Building blockchain companies

Everyone is talking about ICOs, let’s also talk about building the next generation of companies built on blockchains

Oct 23, 2017 · 8 min read

Everyone is in Silicon Valley talking about ICOs (Initial Coin Offerings) which is great. An ICO is an event where companies sell digital tokens and use those funds to maintain and grow a product and company. We’re creating new options for funding innovation. And that will be good for entrepreneurs. There are now lots of meetups and conferences popping up to talk about ICOs.

More interesting long-term questions are “how do I run a blockchain company?” and “how do I design a blockchain product?”. I see a lot of focus on the ICO process, which is great. ICOs are important, but let’s also spend more time figuring out how to build companies that deliver value to people. I think that blockchain companies based on crypto-economic ecosystems will look different than a standard SaaS company.


…blockchain companies based on crypto-economic ecosystems will look different than a standard SaaS company…


I don’t have all the answers but I have a few ideas of how this could work:

Running a blockchain company

Running a blockchain company will be slightly different than a standard startup in a few ways. I think the funding and incentive mechanisms can be different — and also the structure becomes more like a governing body of an of an ecosystem than a standard SaaS tech company.

Funding, incentives, and ecosystem

First let’s talk about funding, employees, partners, and incentives. And, how they interrelate within a blockchain crypto-economic company. Right now there are a couple major ways to fund a company. The best way in a known industry with an understood product is bootstrapping. Start selling your product or service and do a good job. You can grow into a market that exists and you get the best type of company funding — revenue from customers. If your industry doesn’t exist yet (you are trying to make one) and/ or you are building something that makes a big enough change in the current paradigm in a current industry — you might need venture capital (VC). VC means you are selling part of your ownership in a company for cash in order to fund learning and scaling.

We now have a third major way to raise funds that can fund a “mutual” commons (see below for more description). We can now sell tokens, not equity (although you could represent equity with tokens). You have an ICO — or “Token Sale” where you sell a token that your product will use for something (like access to your product). In this case you aren’t selling partial ownership in your company. With token sales, you are just selling a token that will act as a key to use your product, for example. The funds collected can be used to enhance and expand the infrastructure.

Company structure: small team, big network

This funding model selling access to your product means that you can sell liquid tokens to people that want them and use these funds to put into both a team and a partner network. In addition, you can incentivize your team and partner network (your “ecosystem”) with the same tokens. In the past we worried about multi-sided marketplaces and how we were going to get all the sides interested in participating. You can now reward all sides, up front for participation. Also, the blockchain company itself may look different. So, you could opt for a smaller company and use those few people to work with and manage the larger ecosystem of partners and customers that rely on your blockchain network.


In the past we worried about multi-sided marketplaces and how we were going to get all the sides interested in participating. You can now reward all sides, up front for participation.


To be clear, a partner would be a node in a network that does some work for your product (collect, store, or process data in return for payment of your token). And, employees in this structure would work at the company launching this mini-crypto economy and building new features that will be distributed to partners that would increase the value of network. And other partners can also build and launch their own enhancements. Hence, the “commons” model I mention later in this post.

Oversight structure

Oversight in this model may change. I think that a pure-play blockchain company (with the associated token incentivized network) that uses an ICO to raise funds might opt for a different oversight structure. In general, boards have been made up of representative leadership of the company, major investors, and some experts (sometimes observers that rotate based on input the company needs). Note, in this new model, there might be no equity investor owners. The people that came up with idea and committed to build it may give the whole thing away, and the token purchasers are buying keys to access and maintain the service.

Revenue from customers is the best funding. And, that’s what selling a token looks like. It funds your company without you having to give up shares of your company. What is happening here is that companies will be able to “bootstrap” in a new way.

So, this model may flip the board model around where the board focuses more on the ecosystem it is serving — the founders, ecosystem, and expert advisors. Experts in this sense would be industry experts and people with experience launching and managing blockchain companies and associated crypto-economies. Both could be compensated with equity and/or tokens.

