost to acquire that customer and you want to make sure that the payback period is less than 12 months that matters because it has a dramatic impact on the growth of your business if your payback period is like 24 months you're basically never going to get out of the trough you're basically the business isn't going to isn't going to work uh whereas otherwise you you get a really nice growth craft okay I'm over time um uh so the other thing that matters is churn uh you want to make sure that you're growing uh your customer base the the cohort of customers that you have is growing in terms of their usage of the product faster than the customers that you're losing to the customers that are churning out uh if you have high churn you basically Plateau because the cohorts all kind of compressed and go to zero if uh you have a negative churn then uh you know it grows really nicely okay so the first step I would say is in summary uh you got to measure these things if you don't know these numbers then you're you're going to have a bad time uh and there's a real science to this so I encourage you to go out there and uh uh research about how this science is put together so that you can build more sustainable project that uh have utility thank you thank you Mike so we have time for a few questions it's a bit can I over there behind you thank you what's your most valuable customer acquisition channel uh I think for most projects uh I mean it's it's X or Twitter um uh that just you know that that tends to drive uh most uh most customer acquisition uh and then Word of Mouth uh you know there's in in the SAS world uh there's a parameter called the K Factor how many customers does each customer refer so I think in crypto it's pretty much uh Twitter and and Word of Mouth hey uh love the presentation thank you for the pricing strategy 101 reminder that was great as a double founder in web 2 and web 3 what's your take on the fact that the majority of the people in crypto come from like successful company successful business school we majority all know this but collectively we are not able to do the basics to deliver insightful projects I'd love to hear your take on that yeah I mean I guess I just to uh so first of all I would say the operating chops in crypto are pretty low I mean the just being honest the average founder that you meet in crypto tends to uh not have very strong operating chops huge amount of money wasted um Without Really any consideration for for Roi uh you know companies just they're they're not run super efficiently and so you see projects that are even some of the largest projects in crypto that should be just absolutely printing money uh that are instead just hemorrhaging money incomprehensibly a complete lack of financial literacy people that think you know token emissions are revenue and other Insanity um so uh so I don't know I mean maybe maybe it's because it's just so easy to make money by doing the the Ponzi stuff versus doing the the hard work um you know we're okay I can talk more about that but I'll stop there thank you very much um so please sorry we would have more time for questions um so thank you very much for your time and for this