Lessons from the first ride. A post-mortem of a blockchain startup.
For those who don’t already know, BitBoost (the blockchain project I have been involved for the last two years) is closing. Blame the bear market for that! It has been an exciting ride, with many lessons learned about this new whole business ecosystem, based on decentralized technologies. As the marketing lead of this small startup, I would like to do a post-mortem of BitBoost. I do believe that BitBoost’s challenges and problems are shared by many other Ethereum-based blockchain startups out there, so this post-mortem could be also a portrait of the whole ecosystem, in terms of business development, technology, marketing, and finance. Let’s start from the beginning.
My lightbulb moment in 2016.
When I met for the first time the BitBoost crew it was basically composed of two developers, Paul and Andrew, together with Samuele, a blockchain investor, and enthusiast from Italy. I met them a month after arriving in Zug, the Crypto Valley in Switzerland. For those who don’t know the place, Zug is a very international place where many international companies are based, thus attracting a lot of expats. Because of some life circumstances I landed here at the end of 2016. I started the tedious process of finding a job in the digital business (I’ve been working on that for 12 years).
I clearly remember the first time I attended a crypto meeting in Zug. It was around December 2016, when the hype was growing and Zug was a vibrant place where people from all over the world gathered to discuss the whole range of topics related to decentralized technologies. It was really exciting! I had heard before about the technology, but for me was something mostly related to Bitcoin, “geeks money”, and nothing really worth following. However, this first meeting sparked something in my head, and I started to read more about the topic. A few days ago, I had my lightbulb moment and I realized that something really big was growing here. I quickly become a regular attendee to the blockchain events organized in Zug. At this moment they were still held in the Schiff Bar in Zug, close to the lake and the exotic birds’ cage. The excitement was on the air, and I met people from everywhere. Clearly a glimpse to the crazy year ahead, 2017.
I very quickly started to collaborate with a couple of projects planning an ICO at the beginning of 2017. At the same time, I met the BitBoost crew. They were looking for a marketing and business development guy, with some digital experience, and I was looking for something in the blockchain industry, so the match was perfect! Moreover, I had some experience in crowdfunding, so I became the campaign manager for the ICO.
Unleashing the power of crypto.
We planned the ICO for July 2017, although it was delayed because of several problems, especially regarding the ICO providers. It’s very difficult to summarize what an ICO is in a few words. Anyway, if I have to highlight something, it would be:
- An ICO is a crowdfunding campaign on steroids (aka called tokens). It’s a wild ride. Period.
- People were really worried about the community. I’m sorry to say that there was nothing like that at this moment. No users, no community. Just retail investors gambling in a casino! Maybe just 10% of all the people buying tokens were really interested in the solution proposed in the whitepaper. An ICO community is not what real community of users looks like. If you are doing marketing you should be aware of that. Otherwise, it will drive you crazy.
- Legally speaking, it was really tricky. Legal uncertainty was really high, even in Switzerland. Several opinions confronted on this matter, even after FINMA issued some basic guidelines. In any case, everybody was issuing utility tokens. I do believe that utility coins won’t be around in a year (with maybe some exceptions). Security tokens are the real deal for many reasons I won’t explain now. But, in any case, at BitBoost we issued a utility token, it was legal, trendy, and we were happy with that.
ICO services were basically a scam. We paid for “influencers”, youtubers, and we received marketing offers from guys without any kind of references (not even a website). Some people helped, but most of the ICO marketing ecosystem was a huge money grabbing scheme. Honestly, the only thing that worked was PR and a proper branding. Ads in Chinese sites brought a lot of traffic (and this is coherent with the way the ICO started and changed during 2017).
In the end, timing is everything. Our main sale ran at the same time as the huge bull run in 2017. Combined with the ICO ban in China (where most of the money was coming from) the result was that all the ICO were dead. We didn’t delay the fundraising, so we “just” got 1,5 M, when we planned around 10 million.
However, this is an amount of money more than enough to start a business. It’s a dream seed investment for many tech entrepreneurs. So we decided to move forward and start building something. Blockchain, here we go!
Building a business over Ethereum shouldn’t be gambling on a casino. It’s more about product-market fit.
Let’s say that BitBoost was, at its core, a startup made up by engineers. Two of the founders were senior developers, and I have plenty of experience in tech, so we built a team focused on building, rather than shilling tokens. We consciously excluded from our plans any kind of “token promotion”. It was legally dangerous, and we believed that a working product would be the best foundation for a sustainable token price. Some of our token buyers didn’t understand that. Anyway, we were really excited and committed to making the difference.
At the same time, we were not fully aware of the big challenges in front of us. Building a tech startup is a BIG achievement. Building a blockchain startup in 2018 is a HUGE achievement, for many reasons. I could write down several posts about this topic, but I will try to summarize everything in a few points.
Struggling with the technology
Developing in Ethereum it’s not easy. It’s a new technology, and it doesn’t scale, yet. It’s also really expensive in terms of computation (paid with gas, whose price spiked to the moon sometimes). It was really difficult to build a consumer application over it. You can’t really ask people to pay for every operation over the blockchain and makes no sense to decentralize everything on it. In fact, at BitBoost the dev team finally iterated the project from Ethereum to a mix between this network and IPFS, in order to save a lot of money for users. This iteration brought more engineer problems, but we managed to move through, delaying the roadmap while solving everything. We even solved some particular problems for the first time, so we can say that we were at the forefront of innovation in the Ethereum community. That’s also really exciting!
