You Can’t Buy A Decentralized Product

My disclaimer for the article is that building consumer vs. B2B vs. enterprise products is all very different. I’ve spent time building all sorts of products, but I’m most passionate about consumer products and so I hold them to a much higher standard. This article is from consumer product development perspective.

Traditional Funding vs. “The ICO Spending” Approach

We’ve been in the blockchain space for over a year now and have seen hundreds of projects at conferences, pitch sessions, coffee chats, investor dinners, and more. Excluding projects that have entered the space due to hype or “easier” access to capital (which is most), I do see many legitimate projects focusing on the right aspects that match a traditional fundraising approach. They pitch their team, a real problem that needs solving, outline their market size opportunity and check the box on many other points traditional VCs usually qualify about a project.

The creation of ICOs as a new funding structure has given projects the ability to raise massive piles of cash upfront. Consequently, we now also see projects throwing as much money as possible at a solution to accelerate their go-to-market strategy. In this crazy new world where you don’t have to sequentially prove yourself between multiple funding rounds (i.e. Series A, B, C), I feel that many projects are jumping to incorrect conclusions — saying that their upfront capital allows them to build their entire completed product idea faster. More money means more engineers, designers, business development staff and customer acquisition budget all from day one. This mentality sounds logical, especially within the context of traditional startups.

If you have $20M USD in-hand day one, the probability of success should be much higher than traditional startups with only $100K in seed funding.

Why then, are the majority of ICOs still failing so quickly?

Test Early and Fail Fast

In a traditional bootstrapped startup, the lack of resources often breeds resourcefulness. Focus. Prioritization. Lean Methodology. Agile. Words all Silicon Valley entrepreneurs live and breath — sometimes painfully so.

Unlike their traditional counterparts, this new breed of ICO startups overlook a critical aspect when formulating their strategy for the blockchain space: their product development approach.

The question that we at Block by Block Capital always ask is: just because you have all this capital upfront, why does that mean your product idea can naturally be built faster?

Instead, we encourage projects to test early and fail fast. Projects need to find new ways to breed resourcefulness, even if they have more cash on-hand from day one than they might ever need.

Your idea will not be successful because you raised $20M USD. It will only become successful when you deliver on your customer promise

Bitcoin: A Decentralized Product Case Study

Recently I had a deep discussion with one of our friends who identifies as a Bitcoin Maximalist. His view is that no other project will ever overtake Bitcoin for the functionality of store of value and payments. His point is that individuals who want to replace an already working decentralized product are doing so because of their own self-interest and prospect of financial gains. They can then leverage part of that gain to buy user adoption for their new substitute product. Bitcoin, however, is owned by no one; it’s supported by the people who love it; and it evolves because users are willing to convert their time and resources into ecosystem building activities.

Ultimately, no centralized organization is responsible for buying Bitcoin ecosystem development. Instead, the ecosystem has organically found ways to reward the activities of it’s collaborators.

From a consumer product standpoint, Bitcoin is an example of pure product development. It’s done for the people, by the people, and prioritized in a way with extremely limited waste. There is no organization spending a budget on engineers, telling them what to build and why to build it. The road map is driven by the needs of users who are actually using it. Those who are passionate about the technology. Yes, there are developers who can profit off its development, but it’s generally done by those willing to spend time creating something for an ecosystem because it’s needed today, without the prospect of being paid for their work tomorrow.

Building, Not Buying, A Decentralized Product

A decentralized product has a unique ability to scale over time; however, it’s not driven by the same reasons traditional tech companies have boomed in the last 20 years. The “build it, they will come” mentality is an ideology that works nicely with sequential series funding rounds. As you build, further funding comes when metrics are validated and customers are acquired.

On the other hand, the new ICO model has resulted in projects attempting to buy users with unsustainable rewards models and free money giveaways (aka airdrops) because they have so much cash available for growth. For true decentralization to work, users have to adopt a product they believe in and want to use — not because they are paid using marketing or user acquisition budgets.

Paying for customer acquisition to build your decentralized product is like trying to keep a bucket of water full even though it’s full of holes. Without a working product (your bucket) then all your users (water) will drain out over time (churn!).

Sticking with Bitcoin as a case study, a great parallel is to compare Bitcoin core (BTC), to all the forked versions that claim to make “core product feature upgrades to solve the needs of the users.”

If that were truly the case, and those features were absolutely critical, then why don’t all users of the old system immediately switch over to the forked version at launch?

All the teams trying to build the better products of tomorrow by leveraging coins, tokens, “new types of rewards” or “new incentive schemes” are saying something similar. They want to add features to existing models to build a better product; however, like our Bitcoin parallels, users will initially adopt because of the financial incentive, but when no value or utility exists, then it’s similar to having holes in your bucket.

Will Our Product Development Approach Evolve?

Taking a step back to reflect on some of the most successful tech stories in history, it’s no secret that they are full of pivots. If we look at how their success story evolved, they were able to breed resourcefulness from their lack of resources. In this new ICO era, we could only imagine how their stories might have changed if they instead had more cash on-hand to push forward their original ideas when faced with adversity?

• Would YouTube have ever pivot from a video dating site into one of the most successful video streaming platforms if they could have continued to pay people $20 per video post at inception?
• Would today’s Instragram actually have been born if Burbn didn’t need to completely overhaul their business model? Could they have just hired more employees, increased acquisition spend, and tried to force their overly complicated business model to succeed?

A Framework to Carry Forward

There is no manual (yet) on how to build decentralized products and I’m also not claiming to have one; however, I can confidently say that if projects are focusing on the wrong features first, then they will end up spending their funds on the wrong hires, the wrong marketing plans, the wrong user acquisition, and ultimately, the wrong product building approach.

ICO projects often have more capital than their traditional startup counterparts and should be taking advantage of a longer runway until failure.

Unfortunately, as we’ve seen over the course of the past year, many projects are not able to deliver on their promise and are closing their doors faster than expected after having raised so much capital. The point we try to underline is that projects shouldn’t wait so long to fail — test early, fail fast and pivot often. Just to re-emphasize, if you have $20M USD in your pocket, your probability of success should be higher, not lower, if you can apply the right product approach.

Any time we look at a project, we have a fundamental evaluation framework to review its product development approach:

• Why do you need a new token to accomplish what has traditionally been successful without a token?
• Who do you expect to use it and why?
• What are you focusing on first and why?

To build a truly decentralized product, it must end up in the hands of millions; however, without a great product, it will never organically happen.

It takes time to build a good product — especially in this new industry that lacks post-launch success stories to learn from. Regardless, ICO projects should be able to extend their runway with proper budgeting, planning and asset management, giving them more time to build a truly amazing product. You can’t pay your way into a successful decentralized product, but you can build it — it just has to be loved by its users.