#05 Creating Sustainable Businesses With Web3

Wondering what types of businesses are possible? In this article, you'll discover examples of Web3 business models and learn how to draw customers

The Opportunity for Entrepreneurs in Web3

Because the Web3 space is nascent, its not overly crowded and that means there is a lot of room and potential for someone to emerge as a thought leader.

There are also green fields of opportunity for a business to emerge as a leading marketing service provider in Web3?—?something that’s become quite difficult in Web2 because the market is saturated.

For example, there are over 10,000 companies in the Web2 marketing technology space that offer products ranging from productivity tools to measurement solutions and more. To start a new business, you would develop your product and then work to convince people to move from their existing service provider over to you.

In Web3 however, there are only around one hundred teams trying to build what will become the Web3 marketing technology space. There’s plenty of room to create a long-lasting business to dominate the marketplace in the same way that OpenSea has.

Community-First Model

A business grows by acquiring customers.

While both Web2 and Web3 companies are grappling with rising customer acquisition costs, unfamiliar and sometimes inelegant onboarding flows increase those costs further for Web3 businesses.

In response, Web3 growth marketing is evolving to community-first driven strategies that focus on retention, brand loyalty, and differentiation.

Think of a community-first strategy like an SEO strategy. You invest a lot upfront by helping your community members achieve their own goals, then reap benefits of the brand network you’ve built at a later point in time because you’ve become a trusted source.

What does the process look like?

First, build your community?—?a small group of people who really care about the product or project, want to see it succeed, and want to share it with their friends.

Then, figure out how your brand can facilitate meaningful group experiences between your customers with alternative value propositions that drive brand loyalty.

Why does this work?

First, when you create a community before you create a company, you create space for authentic brand-building and storytelling.

Second, gathering a group of people together before you try to sell them a product lets you create a deeper relationship with them.

What Web3 Makes Possible for Business Models

There are two important business-related functions unlocked with Web3: ownership and interoperability.

Shared Ownership

In Web2, the internet experience most of the world is familiar with, you don’t really own anything because everything related to your business. Your content, your followers, your data, etc. are stored on a server run by a centralized company such as Facebook.

In Web3, ownership of these assets can be managed in the form of a fungible or non-fungible token.

Why does this matter?

In the Web2 world, your audience and customers aren’t incentivized to help you in any way beyond their transaction with you. Your audience might pay for your content but rarely will they help you build something more because there’s no mechanism to reward them with some type of ownership in whatever they help to create.

When you tokenize your business, you have the ability to share revenues with a global audience through an NFT and a DAO. Tokens are so much more than static jpegs.

All of a sudden you have a mechanism to turn members of a passive community or an audience into an active contributor who can have an ownership stake in whatever they help you to build or create.

And because tokens are programmable, utility isn’t limited to financial incentives. They can be used to grant voting rights and governance rights to the holders.

Cross-Channel Interoperability

It’s very difficult to give your audience a pleasant experience across the various Web2 channels and platforms you use to connect with them.

Say you use Substack to deliver a monetized newsletter and you want to gather and engage with that audience in a gated community on Discord or on Zoom.

In order for that to happen, an API has to be in place to confirm that a person is paying for your content on Substack and is therefore granted access to your Discord.

It’s a time and resource intensive process full of friction points and it doesn’t always work.

Web3 streamlines and stabilizes that process.

When you connect your digital wallet to a platform or application you grant the platform or app read-access to the assets your hold. Instantly, ownership of a token or NFT is verified and the platform or app essentially says, “Oh, you have X token which means you get to see this content in this app, or you get to perform this action, or you get to enter this event.”

#1: Before You Start

There are three considerations you need to address before you build a Web3-based business.

What Problem Will You Solve?

Regardless of whether you build your business on the blockchain, if you don’t provide an actual product or service that solves a problem for humans, you don’t have a sustainable, long-term business.

You need product/market fit for something that’s going to improve someone’s life or make something easier for them.

How Will You Build an Audience?

Right now, the number one way to build an audience for your business is to create content, often distributed on social platforms because it’s a mostly cost-free way to draw thousands or millions of people to your business.

