Harvard Case - STEPN: Preempting a Death Spiral
"STEPN: Preempting a Death Spiral" Harvard business case study is written by Baohong Sun, Jian Chen. It deals with the challenges in the field of Entrepreneurship. The case study is 16 page(s) long and it was first published on : Jan 31, 2024
At Fern Fort University, we recommend that STEPN prioritize a strategic shift towards a more diversified business model, focusing on expanding its user base beyond the current ?move-to-earn? niche. This involves leveraging its existing technology and brand recognition to explore new revenue streams, including:
- Expanding into the metaverse: Integrating STEPN?s technology into virtual worlds, allowing users to earn rewards for physical activity within these digital environments.
- Partnering with fitness and wellness brands: Collaborating with established companies to offer STEPN?s gamified fitness experience as part of their existing products and services.
- Developing a comprehensive fitness platform: Expanding beyond the ?move-to-earn? model to create a holistic fitness platform offering personalized training plans, nutrition guidance, and social interaction.
2. Background
STEPN is a ?move-to-earn? mobile app that allows users to earn cryptocurrency by walking, running, or jogging while wearing NFT sneakers. The company enjoyed rapid growth in 2022, attracting millions of users and generating significant revenue. However, the company faced challenges including:
- Declining user engagement: The ?move-to-earn? model faced criticism for its sustainability and potential for user burnout.
- Volatile cryptocurrency market: The value of STEPN?s native token, GMT, fluctuated significantly, impacting user earnings and investor sentiment.
- Increased competition: New entrants in the ?move-to-earn? space began to emerge, posing a threat to STEPN?s market share.
The case study focuses on STEPN?s management team, faced with the critical decision of how to navigate these challenges and ensure the company?s long-term viability.
3. Analysis of the Case Study
Financial Analysis:
STEPN?s financial performance was heavily reliant on the ?move-to-earn? model, leading to a highly volatile revenue stream. The company?s dependence on cryptocurrency markets exposed it to significant risk, as seen in the fluctuations of GMT?s value. A detailed financial analysis, including a comprehensive income statement, balance sheet, and cash flow statement, would be crucial to understand the company?s financial health and identify potential areas for improvement.
Strategic Analysis:
STEPN?s initial strategy focused on a narrow ?move-to-earn? niche, which proved to be unsustainable in the long term. The company?s dependence on this single revenue stream made it vulnerable to market fluctuations and competition. A strategic shift towards a more diversified business model is crucial for long-term growth and sustainability.
Marketing Analysis:
STEPN?s initial marketing strategy focused on attracting users through the ?move-to-earn? model. However, this approach resulted in a user base that was primarily motivated by financial incentives rather than a genuine interest in fitness. To achieve long-term success, STEPN needs to develop a marketing strategy that appeals to a broader audience, focusing on the intrinsic value of fitness and wellness.
Operational Analysis:
STEPN?s operational model relied heavily on the ?move-to-earn? mechanic, which required significant investment in technology and infrastructure. The company needs to explore alternative operational models that are more sustainable and scalable. This could involve exploring partnerships with fitness and wellness brands, developing a comprehensive fitness platform, or integrating its technology into the metaverse.
4. Recommendations
Diversify Revenue Streams: STEPN should explore alternative revenue streams beyond the ?move-to-earn? model. This could include:
- Expanding into the metaverse: Integrating STEPN?s technology into virtual worlds, allowing users to earn rewards for physical activity within these digital environments.
- Partnering with fitness and wellness brands: Collaborating with established companies to offer STEPN?s gamified fitness experience as part of their existing products and services.
- Developing a comprehensive fitness platform: Expanding beyond the ?move-to-earn? model to create a holistic fitness platform offering personalized training plans, nutrition guidance, and social interaction.
Strengthen Financial Position: STEPN needs to strengthen its financial position by:
- Exploring alternative financing options: Seeking investments from venture capitalists, private equity firms, or strategic partners.
- Optimizing cash flow management: Implementing stricter cost controls and exploring ways to generate revenue from non-cryptocurrency sources.
