Confession of a Web3 startup failure

About a month ago, Phezzan Protocol, a decentralized perpetual contract protocol on the zkSync ecosystem, announced to the community its decision to shut down the project.

As one of the earliest DeFi projects to deploy perpetual contract products on the zkSync 2.0 testnet, Phezzan Protocol had iterated several versions of products with the technical upgrade of zkSync 2.0. However, unfortunately, not long after zkSync 2.0 was officially launched on the mainnet and renamed zkSync Era, Phezzan Protocol, which was once highly anticipated, had an early end.

On May 29th, Roland, the founder of Phezzan Protocol, published an article on his personal Twitter account, reflecting on the experience and lessons learned from the failure of Phezzan Protocol. The content covers many aspects, such as financing, team building, and community operation. It may provide some inspiration for entrepreneurs who are also working in the Web3 field.

As the full text is quite long, we will select some core content, compile and organize it, and present it here. We hope it can be helpful to you.

About the product

Roland mentioned that Phezzan Protocol started in early 2022, but after 15 months of development, there was still no viable product. This was not because the team was lazy in development, but because the team had not found the right direction, resulting in multiple shifts in development focus—for example, they initially wanted to use the AMM model, but later found that AMM was difficult to solve the impermanent loss problem, and VCs were not enthusiastic about it either. Therefore, they switched to the order book model, but found it difficult to differentiate from other order book contract protocols.

The lesson Roland learned from this is that before choosing to start a business, you need to find the right direction. You must at least be clear about what you want to achieve.

About financing

Phezzan Protocol’s financing lasted for more than a year and also received support from some VCs and angel investors, but overall it was not successful. Lessons Roland learned from this process include:

1. You need to have the ability to tell a good story. You need to clearly convey your vision to the VCs. If they cannot understand your idea, do not expect users to understand it either.

2. Relationship networks are very important. Because there were no full-time crypto practitioners in the Phezzan Protocol team prior to this, the relationship network within the industry was not well developed, so the team had to contact potential investors through various public social media channels.

3. Find the right lead investor first. The Phezzan Protocol team spent a lot of time contacting various investment institutions, but eventually realized that finding a good lead investor was more important, as an excellent lead investor can greatly accelerate the financing process.

4. The timing is very important. Phezzan Protocol originally planned to start financing when it made significant progress in the testnet to prove its strength to VCs, but ran into Terra’s collapse during the Rinkeby testnet launch, and then FTX’s explosion during the zkSync 2.0 testnet launch… So if you can’t judge the market trend, go for financing early, as things can change over time.

5. Communicate with VCs more. If you are not sure about what you are doing (of course, if you believe in what you are doing, that’s another matter), you can communicate more with VCs. If no one likes it, try to change the mechanism, and if no one likes it after two or three changes, try to change something completely different. VCs have seen many cases and may give you some advice beyond your own experience.

About the community

Roland gave an analogy that building a community before the product fits the market is like building a sandcastle. You may have a lot of fun, but it may not lead to a good outcome.

For any project, using some growth techniques (such as airdrop announcements) at the beginning can easily build a “community”, but as far as gathering is concerned, only airdrop hunters will be attracted, and their actual conversion rate may be less than 1%.

Therefore, you need to forget about the community at the beginning and focus on the product, and then use those growth techniques after you have made something, and then screen out valuable users from the feedback, listen to their suggestions and improve your product.

About BD

It’s simple, screen all the cooperation requests you receive, and then be patient with the projects you want to cooperate with.

About the team

Phezzan Protocol formed an excellent team, and the engineers executed the team’s ideas perfectly.

The only problem is that due to remote work, team members are too far apart, which not only increases communication costs, but also inevitably breeds laziness. Roland summarized that remote work requires good self-discipline and excellent management skills, and team members should meet at least one week every month if possible.

About Yourself

You need to be good to yourself, especially for all entrepreneurs.

Roland said: “In the entrepreneurial journey of Phezzan Protocol, we always think about the mistakes we made and how to do better; we are worried about the past, present and future; we feel responsible for all the things that are not going well in the project. This pressure consumes us and devours us. This is not a good mental state.”

So please be good to yourself. If necessary, you can also take a break. There is life outside of work, and you need to learn to enjoy the entrepreneurial process.

As for salary, don’t demand too much from yourself by reducing it. Roland reduced his salary by 20% – 30% compared with the past during the construction of Phezzan Protocol, which also affected his daily life. Investors don’t care how much money you make as a founder, as long as you don’t make too much.

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