Lack of talent
Finding the right people for the business was hard. There isn’t a lot of people out there who really understand the blockchain, both developers or business/marketing people. Basically, we were educating ourselves as we moved, both in terms of engineering and business development. Remember, nobody has done this before!
The user experience for the blockchain is not mature. Let alone the wallets, the blockchain is still just for a bunch of geeks. On top of that, there are a lot of new features completely obscure to newbies, especially the gas and the immutability of the blockchain. Most users are not simply used to that, and this brings confusion and cloggy interfaces. Another hurdle for a blockchain startup. Anyway, we were making some progress, including in a regular e-commerce interface some new features, to help users understand the costs of the network, as well as warning them about the immutability of certain operations.
Finding the right business model.
As a marketer with a strong background in design thinking, this was an obsession for me. Usually, developers don’t get this point (they are not trained for that), but the features and advantages of the blockchain don’t automatically bring value to users. You have to tailor that, understanding how the blockchain benefits some particular segment of users and building your product following that insight. Marketing should also address that, otherwise, you won’t find your clients.
From the very beginning we understood that a token is no a business model (how many times did I have heard that nonsense?), so we worked hard to find the right business model, pivoting from running our own marketplace to being technology providers for sellers willing to take all the advantages of the blockchain in terms of security, privacy, and network effects. We started a program, with Ambassadors and early adopters, to start testing our business model, and we had some good feedback! We were on the right path to building a profitable, sustainable and scalable business model.
Finding your market
Anyway, I must say that blockchain users are still very few. I do believe that this is because we haven’t go through the process of building something for the real people, with a GOOD product-market fit, and a decent UX that doesn’t scare the shit out of a regular user. It’s also mandatory to find ways to allow people to pay with fiat on the blockchain (yep, your users won’t use a crypto whose volatility is crazy). Our solution for that, not tested in the marker, was to implement in our wallet a stable coin, TrueUSD, helping people to refill the wallet with dollar-pegged tokens and to redeem the coins for real dollars afterward. It’s my personal opinion that this is the best way to solve the issue of finding a stable, reliable, payment method on the blockchain, protected from volatility. Something like the Paypal of crypto (and just remember how Paypal changed the way we used the Internet).
The previous points are related to what I would say are regular problems for tech business building over a really innovative technology. But at the same time we faced problems related to the very particular way blockchain companies were funded in many cases, with a token sale paid in crypto:
- The basic of every ICO tokenomics design (I do hate the word tokenomics, by the way, but I’m using it here for the sake of clarity) is that you need to list the token in a proper exchange, with enough volume and liquidity. The exchange will allow people to buy or sell your token. Whether this volume is due to speculation, or to a real use of the token, will depend on the maturity of the project. The problem for BitBoost, as well as for many other small projects out there, is that listing a token in a proper exchange was either super expensive (up to 1 million dollars in some cases!), or legally complicated for the exchange managers. As a result, BBT (BitBoost token) was at first only listed on decentralized or minor exchanges, and it took almost a year to get the token in a proper exchange (and never in a top tier one).
- However, this is a minor issue compared to the following one: it was impossible to open a bank account. Right now the banks in many jurisdictions are afraid of offering services to crypto companies, especially those whose funds come from an ICO. This has been a huge problem because cashing out and paying salaries and providers become something really complicated. And a common-sense action, protecting the funds from crypto market volatility, is suddenly something very difficult, or nearly impossible.
If anyone of all the problems explaining above is enough to kill a startup, the last one has been the final shot to BitBoost.
During 2017 the market had an incredible bull run, so everybody was happy. We almost doubled our funds! However, as 2018 bear market unfolded, and we realized the financial obstacles paving the way, the future for the startup started to look a lot darker. In December 2018, the big crash in crypto prices basically killed our treasury, and it forced us to close the company.
Anyway, It’s possible that BitBoost would be killed by many of the problems mentioned before. We were working on that, and we started to solve some of them, shipping a valuable piece of code. Would we succeed if we had more money? Sadly, that’s a question that will be unanswered.
Still a long way ahead.
I listed above many of the hurdles paving the way for a successful blockchain product. Many of them come directly from the specific traits of the technology, like the poor scalability and high computational cost. Other ones come from a lack of maturity of the ecosystem. We hardly have good dapps with a decent UX, and we are still looking for the product-market fit for the technology in many business fields. Finally, we have financial problems. I do believe that all these problems are shared by most of the startups building over Ethereum out there. Even Consensys is struggling with that! If you are considering starting a blockchain project, I hope that this post-mortem will help you to make better choices in terms of technology, team building, business model design, and funding.
I still believe that the ecosystem has a bright future ahead. New technical solutions and protocols are coming, allowing to build feasible consumer dapps, cheap, scalable and functional. At the same time, the UX part is improving, and some people out there are working to find good use cases and value propositions using decentralized protocols. Finally, the ICO are quickly maturing to a Security Token model (combined in some case with utility token sales), allowing to raise funds in full compliance with the law. Likely, banks will follow and they will lift the ban of crypto companies.
I do believe that my career is still on the blockchain (or tech startups, anyway) In fact, I have already accomplished quite a lot of things in two years, together with the great crew at BitBoost. It’s time to move on and start again, with the lessons learned. The community is being built quite fast, and there is still room for everybody. If you want to do that together with me, just send me a message. And forget about the bear market. Long life the blockchain!