Supermind : The bitter taste of Web3's market realities
On getting punched in the gut, market realities and keeping composure
Posts of failed entrepreneurship are incredibly hard to write, for one they leave the founder with a bitter taste of possibly wrong decisions(In the end it stops with you) - and more so the remembrance of it. But I also strongly feel that this is a legacy that more founder’s ought to leave as a “pay it forward”. In the end - capital doesn’t build businesses, real customer pull does. And this pull is not a one time aha moment, but multiple iterations landing upto GTM. In the life of most founders'‘s there are also moments of what is being early and creating that market, while you listen into it with your ears to ground and also being irrationally - this is best seen in these innovation curves - see “Laughing off Disruption” when it hit - balancing the two is the art of startup.
While there are a few realisations & positive personal learning experiences of raising in winters (Just post the Terra Luna crash that wiped liquidity in the system), the taste that always lies with an entrepreneur is that of failure. In that entrepreneurs are never kind to themselves.
To some part - it is this irrational ambition that makes us take these blows down the knees. Of allowing this irrationality to punch us in gut. Why else, would someone pursue a loosing game ?
Everyone knows that 99% + of startups fail, and yet seasoned builders build. It’s our bloody Job description to fight entropy & skewed odds.
This post in an account of behind the scenes and what I would do much differently, if I were to do it again.
Instead of banging the head on an iron wall - with no market - I choose to do the hard call to stop-loss. Late Jan 2023, I had to let my small team go. We did not run out of cash, In fact far from it. We were still at ~88% unused capital of total raised. But going over all options for the product and market - it felt the right thing to do for all our investors - each of whom I am incredibly proud only asked me -”How I was holding up ?”.
One of these calls, with Deepak Chandran(CFO, Wipro and one of our angels) - actually made me cry. I wasn’t thinking about the negative capital return - but that I had failed myself and our expectations of our investors. That hurt the most.
Deepak’s words - “Ekta, my cheque can be the last one you need to think about returning. In the end - we bet on you, not the idea. And I know you tried your best. While this is sudden, but this transparency actually reinforces a stronger belief in your ability to take the right decisions for the company.”
Update from Deepak on his impressions of the journey & experineces
Original post here
The same goes with for the investors I called and the kindness with which they handled what we were going through(Esp Govind & Prateek). Doing a hard reset is like aborting a baby pre-term. If that sounds logical. To a founder, the startup is the focal point of obsession. It is the reason they put insane passion & energy into this impossible mountain after mountain of rejections and the irrational enthusiasm of the “taste of eventually making it”.
Doing the hard reset - is the same discretion I would expect of an entrepreneur I angel invest in. And there is no rule book for this. At that point in Supermind - it was clear that it was the right thing to do. More below at Behind the scenes.
And for Daryl Lau of Daily Ape - another of our angel.
I especially loved the transparency and honesty of what you've put up here and these were the same values we loved from you when we took our initial call 🙂 You were one of the few cheques we signed last year, sad to see things go this path but thats how start ups work out. Our impression of you has only gone up throughout our interactions and how you've conducted yourself and supermind!
The thesis & Supermind’s genesis
Supermind was first born Circa ~Sept 2021 - when I started reading about Web3. Over the next 6 months - all I did was talk to people, use the products in Web3 , right from trading products, CEX’s, doing user interviews from the target market(US), building up mapping the sub sectors. I wrote about it here. The pull of the innovation in the space, and its premise of programmable money was what excited me.
Consider this - the State bank of India manages ~650 Bn$ of assets with ~250K employees. Compare this with Aave, that has ~6Bn$ assets, with only 124 employees. That’s about 48.38 Mn per employee of Aave vs 2.6 Mn of SBI per employee. Let this sink in. Src : Conversation with Saras
The reason is simple, the financial primitives & all the operational inefficiencies can be scaled effortlessly with the notion of the new financial rails that were being built in. This was the promise of defi & blockchains that got me in.
And then, this, on how big the market would be
Every two years 10x as many people use crypto.” - Pantera Capital.
PPS : The note below is on sizing the enterprise applications later, not everything in Web3. A lot in Web3 has practical applications and will tide over the maturity cycles. The note, thus pertains to startups building Zero to one, in enterprise segment with the application in question and the Technology adoption curve that presents.
