Community-Led Growth in Web3(&2): "Community as a moat", why projects must look beyond traditional marketing funnels, what redefining success means
In an open-source, permissionless world, community is the moat that drives sustained growth for companies and projects. We must retrain our mental models to enable this to its potential.
For those who don’t know me — I eat, breathe, and sleep distributed communities.
Professionally, my full-time job as a Product Manager in GovTech Edu (a modern technology company powering the Ministry of Education) involves platformizing the thousands of teacher learning communities (serving 2M+ teachers across 514 cities and regencies) existing in Indonesia in order to effectively distribute knowledge-sharing to scale a new, student-centric national curriculum in a bottoms-up manner (as opposed to the previous way of doing it — heavily top-down, physical distribution — which was shown to be highly unsuccessful).
On late nights and weekends for the past year — I’ve also been building a community-tooling business in Web3 (a space where communities are the new economic moat due to its open-source, interoperable, permissionless nature). Our belief in communities as a moat in this space has forced me to think rigorously and even redefine how growth, marketing, and user loyalty has to change in terms of mental models. Given the importance of communities to Web3 business models — I’ve been able to clearly see how the best communities are built from the ground-up.
Beyond my profession — those who know me know that communities have been a massive passion of mine for a long time. In the middle of COVID-19, I built up 2 education non-profits called Cornerstone Education & Cornerstone Careers where we have built a mentorship program helping Indonesian students study abroad, and prepared university students for their careers through bootcamp-based programs. In a completely distributed way (>1 year of meeting purely through Zoom), our team has grown to 50+ people, with a community of 1,000+ students we’ve directly served. “Building Cornerstone was one of the things that made the COVID days bearable” is a comment I’ve heard from my team members. I’ve seen directly how a mission-focused, distributed community can instill deep, foundational meaning in people’s lives.
And in the older world: I’ve been a builder and partaker in communities that share a common, deep value all my life — from being an athlete / leader building Cross Country and Powerlifting Teams in high school and college, to being a gamer where building relationships was what brought me the most joy.
It is with this genesis and deep passion that I begin this journey alongside you all — where I take you all on the path to redefine how we build communities that are not only economically viable, but also deeply enrich the lives of those in them. I focus on Web3 because it is a powerful enabler of this paradigm shift in communities to reach their fullest potential — but this article and the corresponding ones after are also relevant for those building in communities beyond. My hope is that this can strike deep chords with my fellow community builders, enable conversations & knowledge-sharing, and empower us to maximize the potential of communities throughout the world.
With this — let’s start with the topic of our first article: How do we redefine growth and metrics in a community-led / community-owned context, and what are the mental models that we can adopt in a Web3 world?
Community as the new moat
Previously, technology businesses often cited network effects and proprietary data ownership as their moat. The acquisition of Instagram and WhatsApp enabled then Facebook to have a view of consumer behavior unmatched by any other platform. This proprietary data ownership enabled Facebook to monetize incredibly well from its advertising platform. Facebook Ads, and its user targeting, were so powerful that it even became the bedrock of political campaigns around the world (see Cambridge Analytica). As someone who worked in technology investments — I see how this “moat” is consistently played out. In Southeast Asia, you can imagine that Shopee or GoTo play their super-app driven cards on data ownership. That their view of user behavior across financial transactions (e-wallets, payments, lending), commerce, mobility, and food enable them to have an unmatched edge over any other competitors in the space. This edge leads them to be able to effectively monetize off their data of high take-rate items like FinTech or off advertising, driven by machine learning algorithms and AI that would constantly act as a flywheel for growth.
