The NFT space is expanding at breakneck speed. From digital art and collectibles to in-game items and even real estate, there is an NFT category for just about everything. Not all NFT projects are created equal. In fact, most of them fail.
Opensea alone lists 9,990 NFT Collection projects with at least 0.49 Eth to 884,192.73 Eth volume traded. This statistic does not include projects traded under 0.49 Eth or projects hosted on other blockchains. If these were counted the number would be 2-3X.
These numbers sound great, but only a handful of NFTs succeed. Out of the 9,990 projects listed, about 4-5% have taken off, and another 5-7% are doing fairly well. Why do so many NFT projects fail?
NFT Projects: Art & Business
It is important to note that there are two aspects to an NFT project: Art and Business.
With traditional art, such as paintings, sculpture or poems, the art piece derives its value from internal factors. A Picasso or Van Gogh is valuable because of the quality of the painting (and in these cases, the artist). Sotheby's lists ten criteria for art valuation. But for all criteria, the art lacks external factors that impact its value.
Art
In the case of digital art, specifically NFT art, there are two aspects that determine the art’s value. The first aspect is of course the art itself and the second, which has more weight in determining the success of the project, is the business aspect.
Much like traditional art, NFT art is perceived and valued subjectively. One collector may be looking for digital paintings, while another is solely interested in simple illustrations. There are many NFT projects that are simple and conventional works of art, but are still successful. Examples include Cryptopunks, BAYC and Mfers.
In the case of most NFT projects, the business aspect is the most significant factor in terms of the collection’s success.
Business
This aspect sprung out as something particular to NFT collections because it usually consists of numerous pieces of digital art that need to be sold to as many collectors as possible. The collection has to be managed along with a sizable support community.
Research shows that most NFT projects fail because they don’t invest enough in the business side of the project. In the next section we will look at what business strategies work, and which tend to fail.
NFT Project as a Business
Establishing an NFT Collection project is very similar to creating a start-up. Many projects fail because their creators treat the NFT project as a hobby. This is a crowded space with many aggressive competitors. If you don’t invest time and energy, you will probably fail.
NFT projects share many of the same rules for success as startup businesses and product releases.
Fast Company Executive Board member Anthony Flynn enumerates the four core pillars of a business as management, marketing, finance and operations. To cover all these areas well requires manpower. There's no such thing as a one-man band in this space.
In terms of balancing the art and business aspects of NFT projects, a clear winner is of course the BAYC (Bored Ape Yacht Club) project. A seeming loser is a project called Crypto Runners, which is ranked 2,689 in Opensea.
Four Pillars of Business Management
Merrium-Webster defines management as, “the act or art of managing : the conducting or supervising of something (such as a business)”
A business may have a single founder or proprietor, but you normally need a team to cover all your bases. The central figure needs to delegate responsibilities to other team members to effectively manage.
Good management practices should be put in place from the beginning. Here are the four essential components required by NFT projects:
1. Online Presence
2. Doxxed Team
3. Clear Roadmap
4. NFT Utility
Let's look at how these components were implemented by BAYC versus Crypto Runners.
1. Online Presence
First and foremost, doing traditional business means that you should have a place where customers can find you. The easier it is to find you, the more customers you will have.
The same is true for online businesses.
Creating an NFT project is like starting an online business. Having an online presence means that you should have your own website where your clients can find all the information they need about you and your NFT. A website builds trust and credibility. An online presence is one way of establishing your brand. Of course, an online presence is more than just a website. It also includes social media platforms where you can promote your project.
In the Crypto and NFT world, the two most important social media platforms are Twitter and Discord. An NFT project presence must include, at a minimum, a website, a Twitter account and a discord server. Your website provides information about the company and the product, while the social media accounts provide a platform for promotions, announcements and interaction with your customers. Social media is where you build relationships with your customers and community.
Now, let's take a look at the two projects mentioned earlier: BAYC and Crypto Runners. How do their online presences compare? Unsurprisingly, BAYC has a better designed and more comprehensive online presence. They have a well-designed website with copious amounts of information about the organization and their NFT offerings. They also make heavy use of Twitter and Discord, where they have established a thriving and very active community.
Cryptorunners, on the other hand, doesn't have a website. It only has its OpenSea page which doesn't provide enough information for people to familiarize themselves with the project.
To provide some additional context, Cryptorunners makes cute, pixelated, animated runners. The art itself can be compared to that of a Cryptopunk, with the addition of animation. There is nothing particularly wrong with the art. Their work would appeal to many because of its cuteness and simplicity. But as mentioned above, the art is only half of the story. They aren’t paying enough attention to the business.
Cryptorunners relies entirely on Twitter for its online presence. They don’t have a site and they don’t have discord. In this aspect, Cryptorunners failed.
2. Doxxed Team
When a team is doxxed, the issue of trust is addressed. While being doxxed traditionally has a negative connotation, it has a different meaning in the NFT vernacular. A doxxed team is a group that is credible and transparent.