But, the nuance of “Every 2 years, 10x people entering the space” - doesn’t translate to business case for applications or even affordability. Looking back - this was my single biggest wrong hypothesis.
But who are these 10X people, you may ask ? As opposed to Dune showing 6 Mn defi users(Not CEX etc, just defi), its actually just ~400K users - and that is when a realization hits you - on how the money is moving in the space. It is neither obvious from the outside, and a guarded secret “till you become one of us” and uncover it from the user acquisition is driven. Also, when seen from the current “slow down lens” - Developers push about 300,000 smart contracts to Ethereum every month, a figure that has been flat for the last five months. Roughly 5,000 developers push code to web3 every week, down 20% from the beginning of the year. This number needs to increase significantly for the ecosystem to thrive. Source Tomaz’s here.
The thesis with which I started Supermind was simple - if more & more people enter Crypto, they will need trusted information - of all kinds to be able to maneuver the space. In that we choose, search & discovery as the wedge as the entry point to collaboration.
For the same, we focussed first on Crypto analyst persona. And we wanted to build a bottom’s up enterprise product like Postman. In that if we could make crypto analysts fall in love with our product - Enterprise would follow. Where time & attention goes, money follows.
For a data point to be relevant in an analyst's workflow, it needs three things: intent, relevance & retrieval. When an analyst starts a workflow they may have a varying degree of awareness and precision of intent. This “intent” usually goes from fuzzy to more well-formed. And this is an iterative process till the information needs are met.
In it full version - I imagined the product to be like “stack-overflow” for crypto analysts in the retail side - while enterprise use-cases on competitive listening the space, monitoring their communities, finding high value users, and putting the trust back in the social graph was the product evolution.
Across all the interviews predating formally building Supermind - I couldn’t have been more USER centric. In that I validated the problem, and the solution delivery. What I failed though was where my conviction had to stop to put a hard stop to building and getting real $$’s as a proxy for “If you want it - let’s talk with real stakes” - this would have avoided some downside pain.
Here is Joel John’s impression of us. Source here
The death
But of-course, the death is only obvious in demise - and that no founder gets up in the morning thinking - “I have to screw this up, so let’s take bad decisions”.
I painfully remember my own “Birthday vacation” with extended family - where I stayed in hotel room while husband took daughter & spent time with inlaws. Or back in Dec, on an “year end vacation”, where I logged in to patchy internet to help an engineer ssh into the production boxes and a long SOS planning since another intern - suddenly had to be unavailable for 2 weeks.
So, yes, its fair to think that much like in meditation - your mind only arrives at gradual level of consciousness - no matter how hard you are on yourself. Your decisions will be wrong and you will have to be OK with that and protect it with bias for action, rather than doubting yourself.
The game is over when you start doubting yourself.
Realisation #1 : Market size
What I embarrassingly lost the view for was - how big was the market and how dire the need ? And that given the turbulence of the market, the B2B SaaS market in Web3 showed signs that it was really a tiny sliver.
The limited number of potential customers challenges web3 vendors. With fewer than 100 accounts willing to spend $20-50k on a software contract, every interaction is precious, especially those larger accounts which dominate revenue.
To contrast with web2, Salesforce counts 150k customers in a market of about 650k who spend $57b annually. This is just the web2 CRM market.
Realisation #2 : The freefall & how customers make decisions in ambiguity
Crypto market lost 2 Tr $’s in 2022, and is currently at 1 Tr $’s. Now put this loss in perspective. The rate of pace of this loss - dramatically changed the user behavior. Towards the last 4 weeks of our interviews, our user persona mentioned - “We don’t pay for Messari”, and that “500$ for coinfeeds.io in overpriced”.
Whatever we have thus known about building for new markets was tested with all mercenary, retail driven quick flippening waves, airdrops for user acquisition and money changing hands, with massive leverage which creates “money bubbles”. I am still very bullish on the thesis of programmable lego / money blocks and financial instruments it can create with smart contracts - however - what I was building in B2B SaaS comes way more later - the application stack.
