This episode delves into the critical challenge of achieving Product Market Fit in crypto, particularly for ventures aiming beyond speculation to build real-world applications using blockchain as foundational infrastructure.
The Allure of Speculation vs. Sustainable Building
- The discussion opens with the interviewer highlighting a common observation, referencing "Mert," about the skewed incentive structures in crypto.
- There's a significant temptation, especially for younger entrepreneurs, to pursue quick financial gains through ventures like "an AI wrapper around a pump fund" or an "AI agent launchpad."
- While potentially lucrative in the short term, these ventures often lack sustainability.
- The interviewer commends the guest's focus on advising teams committed to building more enduring solutions, even if the path is more challenging.
Redefining Product Market Fit (PMF) in Crypto
- The interviewer raises a key question: given the adage that only speculation and stablecoins—digital currencies pegged to stable assets like fiat—have found Product Market Fit (PMF), which refers to the stage where a company has validated its value proposition and found a sustainable, scalable market for its product, how can new crypto startups, especially those from incubators like the Solana incubator (a program supporting early-stage projects on the Solana blockchain), find their footing?
- The guest distinguishes between ideas built for the crypto audience (often speculation-based) and ideas using crypto as infrastructure for broader, non-crypto-specific applications.
- "If you look at crypto as just infrastructure that is supporting some broader idea, then I think the adage...doesn't really hold true as much," the guest explains.
- When crypto serves as a backend, akin to using AWS, startups can tackle diverse real-world problems. The Web3 (referring to a decentralized internet built on blockchain) component operates in the background.
- The recent cohort of the incubator focused on "real world use cases," meaning their competition is often established Web2 (referring to the current iteration of the internet dominated by centralized platforms) companies, not other crypto projects.
- This approach allows startups to address problems where PMF has already been demonstrated in traditional markets, with crypto potentially offering superior solutions.
- Strategic Implication for Crypto AI Investors/Researchers: Focus on projects where crypto and AI are not just themes but integral infrastructure solving real-world problems, potentially disrupting existing Web2 markets or creating new efficiencies.
Market Creation vs. Solving Existing Problems
- The interviewer probes how founders should approach market strategy: aiming to win an existing market versus creating an entirely new one or significantly expanding a small one.
- The guest advises focusing on the end problem rather than abstract market creation.
- The example of Airbnb is cited: they likely focused on the immediate problem of "I would love to be able to go to a new city and crash on someone's couch" rather than initially envisioning the entire market for non-hotel rentals.
- "They were really like hey I would love to be able to go to a new city and and crash on someone's couch and I can't do that today and and that was that was the problem they were trying to solve," the guest notes.
- By solving this specific user need, they inadvertently created a massive new market.
- Actionable Insight: Crypto AI projects should prioritize identifying and solving well-defined user problems where decentralized AI can offer a unique advantage, rather than getting bogged down in early-stage market sizing for entirely novel concepts.
The Strategic Value of Market Size and Pivoting
- While downplaying excessive focus on market sizing, the guest concedes that entering a large market offers a strategic advantage.
- If a startup's initial approach to a problem within a large market doesn't achieve PMF, there are likely many "adjacent problems" to pivot to.
- In contrast, if a startup is in a very small or non-existent market (hypothetically, if Airbnb found no one wanted couch-surfing), pivoting options are far more limited.
- "From a pivot iteration perspective, it helps to be in a larger market," the guest states.
- However, strong conviction in the problem being solved is paramount, as the existence of the problem for the founder often implies it exists for many others.
- Strategic Consideration: For Crypto AI ventures, targeting larger, existing markets with AI-driven decentralized solutions can provide more resilience and opportunities for iteration if the initial product-market fit isn't immediate.
The "Long Tail" of Problems and Niche Markets
- The guest draws an analogy to the internet and platforms like Twitter or TikTok to illustrate how even niche interests can find substantial audiences.
- The internet has shown that diverse, specific interests, even if representing a small sliver of the global population, can support dedicated content creators and communities.
- "Our little sort of slivers of things that we're interested in, there's probably a good chunk of the world that's also interested in that thing as well," the guest observes.
- This principle applies to startups: a problem a founder experiences, no matter how niche it seems, is likely shared by enough people to form a viable market.
- Implication for Crypto AI Research: Niche AI applications built on decentralized infrastructure can find viable user bases. Researchers should not shy away from specialized problems if there's a genuine need and crypto AI offers a unique solution.
Conclusion
This discussion underscores that finding Product Market Fit in crypto, especially for AI-integrated solutions, hinges on prioritizing real-world problem-solving over speculation, using crypto as robust infrastructure. Investors and researchers should look for ventures tackling tangible needs, potentially in large markets allowing for pivots, or confidently addressing niche problems with strong founder conviction.