For venture capitalists and investors — this was the selling pitch in the 2010s. We could debate the ethics (which we won’t cover), but how could you not believe in it economically? Data was being glorified as the new oil by the likes of Andrew Ng, and personalized acquisition, engagement, and retention were all the rage. If you really think about building a data moat — what you need is a ton of data volume, enabled by pure scale. This volume thus was the only way for companies to establish and maintain their moats, hence resulting in the “growth at all costs” strategy (enabled by venture capital money) that marked the recent 10 years in tech. And as Balaji stated, “growth” is not always good, and this type of hyper-scale growth often comes to the detriment of users. Just as there are network effects, there are also network defects that can occur especially in the hand of centralized entities who control and own your personal data. This can include bad behavior (hacking, data leakage), amplifying of negative-value information (spams, bots, misinformation), and on a fundamental level — a focus on growth over adding value to the users’ lives. This worked in the past, but my thesis is that it will not be nearly enough to sustain a competitive advantage in the future especially in an economic landscape where capital is going to be much more difficult to come by (and valuations are tanking). I’m reminded of early-stage companies quoting millions of active users, with paying customers in the order of tens or hundreds (no joking).
With this knowledge — my argument is that we as business builders need to more aware of how to create and sustain models that put users front and center as the beneficiaries of value (without focusing the majority of efforts on the extraction of value, which is often the case today). This is especially true in a Web3 world, where open-source, permissionless data enabled through blockchain and smart contracts result in data not being as the “all seeing” moat that it was in the Web2 world. In a digital world where users can seamlessly go between projects with a universal on-chain identity — “proprietary ownership” loses significant value. In Web3 — community is THE moat.
The reason I believe so much in the value of communities as a driver of economic value for businesses is that communities are one of the most significant ways to build retention, loyalty, and later as I mention (in a section on why traditional marketing funnels like AARRR are not the complete picture in a community-led world) — drivers of sustainability and management. From a traditional business perspective, imagine that outside of traditional top-down marketing tactics, you’re able to utilize community to foster highly-engaged, super consumers who will not only recommend you to to their friends, but are intrinsically motivated to nurture relationships, create content, and objectively give feedback for how your business can improve. The possibilities are limitless, but even from that simple perspective you can see the metrics that will be affected: driving down CAC / engagement / marketing costs, increasing retention, and increasing product quality through embedding the voice of user as front and center. Going to a fundamental human desire to “belong”, if a community is able to foster these genuine, meaningful relationships — you create an unreplicable stickiness (this is what I’ve been able to see so clearly in my work building distributed communities in Cornerstone). In Web3, this is an existential necessity.
Tokenization — a pillar unique to Web3 communities — enables further mental models of community ownership that drive this pillar of “putting users front and center as the beneficiaries of value”. I don’t think the way most Web3 fanatics have been stating how this works is appealing (which is why it mostly falls on deaf ears if you explain this to a “normal person”). For instance, my good friend Jeremy Sianto who works in AC Ventures was explaining to me how another VC was trying to crypto-pill him by explaining how tokenization enables full decentralization and community ownership. But let’s be realistic — this is all ideological BS. Structure and leadership are important to a business— and centralization enables both to happen. If we truly see community-led growth as important, we must see beyond what’s crypto-native, and look at web3 as an enabler of communities rather than the root. Beyond ideology, what tokenization does that excite me (as someone who builds communities in Web2) are things like incentivizing leadership and community-owned contribution, on-chain credentialing (recognizing skillset growth), and even creating new models for strategic partnerships through composability. All of these (which I’ll dive in more depth in later articles) go back to the root of maximizing communities as a driver of sustained business growth. At the end of the day, if we’re too focused on ideology rather than actual execution, we’ll miss the ability to actually convince important people like leadership that the ROI on communities or even web3 overall is worth the investment. As someone who is excited for the possibility to bridge these worlds, and to actually get web3 usage to the next billion users — this practicality needs to be key.
Now that we understand the principle of “Community as a moat” especially in Web3 — I’ll touch upon why the metrics of success that we usually measure in growth do not capture the full picture in a community-led context. It’s my belief that we are going to see the first iteration of “community hackers” the same way we saw “growth hackers”. This is my attempt to be part of sparking that genesis with first principles thinking.
Traditional funnels (AARRR, Growth Loops) and why they don’t capture the full picture in Community-Led Growth
One of the most common pictures to capturing how products grow in Web2 is the “funnel model” coined by Dave McClure; that is, we measure the drop-down of customers from Acquisition, to Activation, Retention, Referral, and then to Revenue.