Realization #3 : Brute force user problems vs needs discovery
There is a saying in Entrepreneurship - if you stay long enough at any problem - you will find a footing. I am sure Supermind would have iterated on multiple problem statements - but towards the end of it, I was starting to feel our process as Brute force - as if we “just had to find anyone to buy our product”. Almost as if someone does a CPR on a dying person in ICU.
At this point - the 2 persona’s and the product value we would build for that was even a tinier market that the original Web3 SaaS. It was at this point that I arrived at the decision for a hard reset.
Hard reset
Deciding to do a hard reset was a numbing experience. For +-2 days leading upto to the decision of letting the team go - I felt that I had failed myself, again. This was a painful experience for my husband to see, in that all startups are family sport. I consider myself to be incredibly lucky that I do not have to worry financially about a paycheck and neither does my spouse, or his lifestyle get impacted because of my ambitions.
This was my 2nd startup and even despite all the user interviews, deeply understanding the market - how could I still be wrong. During this time, aside of the customers I have also spoken to founders and all of them will tell you the same thing - the market is very challenging.
The fact that attention of the players in the space is boolean - ‘“you either help them make money or don’t” and that “while there is a pull for new projects - giving you wrong signals of enthusiasm - the space is highly fragmented to care”.
In that the market test of “How disappointed will you be if this product ceased to exist” - is abysmally low.
It was evidently clear that given the market maturity Web3 B2B SaaS market had no legs. What was unclear though - which became so in last ~4 weeks was that the direction was not ~30-40% turn, but may be 360 degrees.
Lessons learnt on path to first indication of MVP
First of all, all startups are the game of <1% odds of success. Founders know its going to be financially a far worser outcome(even if you succeed getting off the ground), personal(health, family, community & needs of self) and just the sheer mental resilience it takes to survive it day after day.
Yet, as I write this - it makes me feel embarrassed as my own poor decisions, inaccurate understanding of the market and leadership -
(Not) Listening what you need to listen : Founder’s need to be irrationally positive, mostly because we get so many rejections - from investors, from customers (who will want a product that does all this and also “a lot more”), the consideration set and more matured products, the people you want to join you in your madness, your own family that wishes you well. Try to avoid the pitfalls of confirmation bias - esp from early believers and enthusiasts, unless the gap in demand generation curve is not a lot(ie it is obvious what is the timeframe to get main stream usecases). In hindsight - I will always ask to be paid for the product first.
Not all your feedback should be from early adopters. This is a contrarian perspective - since for a new market you want to know will there be enough of a market in that early majority, or are we too early?
Also, early adopters conflate the product feedback to cherry pick for the rest. They give you a false sense of security - when there is none.
A lot of narrative on Substacks/ Twitter is just misplaced reality of how quickly change will happen and incorrectly overshadows the maturity of the industry. Fact is Defi & making real money(off yield & other instruments) is the strongest PMF for Crypto. Not saying other use-cases are not real - but the market is too nascent & distracted for products in this vertical. This is no single entrepreneur’s problem, esp the ones that are real and non snowflake. Even if 20,000 people say the same thing loudly, it will not accelerate the future in products where there is lower “customer pull”. In the end, since an entrepreneur would live with the journey & the company outlasting the cycle - you need to be real on what you see yourself as building with same passion that you started and what are the motivations driving it(or pivoting thereof).
Do low / no code or whatever - but do see the metrics. Anything that takes you more than 1 day to build is probably too much building unless the market & category is predefined and the customer pull established. We saw the metrics - but it took us longer to build & instrument those than it should have.
No matter how embarrassing it feels - run with UX mocks till you have REAL money on table. My 1st “intern hire” was UX that was with me, throughout the process of mapping user interviews where we showed people what the product would be.
On doing Mom’s test (And still getting it wrong) - Assume people are being nice and lying. Ask them to put you to the sponsor or see their reaction to “co-build”- ask them for their time - or whatever currency - when people shrug on this - you will know you don’t have a PMF and are winging it.
Irrespective of the capital - do not make your 1st hire before you have a strong direction of pull. There is an analogy for this - if your customer’s hair is not on fire for these set of problems - you can’t build an MVP and will end up being a vitamin.