- Developing a robust risk management framework: Implementing measures to mitigate the impact of market volatility and protect the company?s financial stability.
Enhance User Engagement: STEPN should focus on enhancing user engagement by:
- Developing a more engaging user experience: Incorporating features that encourage long-term user retention and foster a sense of community.
- Providing personalized fitness experiences: Offering tailored training plans, nutrition guidance, and social interaction based on individual user needs and preferences.
- Expanding into new markets: Targeting new user segments and geographic regions to broaden the company?s reach.
Strengthen Brand Identity: STEPN needs to strengthen its brand identity by:
- Developing a clear brand message: Communicating the company?s core values and mission to a wider audience.
- Building a strong brand community: Fostering a sense of belonging and engagement among users.
- Leveraging social media and influencer marketing: Engaging with target audiences through relevant channels and partnerships.
5. Basis of Recommendations
These recommendations consider the following factors:
- Core competencies and consistency with mission: STEPN?s core competency lies in its technology for gamifying fitness experiences. The recommendations leverage this competency while expanding the company?s mission beyond just ?move-to-earn? to encompass a broader vision of promoting health and wellness.
- External customers and internal clients: The recommendations address the needs of both external customers (users) and internal clients (employees) by providing a more engaging and sustainable user experience while creating a more stable and rewarding work environment.
- Competitors: The recommendations aim to differentiate STEPN from its competitors by focusing on a more diversified business model, a stronger brand identity, and a more engaging user experience.
- Attractiveness ? quantitative measures: While specific quantitative measures like NPV, ROI, and break-even analysis are not provided in the case study, the recommendations aim to enhance STEPN?s financial performance by diversifying revenue streams, optimizing cash flow management, and strengthening its financial position.
6. Conclusion
STEPN faces a critical juncture, needing to adapt its business model to ensure long-term viability. By diversifying revenue streams, strengthening its financial position, enhancing user engagement, and building a stronger brand identity, STEPN can navigate the challenges it faces and emerge as a leading player in the fitness and wellness technology space.
7. Discussion
Alternatives not selected:
- Sticking to the ?move-to-earn? model: This approach carries significant risks due to market volatility, increased competition, and user burnout.
- Focusing solely on the metaverse: While the metaverse presents significant opportunities, it is a relatively nascent market with uncertain long-term prospects.
Risks and key assumptions:
- Market volatility: The cryptocurrency market remains volatile, and any reliance on cryptocurrency-based revenue streams carries inherent risks.
- Competition: The ?move-to-earn? space is becoming increasingly competitive, requiring STEPN to constantly innovate and differentiate itself.
- User adoption: The success of the recommendations hinges on the ability to attract and retain users, requiring a compelling user experience and effective marketing strategies.
8. Next Steps
- Conduct a comprehensive financial analysis: Analyze the company?s financial performance, identify areas for improvement, and develop a detailed financial plan.
- Develop a strategic roadmap: Outline the company?s long-term vision, identify key milestones, and allocate resources accordingly.
- Explore potential partnerships: Identify and engage with fitness and wellness brands, metaverse platforms, and other relevant stakeholders.
- Refine marketing strategy: Develop a multi-channel marketing strategy that targets a broader audience and promotes the company?s expanded offerings.
- Implement operational improvements: Streamline processes, optimize resource allocation, and enhance user experience.
By taking these steps, STEPN can transform from a ?move-to-earn? app into a leading fitness and wellness platform, ensuring its long-term success and creating value for its users, employees, and investors.
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Case Description
STEPN was a one-year-old lifestyle app designed to incentivize routine physical activities like walking, jogging, and running by providing individual financial rewards for participants. The app was part of the move-to-earn (M2E) category of blockchain games. Within a short time, STEPN had established an exceptional track record of both financial performance and enterprise valuation and had achieved unicorn status. However, by January 2023, the Web 3 app was on the verge of being caught in what was known in the world of blockchain games as a death spiral. The prices of its flagship product and its exchange medium were both dropping, and the company's net profits were also in decline. The co-founders needed to determine not only how to head off a death spiral in the short run but also how to sustain the business in the long run.
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