Reminiscent of the internet boom of the late nineties, fast-growing industries such as blockchain often bring about a heightened level of enterprise, creativity and innovation, resulting in myriad startups and project launches all around the world. However, building any new venture from the ground up requires perseverance and endurance. This is especially true for a nascent industry such as blockchain, which has the potential to make a long-term impact on our social and economic systems.
In this article, we will examine the lessons learned over the years with blockchain technology, and look at some of the characteristics of successful blockchain startups.
With blockchain, look further, look broader
Blockchain has come a long way since its founding with Bitcoin 12 years ago this month, and there are many lessons one can draw from it.
One major lesson learned since 2014, and which many lawyers have warned entrepreneurs about in the early days, is that although regulators and government agencies may take their time, they do eventually come round to enforcing rules even when they may not seem at first to be directly extended to cryptocurrency and blockchain applications. For instance, several firms involved in cryptocurrency trading, coin-minting, money transfers and fundraising via token sales became the targets of regulators after two or more years of operation. As a result, entrepreneurs have had to adapt so as to stay within stipulated parameters, with some going even to the extent of moving their operations to more crypto-friendly jurisdictions.
Another important lesson is with regard to the scrutiny and involvement of the community. Blockchain is meant to foster decentralized, open and transparent projects. For that reason, founding teams have to deal with a broad group of stakeholders including shareholders, token holders and members of the community at large. This has meant additional pressure in terms of communications and regular updates, especially when it comes to technical issues, possible hacks or any significant movement of cryptocurrency funds, as the project wallets are usually monitored by the community as well.
These lessons, taken together, signal an ever-challenging and complex landscape for businesses to operate in. It is then, not surprisingly, that many blockchain startups fail.
What are the makings of a successful blockchain startup?
Here are some of the common characteristics that separate successful blockchain startups from the rest. These are based on our observations and experience as one of the industry’s earliest venture operators.
1. A clear and well-defined value proposition, business strategy and market fit
One of the biggest challenges facing many blockchain startup founding teams is usually a general lack of business and market sector experience. In order for blockchain startups to challenge the incumbent’s dominant position and build a meaningful disruptive technology solution, they’ll need to understand the market dynamics at play and gather intelligence on the industry before designing their solution.
As a prerequisite to success, a blockchain startup needs to have a clearly defined value proposition, a robust “go-to market” strategy and a demonstrable market fit. Simply having a good idea and a smartly designed tech solution is not sufficient to attract clients, businesses or individuals who have a history of dealing with incumbents. It takes deep industry knowledge and a strong understanding of its key pain points to conceive a solution that not only fixes the problems but is able to fit into an existing value chain.
2. The ability to articulate the problem and how their product or service would provide solutions
A recurring question that comes up in the world of blockchain startups, is “does the problem need blockchain?” A clear answer to this is definitely preferable, but the oft-used “this could be done faster with a central database” argument usually fails to take into consideration all the potential benefits that blockchain technology has to offer.
Most IT systems, core banking software, exchange engines and so forth have run well enough until now without blockchain technologies — so the question is not only one of a replacement, but more so of “can parts of this process be improved with blockchain technology?”
3. Interoperability with other technologies in their business solutions
Artificial intelligence (AI) and internet of things (IoT) are natural allies of blockchain technologies, as they are deeply embedded into networks connected via the internet. These three areas can be complementary, and certain solutions can make good use of a combination of IoT, AI and blockchain technologies.
One example of this could be “smart crop insurance” applications, where sensors in the fields (IoT) send raw data to servers, which in turn feed specific data (AI) to smart contracts (blockchain) via oracles to determine whether insurance payments have to be made to the farmers’ blockchain wallets (cryptocurrency payments).
4. A multifaceted team with expertise both in and outside of the blockchain industry
Combining a team with diverse skill sets and experiences is essential for most startups, particularly for blockchain startups that aim to disrupt industries or build new markets from the ground up. Several blockchain ventures have set out to disrupt industries without an intimate knowledge of these industries in the first place. This, unsurprisingly, has resulted in many failures. It is therefore essential to make sure blockchain startups gather intelligence from the markets in their specific verticals through external team members or advisors.
Having industry advisors also helps entrepreneurs keep their feet on the ground when building theoretical models. While their vision is a key element of their strategy and success, it needs to be achieved through a realistic step-by-step approach, and some blockchain visionaries find it hard to go through these less exciting but necessary steps.
5. A well-thought-out funding model and strategy
Early-stage blockchain entrepreneurs need to quickly and realistically assess their chances of generating revenue early on so they can plan for further fundraising rounds. Although fundraising has certainly been cyclical in the space, with alternating phases of investor euphoria and lethargy, solid propositions usually manage to raise funds even in spite of wavering market conditions.
Many blockchain startups have chosen to develop in open-source mode, whereby neither the company nor its shareholders have proprietary control over the code that’s been written and deployed. Although open source tech is now widely used in large systems, some investors may fail to see the value in such a model. As such, entrepreneurs also need to keep in mind that their choice of funding model will have an impact on future investment options, and should focus on creating value and generating revenues soon enough in order to be much less dependent on external funding for the survival of their ventures.
6. The ability to anticipate change and adapt in a rapidly evolving industry
A successful blockchain startup has to learn to adapt to a fast-changing environment. This means having a finger on the industry’s pulse whilst staying focused on what founders believe to be the winning strategy — which is not always an easy balance to achieve. One way to become more resilient to these changes is to maintain a long-term vision and set objectives for the solution or product being built, and try to foresee how it will be used and how it will evolve in the industry in the next five or 10 years.
By anticipating the competitive and regulatory dynamics in play in the long-term, entrepreneurs can try to prepare for potential shifts in the market’s trajectory and avoid strategies that could lead to dead-ends. Some of the most successful blockchain startups are the ones who correctly anticipated the changes in direction the markets would take or the regulatory hurdles early on, and built a structure that could accommodate for these changes.
The challenging yet rewarding journey as a blockchain entrepreneur
As the industry continues to evolve and mature, the operations of a blockchain startup are bound to be affected by new market trends, rising tech standards, rapidly shifting crypto sentiments and evolving regulatory conditions. Blockchain solutions are, after all, created to push the boundaries of decentralization and introduce open models in traditionally closed environments, and in doing so, tend to encroach on the vested interests of many incumbents earning the toll revenues from entrenched centralized systems. It is only natural that there is and will be pushback on these solutions from various players, especially from those who enjoy the benefits of monopolistic positions.
Building an inherent flexibility and capacity to adapt to these changes then, should be a fundamental part of any blockchain startup model. Beyond that, budding entrepreneurs will also do well to learn from the pioneers and first-movers in blockchain when it comes to navigating the uncharted waters. Through hard work and faith, more open and just solutions for all should prevail.