Pudgy Penguins’ CEO on building a sustainable Web3 business

The phrase “what doesn’t kill you makes you stronger” rarely applies to NFT projects. Even the slightest whisper of misconduct by managers can defeat a project’s value and cause mass bleeding among community members. When that happens, once beloved Web3 devices usually find themselves dead in the water.

Not so for Pudgy Penguins – the project represents one of the NFT space’s biggest comeback stories. After making a grand entrance to the stage during the 2021 NFT bull run, Pudgy’s founder Cole Thereum (and his accompanying team) were accused of draining the project’s funds. Rumors of a carpet move grew stronger, and after one failed transfer of leadershiplongtime Pudgy fan and proprietor-manager Luca Schnetzler bought the collection for 750 ETH (about $2.5 million at the time).

The team is now making the project’s turbulent history a proud part of history. Schnetzler and his team have developed a growth strategy that relies on leveraging Pudgy Penguin’s IP outside the walls of the NFT ecosystem—with the goal of carrying the brand far into the future while providing greater rewards for community engagement—in a new Web3-​​ benchmark for onboarding the skeptics of blockchain.

Building the future of Pudgy Penguins

Last week, Pudgy Penguins teamed up with Sotheby’s for an auction of 11 Pudgy Penguins NFTs. Called Snowed In: A Rare Pudgy Penguins Sale, it’s a digital auction that runs from November 18th to November 30th, and features Cole Thereum’s well-known Pudgy Penguin #4609, which was transferred to Schnetzler and team after the collection’s sale earlier this year. And the timing couldn’t be more appropriate: the Art Basel party and the Sotheby’s auction come in sync, when Pudgy Penguin’s comeback story feels like it’s reached critical mass.

The NFT (Penguin #4609) is a crucial part of the project’s path and is up for sale along with the rare Penguin #7315, #505, #7405, #6615 and several others. Those who pick up a Pudgy NFT at the Sotheby’s auction will also receive the auction house’s first soul-bound token that acts as a certification of authentication, proving that they participated in the auction. Speaking about the community auction, Schnetzler told nft now: “We are using the Sotheby’s auction as a chance to start our community fund called The Cozy Horizon Fund.”

“All proceeds from the auction will go into this fund so we can use it to fund fun community events.” One such event is NFT Winter, the team’s welcome party for holders attending Art Basel in Miami this week, which it is hosting in partnership with crypto exchange Uniswap. “Right now, [the space] is going through a tough time, and we wanted some extra coverage to ensure we can provide amazing experiences to the community,” highlighted Schnetzler.

Pudgy Penguins in the retail market

In a Web3 environment where crypto markets are as volatile as ever and where the relatively simple methods of success that marked the 2021 ride no longer apply to NFT projects, Pudgy Penguins is leaning into the potential of its IP to achieve stability and longevity .

“We have our own vision for the PFP area,” Schnetzler said. “This IP is valuable. We think the penguins are valuable, especially in the retail market.”

This is why the brand is preparing a series of physical Pudgy Penguins products ranging from plush toys to children’s books that the company plans to release in Q1 of 2023. The team is currently locking in contracts for resellers focusing on licensing agencies in the family-friendly IP space. PMI Toys, a children’s toy manufacturing, marketing and distribution company, will produce the physical Pudgy toys.

The team has amended NFT’s usage contract to open up brand IP, allowing holders to use their Pudgy for commercial endeavors. If a holder’s commercial business exceeds $500,000 in annual revenue, they are expected to work with the team to enter into a broader licensing agreement.

“This allows us to negotiate big deals like the one with PMI Toys where we’re able to give people revenue share based on the sales,” Schnetzler explained.

Schnetzler and team have licensed more than a dozen Pudgies so far to be part of upcoming toy releases, and have also selected five Pudgies to be part of a children’s book deal with publisher Green Kids Club. In order for holders to be eligible to have their Pudgy selected to be part of these deals, they must apply on the project’s website when the team announces a potential new licensing deal. They then choose what they think is the best fit for the proposed deal. For example, for an upcoming squeezable plush release, the team chose a Pudgy with a polar bear hat. Once selected, a Pudgy holder will receive a thirteenth of the revenue percentage throughout the life of the agreement.

“We have over 8,000 penguins, and every time we open one of these deal submissions, we have several hundred within the first hour,” Schnetzler said. “People really want to see their IP, they just don’t have the time to make the connections they need to leverage it. We’re trying to build more opportunities for our holders to experience the power of that IP because we know they are busy. They’re not the NFT stereotype people sometimes make them out to be.”

Schnetzler acknowledged that entering into such licensing agreements can be challenging at times due to their notorious complexity — companies are naturally wary of committing to a contract with several different parties in the mix. Ultimately, however, enthusiasm for the potential of IP carries them through. The Pudgy team’s goal in orchestrating these deals is largely to create attractive and valuable physical products linked to digital experiences.

Moving Web3 tags beyond Web3

The Pudgy strategy of branching out into IRL products is just one part of the team’s vision to grow the brand. With a strong presence on Instagram promoting mental health and positivity – and making no mention of NFTs – Pudgy Penguins is slowly and organically bringing Web3 to the public’s radar.

“We’ve seen a lot of projects go into Web3 and they just focus on Twitter and Discord engagement farming,” Schnetzler observed. “And it worked in the bull market. But when we took over [Pudgy Penguins], we decided to cast a very wide net on Instagram where we don’t even mention NFTs. We only constantly post positive affirmations. It has helped to get people interested in the brand. And if they tap our Link Tree, they’ll realize there’s so much more to the community. With everything going on [in the NFT and crypto space]we need to make NFTs and crypto a little more accessible.”

Building trust and openness in society

The Pudgy team has also started bringing community members into the group to help them work on new projects and developments. Schnetzler noted that 11 of the team’s coders are Pudgy holders who have come on board to help code several of the brand’s upcoming projects. This, along with the team’s strategy of over-communicating even small project changes to the holders, helps them create trust and transparency at a time when even the average NFT enthusiast feels wary.

“The community knows we’re actually building things because they help us build them,” Schnetzler noted. “We understand how hard it is to trust all types of players in the NFT community right now. So how do you close that gap? You’re overcommunicating.”

Collaborate with charities

Ten percent of the proceeds from the Sotheby’s auction will go to Oceanites, a non-profit organization that researches Antarctic penguin populations in support of climate science. The Pudgy team keeps an eye out for potential charity partnerships as long as they align with the brand and mission. Penguin research and climate science are a clear fit, but team leadership also recognizes their strong presence in positivity and mental health inquiries means there are avenues to explore in that direction.

“As long as it identifies with our brand, we’re into it,” Schnetzler said. “These charity collaborations are something we are very excited about.”

The rest of Web3 has every reason to be excited about the Pudgy Penguins’ moves as well. The project could prove to be a good example of how NFT brands can establish themselves as serious and sustainable entities and demonstrate their ability to push through the sometimes isolating walls of Web3, to extend a reassuring hand to NFT skeptics. And at this stage of Web3’s development, there are few holy grails than successfully addressing public concerns about blockchain technology.