What COVID-19 and a Global Recession Can Teach Us About Product-Market Fit?

Triggered by a housing crisis brought on by sub-prime mortgages, bank bailouts, and one of the largest drops of the Dow Jones in history, unemployment skyrocketed, businesses shuttered, and startups suffered. But not all startups.

COVID-19 (known as Coronavirus) has had widespread affects worldwide. It’s caused a global heath crisis, shortages of medical supplies, runs on grocery stores, and, of course, a significant number of deaths. As is the case with epidemics and pandemics, the impact on local and global economies can’t be understated. Stock markets around the world have seen extreme losses. Confidence in the global economy is waning. We’ve seen this type of swing before. We can predict some of the outcomes. And they aren’t all bad.

In 2008, the United States faced what would eventually be deemed “The Great Recession.” Triggered by a housing crisis brought on by sub-prime mortgages, bank bailouts, and one of the largest drops of the Dow Jones in history, unemployment skyrocketed, businesses shuttered, and startups suffered.

But not all startups.

While investments in startups pulled back during the recession, some of today’s most well-known companies were founded, funded, and thrived.

Companies founded in 2008/2009:

🏡Airbnb
⛅️Cloudflare
🐙Github
☁ Nutanix
📟PagerDuty
📌Pinterest
💌Sendgrid
＃ Slack
⏹Square
💳Stripe
☎️Twilio
🚖Uber
💬WhatsApp
📣Yammer— Yuri Sagalov (@yuris) March 7, 2020

While in a booming economy, it’s easier to experiment and survive as a company, but during a recession, it’s much harder. During a recession, companies have to be laser-focused on finding product-market fit. Experimentation may still happen, but it needs to be based on data. And companies operating and trying to survive during a recession do not have the luxury of ignoring their customers.

Combined, these companies saw over $20 billion in investment. Whether you judge a company’s success based on investment rounds or not, that’s an impressive list of companies and an impressive amount of capital flowing through products that were launched and initially funded during one of the United States’ biggest recessions. So, how did they do it?

While in a booming economy, it’s easier to experiment and survive as a company, but during a recession, it’s much harder. During a recession, companies have to be laser-focused on finding product-market fit. Experimentation may still happen, but it needs to be based on data. And companies operating and trying to survive during a recession do not have the luxury of ignoring their customers.

These companies were founded and scaled in the years between 2008-2010 (right in the middle of the recession). Their strategy for overcoming the recession and growing their businesses during a difficult time helped drive a shift toward focus on customer experience. According to a Google Trends search, 2008 was the turning point in which customer experience searches spiked.

This is no coincidence. The cost of acquiring new customers is extremely high, but the cost of losing an existing customer is even higher. This is because it costs 5 times as much to acquire new customers, so for every existing customer lost, you need to bring on two more customers if you are going to grow. Combine those two concerns with The Great Recession, and you have a recipe for intensified focus on customer relationships. These relationships were driven by user experience, customer experience, and customer engagement.

How does this all tie in with Coronavirus, Web3, and building startups today? The comparison to 2008 is pretty apt. Web3 companies today have been able to get by on intrigue alone. Built around the idea of a better web, a return to user control and privacy, and a promise of walled gardens being torn down, Web3 applications have been able to build and focus on the technology. There has been little to no focus on customers. User experience improvements have come of late, but user experience alone does not amount to a focus on customer experience or customer engagement.

Despite a lack of focus on customers, many Web3 applications have been able to raise significant amounts of capital. Venture capitalists, rightly, have been willing to make a bet on the future promised by Web3. However, it seems we are on the brink (or in the midst of) a global recession. In such times, as illustrated with the 2008 housing crisis, money does not flow. In order to get funded and survive in the Web3 space during a global recession, companies will need to focus less on interesting technology and more on product-market fit.

However, the tools to do this well have not existed up until now. The ability to analyze user activity in Web3 applications while protecting privacy and not hoarding data simply hasn’t been possible. Tools to communicate directly with customers and users of a Web3 application have been non-existent. This is why SimpleID is so important and a growing focus on customers and building relationships with those customers is so important.

The Web3 companies that will survive an economic downturn are the ones that can find product-market fit quickest. And the way to find that fit is to understand customers, engage with them, build relationships, and make money. That last point may be the most important one. Proving that you can earn revenue from a product built in Web3 is still largely a pipe dream. But it doesn’t have to be.

With SimpleID, you can segment your users into logical groups based on their blockchain interactions. You can then send in-app communications to the right people at the right time. SimpleID also makes it easy to collect email addresses and protect that private information from misuse (including any potential misuse by SimpleID itself). We wrote about the architecture and cryptographic process we built out to make this possible. But here’s the quick description:

You can collect emails and send them to SimpleID. We will disassociate them from the user’s wallet address and encrypt the mapping used to make sure you can send the right email to the right user. This means SimpleID can never map an email address back to a wallet address, but you can still send emails to your users.