What if they build it and no one comes

Ilya Abugov
Sep 3, 2018 · 4 min read

It does not matter how innovative the product is if no one uses it. David Chaum pioneered the field of cryptocurrency with DigiCash, nearly two decades before the appearance of Bitcoin. Yet, despite the first-mover advantage, DigiCash never achieved mainstream adoption and has been relegated to the history pages of the internet. In the age of social media, it is much easier to create hype around a project, which has made the blockchain industry overconfident. Buzz cannot replace a coherent go-to-market strategy. While the nature of DLT technology and cryptoeconomics offers unique opportunities for market penetration, a lack of focus in this area is likely to result in painful market shocks in the future.

A marketing budget is not a plan

It is common for an ICO white paper to include an outline for the use of proceeds and a projected roadmap. While these sections are useful for understanding where a project is trying to go, they rarely detail how progress will be achieved. Allocating X million dollars towards marketing and business development is not a course of action, it is a budget. Marketing for an ICO is not the same as marketing for a product. It is one thing to be crowdsourcing funds to build a decentralized Twitter or Facebook and a completely different thing to then have this product compete with Twitter and Facebook for users.

A roadmap will usually describe technology milestones, but it is just as important to have commercial viability goals. There is no need to get fancy, standard KPIs will do: user base numbers, cost and revenue figures, and the like. However, it is imperative that the project team understands who its target users are, how to reach them and how to retain them. There needs to be a plan for user acquisition, securing partnerships, scaling and dealing with competition.

If a project is planning on going into a foreign market, there needs to be a defensible course of action for how to do it. There have been countless products that have done well domestically and flopped spectacularly abroad. It is not enough to by internet traffic to become a player in a given market.

Making something decentralized does not make it new

A lot of the current blockchain projects are using the technology to improve upon existing products. This means that there are incumbents in those spaces with an existing users base, established marketing channels, vast budgets and motivation, in the form of millions of revenue dollars, to protect their turf. If Google+ didn’t unseat Facebook why would a decentralized version do the trick? Often times, it feels like DLT projects think that the mere completion of their product will spur a massive user migration. Yet, it has been shown in a number of industries, such as telecom and consumer goods, that customers exhibit tremendous stickiness when it comes to their product choices.

There needs to be a plan for overcoming the network effects of incumbents and generating user loyalty. Lower fees, security and transparency have become popular catch words, but will they drive users to switch from the products they use now? Moreover, how does a project convince someone to switch over when there are a dozen similar competitors promising the same thing?

The right people need to be there

Blockchain teams make a lot of effort to highlight their technology staff. The more superstars you have, supposedly, the more likely you are to succeed. However, it takes more than technology personnel to make the project work. Specifically, you need great sales and marketing people to build a user base for a new product or service. No matter how good the project is, it is highly unlikely that it will sell itself. Getting a bot to simulate a following on Telegram is not the same as getting people to use a product.

Investors are to blame

People vote with their dollars. So, essentially, by buying the tokens of projects that lack a coherent go-to-market strategy investors have become complicit in the formation of the current blockchain bubble. In a standard VC-led investment round investors would look at market size estimations, margins, commercial viability and the likely share of the market a product is likely to obtain. When it comes to ICOs, these questions often go out the window. It is enough for a project to state something along the line of: “as the ecosystem grows demand for the token will increase”, to garner investment consideration. Investors don’t ask enough about why the demand would increase and how that will translate into asset prices, and so project teams don’t bother to work it out. Supply and demand laws apply to due diligence as well — investors don’t demand the information, so project teams don’t supply it. As a result, billions of dollars have been invested into products with no real plan for becoming commercially viable.

A fleeting opportunity

The ICO mechanism gave startups a way to compete with the giants. Suddenly, they had the money to develop and implement products using potentially game-changing technology. However, these startups have been squandering this opportunity. By ignoring the go-to-market stage of development, these teams have hindered their ability to compete in the real world. Now that the incumbents are catching on, they will be able to use their marketing and sales department to push their products and make it much more difficult for smaller players to succeed. Winning in the market is not about hype, it is about adoption. Blockchain startups need to take the next step and develop real go-to-market strategies if they are to remain relevant beyond the initial splash.

Disclaimer: This is strictly a personal opinion and should not be considered as investment advice.

If you have any questions or need consulting or advising services, you can get in touch with me by sending an email to: ilya.abugov1991@gmail.com

Ilya Abugov

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I have a background in investment analysis, management consulting and fintech. I frequently travel, and speak English and Russian.