Whatever you’re going to do in Web3, you still need to attract an audience that’s ready to buy when you launch. Again, the path to that audience lies in content creation.

You build your audience by delivering content to them via a newsletter, a podcast, etc. You speak to them but they can’t speak to you or to each other.

Community is where those you are speaking to can speak with you and with each other.

How Will You Convert Your Audience Into a Strong Community?

When someone buys your NFT, you want them to hold onto that token so that scarcity increases the value of your tokens.

Gathering your audience into a community helps ensure the people who really believe in what you’re doing and want to be part of it stay involved with your business and hold onto the token that gives them equity in the business.

#2: Business Models That Work in Web3

While big players in the Web3 space started projects focused on building a metaverse, producing a movie, or branding the next Disney, the most prevalent Web3-based business model from the last two years revolves around an NFT collection.

A project would launch a 10,000 piece NFT collection, token-gate a Discord community so that only people who held one of your NFTs could enter, and hope the collection sold out.

But is this a sustainable business model?

A lot of these NFT communities are realizing three things:

First, the value of their NFT assets were propped up by speculators and traders rather than people who believed in the mission and wanted to help build whatever would take the project forward.

Second, the idea of building with a community of 10k people is attractive but the reality is that it’s really difficult. Much more so than building a business a tight-knit group.

Third, after selling out an NFT collection, there is no additional revenue.

Many of these NFT communities are now banking on recurring revenue from royalties realized through secondary market sales of their NFTs. While this can be a lucrative it’s also counterintuitive to building a community you want people to remain part of because your only revenue is derived from people leaving your community and selling their NFT to someone new.

So the question becomes, what business models will work in Web3 and provide sustainable revenue…

Here are models to consider.

Reserve NFT Model

If your collection comprises 10,000 NFTs, launch by selling 9,000 and reserve 1,000 of the NFTs.

Then, focus on building a community that retains members and therefore, value. When your project needs funding, you can release a portion of the NFTs held in reserve.

Larva Labs successfully used this model with their CryptoPunks collection.

Subscription/Membership + Revenue Sharing NFT Model

If you happen to be a creator, you have to square with the fact that many people in your audience simply want to consume the content you create.

They don’t want to build with you or help you with your marketing or product development. They don’t care about DAOs and the stuff you’re doing in Web3.

So none of the previous models are good fit for that audience. In part because if when you launch an NFT collection, especially if it’s a limited series, people with buy because the want to build with your or people will buy because they’re speculating on the future value of that token.

Then, the price of your token rises so hight that it effectively excludes so many people from your community because they’re priced out.

This leaves you with a very small customer base.

The good news is that this doesn’t have to be an either or situation.

Launch an NFT collection for who want to build and grow with you, and launch a Web2-based subscription to the people who simply want to buy what you create.

Share some of the revenue from the Web2 membership/subscription audience with the Web3 community and they will help you develop your site, market your products, and create content for the Web2 audience.

For example, a musician could gather a Web3 community of thousands of people who love the music by saying, “Hey, you are my first big fans. Back me by buying an NFT and work with me to fund and promote my album and I will share my future revenues with you for X amount of time.”

And this where the interoperability of Web3 really comes into play.

The traditional subscription model signs a customer up and X amount of money is automatically charged to a credit card or bank account each month. But that customer doesn’t have easy access to the WEB3 community.

In this hybrid model, every customer’s subscription fee can be managed through the purchase of an NFT that utilizes the Unlock protocol to stipulate that X amount of currency will be charged as a recurring subscription.

Then, every member of your audience can–if they so choose, access a gated, quality community experience.

Cohort-Based NFT Membership Model

Finally, there are cohort-based NFTs that leverage supply/demand and FOMO.

Say you launch a premium subscription tier for your newsletter on Substack and that your initial release is 500 subscriptions at $5 a month.

If that sells out and your audience continues to grow, you launch a second release (cohort) at $10 a month.

Each time you sell out you increase the rate of the monthly subscription. As you continue to raise your rates, that value of the NFTs purchased in your initial release goes up because you continue to deliver the same value to all holders. It’s just that some people pay $5 a month, some people pay $10 a month, etc.

Further, each success will attract more businesses that want to partner with your DAO by contributing financially or by enriching your network.