I won’t cover why the funnel fails to articulate growth fully in this article (you can find a brief summary here by Reforge), but in summary — the traditional funnels tends to emphasize things going in one-direction (you have to pour more at the top to get more out at the bottom, resulting in the ultra-aggressive marketing tactics we see), and have the potential to create silos in the organization (as different parts of the organization would try to maximize the funnel in different ways rather than acting in harmony with the distinct set of product-channel-monetization fits). This has led to the birth of what Reforge calls their “Growth Loops” model — which is a series of tactical, compounding loops catered to the unique set of product-channel-monetization strategies fitted to the situation at hand. In a loop, you’re asking yourself: “How does one cohort of users lead to another cohort of users?”.
I argue that for community-led growth — both these models fall short — and that there needs to be 2 more mental models for us to adopt to fully understand community-led growth.
Mental model #1: Hour-glass model — it doesn’t stop at the end of the funnel
In a traditional funnel — we stop at revenue. Once a customer is loyal and is a promoter of our product, we’re all good. Even if we use the Growth Loops, the idea is that we’ll use our customers as a flywheel to conduct a “looped strategy” (for SurveyMonkey for example — a user creates a survey after seeing SurveyMonkey branding through another survey, they distribute it, and other users see that survey who might later make their own surveys). These models take it assumption that the users are relatively, passive actors (at least in strategically enabling distribution and further scale of the product at hand).
However, to drive community-led growth, these models are not enough. When a user has been “enabled” as loyal, and have developed trust for the community — you want these select few to constantly be able to fan out the funnel on the other side hence the hourglass (got this inspiration from Vyara Ndejuru) and be able to engage and grow the community through their own creative and strategic volition. In a Web3 world, these are not just community members anymore — these are the “community owners / drivers”: those who are directly financially incentivized by the project’s success, have exhibited a sense of trust and willingness to go above and beyond for the community. Through the hourglass model, you don’t embed a passive loop, you look to create the infrastructure for these individuals to be able to drive community growth in an active way.
Let’s take an example from POP (an NFT-gated community by Chris Cantino and Jaime Schmidt). Active members are formally hired to be community managers in order to foster sustained spirit. These community members turned managers are both socially incentivized (through recognition) and monetarily incentivized as hires. Through tokenization through a permissionless blockchain, this is enabled at scale especially for global communities (which NEED community managers around the world serving different time-zones). Instead of having to go through the legal and regulatory hoops to hire people on traditional payroll — one could do this systematically through on-chain payments.
Once community members are enabled to be “drivers” (whether formally or informally) — communities can actively manage their development, impact, and growth. For example, GameFi Guilds track the financial metrics of their various mentors (who in a lot of cases were also community members in the past).
There is a massive opportunity for community-based growth tooling to take this “hourglass model” into account and help communities not only engage their community members, but also develop into strategic leaders and owners who have the capacity to drive the community forward in an unprecedented way.
Mental model #2: Churning is a necessity — let it happen
Andrew Chen in the Cold Start Problem talks about how meerkats have a “tipping point” in numbers (30-50 meerkats), where they will scale their community exponentially after it gets to a certain scale (the “Allee threshold”) as they are able to warn each other of dangers effectively, but then it hits a threshold where the population runs out of food if it gets too big. This is akin to Dunbar’s number — which suggests that there is a cognitive limit to human groups of around 150 people.
This analogy extends to communities— where instead of network effects you start seeing network defects (as quoted by Balaji). For example, while in the 2000s platforms were all about virality, we started seeing the negative consequences of that later: for communication apps, you might start to get too many messages / spams. For social products, there might be too much content in feeds. Or for marketplaces, too many listings so that finding the right thing becomes a chore.