Trust matters in this world a lot. If you want people to purchase tokens in an ICO project, the founders and advisors need to be trusted. I think that the vetting will increase and improve a lot over the next few years. But, most are going to fail.

Fail? I don’t like the sound of that!

I hear people say “most of these ICO companies will fail!” and I say “yes, most will fail, like equity funded startups”. There is a difference in that we’re early. Failure is likely to be more common. This is “1995” for blockchain companies. Let’s not be too judgemental of the natural innovation process happening here. I do think we’re early for ICOs and we’ll create more checks and balances that will improve transparency and trust. And, that will be a good thing. But, waves of capital chasing new ideas and creating bubbles is a good and natural feature of free markets.

Speculative funds chasing ideas, knowing that most will fail and a few will have outsized returns fuels new waves of innovation. Things will adjust and normalize where failure will be reduced and returns will as well. But, the over-exuberance that makes funds chase ideas and idea creators stay up all night working on them is a great thing. It’s not for everyone. We only need a small percentage of the population to innovate and fund innovation in order to benefit society long-term. So, it’s ok so sit it out until it settles down as well. We need mainstream and late adopters, too. I recommend reading Technological Revolutions and Financial Capital if you want to explore the concept of financial bubbles and innovation waves more.

The opportunities of the Commons Economy

The structure described above changes how a mutual group of companies can exchange a representation of value with each other (the token). We now have something we can give away that helps grow an ecosystem. The ecosystem maintains a commons that is maintained by all and also benefits them all. So, one of the best product designs for a “blockchain company” will be a product where the value comes from creating this new kind of digital commons.

This group of companies could create a set of new business models driven by the blockchain that I would call the Commons Economy — companies that exist to create a commons of data and processing. Essentially, a group of people or companies sometimes need a common place where information and/ or processing can occur that can benefit them all. My first thought on this many years ago was a supply-chain network where multiple companies need to collaborate around a common set of data and rules. The best use cases I see so far are ones where some common data or common processing makes sense to share amongst a group of companies. And, I think that we’ll be surprised a the creative ways companies come up with to create a commons out of their infrastructure. The ability to provide incentives to actors in a system that used to have little or no incentives may create stronger businesses.


…the best product design for a blockchain company will be a product where the value comes from creating a commons.


Examples of commons-based business models are everywhere. They exist in the world now in in the “old” centralized format — waiting to be displaced by new data commons companies. Anywhere there is a pool of assets that need to be shared and fairly paid for, anywhere there are assets that need to be tracked, and anywhere records need to be stored so that they can be shared later. Examples I can give off the top of my head include audit trails for all sorts of business and technical processes, financial institutions (banking, insurance, payments, investments, lending), manufacturing (traceability of products), energy, logistics (shipment tracking), public records (identification, college diplomas, marriage certificates, automobile records, land registries, patents), healthcare records, and IoT (Internet of Things) platforms.

The big opportunities

I think the more interesting blockchain companies are the ones that we haven’t come up with yet. The commons companies that create something brand new. Ideas that will be made possible only through the progress of blockchain technology and creative thinking about what new data commons we need to create.

So, there are additional blockchain models we’ll create based on new capabilities. For example, you can spool up a blockchain privately. And, you can have a tokenless blockchain. There are even more opportunities for additional blockchain variants. So, I think getting the technology and crypto-economic models (and incentives) right (I think there is a lot of work to do here) is one piece. And, the other piece is look for the business use cases that don’t exist yet.

Signaling the next phase

So, as I mentioned at the start, I think we’re having a lot of conversations about how to run ICOs. But, I think the next, more interesting conversation is centered around how to run a blockchain product and company. I think we know the signal indicating that blockchain based businesses are maturing — the names of the conferences and meetups will change from “How to raise an ICO” to “How to run a blockchain company” or “How to create a blockchain product”. Because building something useful and valuable for people is what this is all about.


Follow me on Twitter: @willmurphy

An early version of this was originally published in my newsletter.

Will Murphy

Written by

In search of my next adventure. I build tech things with smart people. The best way to predict the future is to invent it.

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