Building a team is distracting - of the operations involved with it, pre PMF. I was lucky to be able to build a strong team - but the sheer energy it takes to align, coach build people, hiring nuances, payroll, finance. ~100% of your time should go to PMF. Hire freelancer specialists, or drag/ borrow specialist friends. Resist the temptation to scale on back of “fake market pull”. A lot of companies wished they hired faster - but there is a survival bias to it. It’s not about cash preservation as a primary metric - but focus preservation. Do it 100% yourself between the founders. Zero “hired” staff. A lot of people underestimate what running a team operationally in a matured setup of a corporate environment is vs in our own startup. This will dramatically change the odds and also the focus - since you will likely only prioritize business over all building ++ activities “when held on a gunpoint”. Be that gunpoint for yourself with discipline.
Size → Prospect → Talk to Customers. I felt I had done these enough - and I still failed. To put this statistically, a Bn $ company with a 10 year old matured product in an established market, still only has 2%-5% conversion rate. You need to be process driven about pipeline and run it like an engine. Doing this enough will tell you
If you don’t absolutely need it - do not raise capital. Not raising capital puts you in a survivor mode - where you are ruthless with your focus (and since you can’t hire people) - you are forced to explore cheaper ways of product market fit. Simply put - this will force you to build the company on back of revenue - which in itself is a strong indication.
Realize that at the end of the day - you are still a builder(unless you are a Business founder). While I was pulling the weight of sales, all the customer conversations, mocks, presentations, value discovery - I was the system. In between all this, where ever I felt short - I went back to specialists / books / people who knew GTM sales motion - and then ran those like a process.
That said, Sales is not magic science. It can be learnt with disciple. The only criteria is you have to enjoy the customer discovery process. (I did) - though this shouldn’t compete in focus with building time. Thus having a builder and seller as a team helps. And, yes also the rejections or the meh-meh’s - you don’t need a co-founder punching bag - JUST a VERY strong team that you can rely on. I built a strong team - just not Sr enough to delegate building decisions.
Do not start a startup alone. This will pinch - not because its you can’t pull it off functionally, but emotional journey. See also 12/ above.
There are multiple iterations to getting the product and that PMF is a multistage process than a one time thing. Focus on "very disappointed users" in the absence of your product. If none , or less than 40% , you don't have a PMF either. Do this with every single UX mock - till you crack the code.
Read a lot, and irrespective of how much you are pressed, often reading into other’s PMF’s journey and speaking to other founder’s - will leave enough prompts & reflections to look at problems in new light. Eg : as simple as operational hacks on where & how to get your startup visibility. Pintrest founder’s used to go to apple stores and manually change the screens to Pintrest and say at the customer’s back -”Oh! this Pintrest thing is really picking up”
The hardest one : Learn to separate fact from fiction. Crypto has a lot of artificial demand generation, by skewed Leaderboards, Sprints & Quests running on discord servers. This is not user delight and is a bubble for a demand that is unreal and incentivized for tokens. Remove these from sizing & early offshoots. This includes all the intelligent looking posts on top 2 Crypto analytics toold and why they were created.
A little more wiser - and forward with Supermind inside of me
में शून्य पे सवार हूँ
बेअदब सा में खुमार हूँ
अब मुश्किलों के क्या डरूं
में खुद केहर हजार हूँ
में शून्य पे सवार हूँ।ना सूर्य मेरे साथ है
तो क्या नई ये बात है
वो शाम को था ढल गया
वो रात से था डर गयामें जुगनूंओ का यार हूँ
में शून्य पे सवार हूँ।- ज़ाकिर खान
Next steps
Finding what I am passionate enough to build next. Reading, reflecting & talking to people.
It's hard to pen things down, especially failures, though those are probably the most important to write. Things may look grim for some time, but the silver lining is that once you fail, nothing scares you anymore. And writing *supposed* failures down gets you closure, and you'll be back on your feet in no time.
Love your transparency, your drive Ekta. Keep at it.
Onwards & upwards !
It' takes courage to talk about failure and the article is really deep about on the ground reality of crypto/web3 markets.
I have been observing the same pattern lately there are more lurkers in the system and willingness or appetite to pay is extremely low.