With the massive number of NFT projects popping up daily it can be hard to avoid scammers and projects that don’t have the necessary components to succeed. Because of this, it’s important to know something about the people behind a project in which you are investing or joining. A good NFT project will be visible. They will be actively communicating within their team and with the wider community. This demonstrates competence and transparency.
Let's take a look at how BAYC and Crypto Runners fare in this area.
On BAYC's website we see this:
This, of course, is not the ideal doxxed team we are expecting but BAYC got away with this being one of the first few projects early in the game. They became known by their pseudonyms and built a reputation around them. The story of BAYC is partly a stroke of luck and good timing, but also of hard work and knowing the customer. Today everyone knows BAYC as the most successful and influential NFT project.
BAYC eventually doxxed their team after Buzzfeed divulged two of the founders’ identities in an investigative report on February 05, 2022. The report revealed that Gargamel is Wylie Aronow while Gordon Goner is Greg Solano.
Photo Credit: NFT Evening
Let's take a look at Cryptorunner’s team.
After scouring OpenSea, Twitter, and the web, we found that there has been no mention of the team behind the project. There is no website or other source of information about the team. It can be argued that this contributes to their difficulty in getting off the ground.
3. Clear Roadmap
NFT Gurus do a good job of explaining best practices and providing examples of NFT roadmaps.
As with any business venture, you need to know where you are going, understand the steps to get to your destination, and be able to communicate this to your team. High level roadmaps should be simple and concise.
Agility is important. You must be able to adjust to a changing market and unexpected challenges. Sometimes these require adjustments to your roadmap. That is fine, as long as those changes are recognized, described and communicated to the team.
Above is BAYC's roadmap. We cannot locate a public roadmap for Cryptorunners.
4.Utility of NFT
Utility is defined as the state of being useful, profitable, or beneficial.
This discussion of utility relates to NFT collections, and isn’t really relevant to a 1 of 1 NFT. When someone buys a 1 of 1 piece of art, they are buying it because of its inherent value, much like a traditional piece of art.
The art in many collections aren’t meant to be masterworks. They can be simple images that provide some utility, like a stamp on your hand that gives you access to a club. The utility can be more complex, such as access to the DAO economy of the NFT project.
For an NFT project to be successful, it needs to offer some sort of utility or value proposition for which people are actually willing to pay. Far too often, NFT projects launch with little more than a fun idea that has no real plan for how to monetize it or make it useful for people.
Above is a description of BAYC's utility for its NFT collection. In addition to being a member of an exclusive club, each member gets this access to a rage bathroom where you can draw, scribble and write expletives. Simple utility, right? The utility doesn’t have to be complex for the NFT to succeed. Of course, over time, as the project has enjoyed great success, additional benefits have been added.
Cryptorunners hasn’t added any utility to its NFT collections. While not absolutely necessary, adding utility has clearly been a major factor in the success of other collections.
Marketing
The American Marketing Association (AMA) defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large”.
Marketing for an NFT project happens primarily on Twitter and Discord, with more general information about the organization being presented on its website. The conventional way of doing digital marketing such as using SEO and advertising models such as Facebook ads (usually the wrong demographic), PPC and affiliate marketing are generally not effective. There are exceptions. Some mainstream NFT projects may benefit from traditional online marketing.
It’s best to focus on Twitter and Discord for marketing. Instagram can be a good third option.
Here are some marketing tips for Twitter and Discord:
a. Shilling
Shilling is the act of enthusiastically promoting a cryptocurrency or a project. Shillers usually posts regularly to various NFT related groups to increase awareness of the project. Its main objective is to entice people to join the project.
b. Giveaways
Giveaways can include being whitelisted or winning an NFT. This method is used to increase followers of the project.
c. Promotion
A paid promotion is still a surefire way to get a project out to a large audience.
d. Collaboration
Collaboration with other NFT-related groups and influencers can be an effective way to get exposure to a larger number of like-minded NFT people.
It is worth noting that good marketing leads to better liquidity after launch. For an NFT to be successful, there needs to be a healthy market for it with enough buyers and sellers to provide liquidity. Unfortunately, many NFT projects launch with insufficient liquidity, which can lead to price manipulation and a lack of confidence in the project.
Finance
An NFT project, like start-up business, entails numerous expenditures such as minting, marketing and fees for services used (e.g. premium social media accounts). This cannot be avoided. It is important for NFT projects to plan for these costs and have enough investment to launch and sustain the project until it achieves significant cash flow and becomes fluid.
Conclusion
Launching a successful NFT project is no small feat. There are many factors that need to come together for it to be successful. And even then, there are no guarantees.
So, if you're thinking about launching an NFT project, make sure you do your homework and understand the risks involved. It's not a decision that can be taken lightly. There are plenty of others out there who have tried and failed. The best way to learn is to study the successes and failures of other projects. Also, if you don’t succeed the first time (you probably won’t), stand up, dust yourself off, and try again!
We welcome comments and questions in the discussion area below.
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