What I truly see being a community builder is that you don’t want to grow to the moon. You want to grow to what makes sense for your community to work as intended, or even remove members if necessary. We are conditioned to think in the technology world that churn is a terrible thing — but if we were to believe that the “growth at all costs” strategy is not is what is going to take us forward — churn might be a necessity. This is because communities can evolve and grow. Communities can be right for a person at one phase of life, but not the next. If communities again, are a moat where the “users are the beneficiary of value” — we want to take that principle with us even as we think about growth. Yes — there are workaround solutions to this (Orca Protocol for instance, enables organizations to form pods that relate to sub-interests or sub-communities; POP enables sub-chats so that people can find their own distinct interests based out of a broader community). However, this may not be enough if the reason for churn is a broader, more purpose-driven reason. For instance, Bain could have made all of the out-of-work communities (e.g. Entrepreneurship, Blockchain Club), and it still would not be enough to keep me at the firm. It’s not because Bain was bad in any way (in fact it was an amazing company to be at), it’s just that what it could offer me was not in line with how I wanted to grow.
If we were to accept on principle that churn is not the worst thing that could happen: there are two actionable takeaways. First is simple: make sure that the churn is not based out of something that indicates that the project has failed in a way beyond what it could “offer on mission”. Projects should actively manage churned users or detractors — being extremely open to feedback and insight — to understand why users churn. If it is due to something out of the project’s control then so be it; however, if it is in their control (toxic behavior, bad product decisions, etc.) — then projects should actually take that into account.
The second takeaway is inspired by the principles embedded in the brilliant Reid Hoffman book The Alliance. In this book, Hoffman echos that the way companies manage talent in this new age is different than before as the concept of permanent or long-term employment is effectively over. This is echoed below:
“In the mid-20th century, it wasn't unusual for employees to work for just one or two companies during their lifetime. "Company men" stuck with their employers through the good times and bad and took on the company's values as their own. Such loyalty is rare today. Workers don't stay with the same company for their entire career and thus don't adopt the company's views and goals as their own. They have outside interests and career goals. This has to be accepted as the new normal. The truth is that employers don't—and shouldn't—control an employee's career choices. The goal is not to scare or threaten employees into staying but rather to treat them so well they won't want to leave.”
However, even after employees leave, Hoffman actually see that the alumni should be treated as a profit center for the business itself. The employer-employee relationship needn't and shouldn't end when the employee stops working at the company. Maintaining a good relationship with former employees can help both parties and boost a company's image with potential recruits and with those outside the company's workforce, echoed below:
“Alumni relationships between employers and former employees are good sources of information about the industry and the competitive marketplace, as well as feedback about current and potential products and services. Alumni networks also help employers save money on recruitment. Instead of hiring headhunters or engaging in widespread searches for new talent, employers can ask for referrals from former employees, some of whom may desire to return to the company themselves.”
The takeaway for this in community-based growth is to not only think of the importance of onboarding, but also off-boarding. Especially for community drivers / highly engaged community members in the past that have left because the community did not make sense for them anymore — communities should be cognizant of the way that they keep in touch with these members. It’s not only current members that can make a meaningful difference in how new members are acquired and engaged. These alumni networks might actually be doubly as important.
Conclusion — what’s next?
I hope that through this article you are able to takeaway two things at the very least:
That communities are a moat for sustained business growth in Web3 especially — but Web2 companies can also take inspiration from these principles
That the mental models for community-led growth have to take into account two new forces: “users as drivers” and that “churn is a necessity”
I’m beyond excited to be able to continue to take you all on this journey of how community-led growth grows especially in the Web3 space. The way we think about communities, and the tactics and strategies in which we enable them to their full potential is only starting to be uncovered — and I’ll be your partner at discovering that journey.
I’ll be posting a LOT of fire, in-depth, meaningful content just like this (especially on the evolution of communities), so be sure to follow me on Substack, Twitter (https://twitter.com/playmatenate) and LinkedIn (https://www.linkedin.com/in/nathangunawan/) for more.
And if you’re interested in checking out what my Web3 community startup is building — be sure to follow us here: https://medium.com/vantient. We’ll be churning out a ton of not only in-depth, independent content, but also will be bringing some of the deepest thinkers regarding community in Web3. You’ll regret it if you pass up!
Thank you all for reading and see you in the next one :)