Looking at ICOs through the lens of “The Lean Startup”
How a book from 2011 is shaping the development of 3 major blockchain projects.
The ICO wave is a global phenomenon that has reshaped the way startups do their funding. Besides the ease of access to capital, many companies now seek to implement blockchain technology in their underlying product and create what is referred to as decentralized applications (dApps).
As promising as blockchain startups are portrayed, the philosophy behind launching an enterprise — whether it’s a tech start-up, a small business, or an initiative within an already existent corporation — is fundamentally a hit-or-miss proposition. Up to this day, the ICO formula implied that you assemble a team, write a whitepaper, introduce a product, pitch it to investors, and start selling as hard as you can during the ICO.
And somewhere in this sequence of events, you’ll probably suffer a fatal setback. The odds are not with ICOs: according to EY, only 29% of the ICOs from 2017 have working products or prototypes, and the 2018 statistics are expected to follow the same trend.
“Having a vision for what you want is not enough. Vision without execution is hallucination.”
— Thomas A. Edison
Although people invest in the idea at first, in the majority of cases it is highly probable that there’s no need for the product in question.
After 2 years of watching ICOs follow this recipe, we’ve now learned at least two important things:
- Business plans rarely survive first contact with the public. As Mike Tyson famously said about his opponents’ prefight strategies: “Everybody has a plan until they get punched in the mouth”.
- No one besides venture capitalists and the late Soviet Union requires five-year plans to forecast complete unknowns. These plans are generally inflated in order to secure capital from the investors.
The ICO frenzy has instilled the misbelief among blockchain startups that they need money in order to make money, when really the challenge is to create a viable product.
Ironically, blockchain startups that didn’t go with an ICO right from the start can ride the current wave of ICOs to the next level. Contrary to the common strategy adopted by ICOs, several blockchain startups have taken the bold move to test their product before involving potential investors.
Entering the Lean Startup Method
The lean startup method is the de facto framework that startups today use to test and grow their startup businesses.
The “lean” term, as we know it, comes from the book “The lean startup” by Eric Ries. The name actually comes from “lean manufacturing”, a term introduced by Toyota that describes a simplified process of manufacturing.
Essentially, the book is about a mindset that can mitigate your risks going forward as you pursue your startup and increase the likelihood of finding an idea or product that sticks.
Keynotes from the book:
- The only way an idea can improve and gain traction is to achieve what is called “validated learning” (learning what’s true because we tested it).
- The most effective approach is to build MVP iterations that we push out in a reasonable amount of time to see how our customers react.
- When running an MVP experiment, the result usually gravitates between one of the 2 extremes: Your idea matches the users’ expectations or it falls short.
The lean startup movement hasn’t gone totally mainstream, however, with the level of uncertainty present in the blockchain industry, it can be a valuable approach for ICOs.
As a point of analysis, we’ll reference 3 blockchain startups that have successfully applied aspects of the lean method.
Funding type: Had a presale
Origin is building a protocol that enables the creation of many decentralized marketplaces, allowing buyers and sellers to connect and transact directly on the blockchain.
Origin has released their alpha on the Ethereum testnet 3 months after releasing their whitepaper. Shortly after, their idea has received the green light from Pantera Capital, which invested $3 Million worth of tokens for the advancement of their product.
Funding type: A ConsenSys formation
The uPort identity is a complete digital representation of a person (or app, organization, device, or bot) that is able to make statements about who they are when interacting with smart contracts and other uPort identities, either on-chain or off-chain. The real power of uPort is that it makes any Ethereum app more approachable to end users without them having to endure complex key management.
uPort held the initial launch of the uPort ID alpha program at the beginning of 2017, getting their mobile identity wallet into the hands of thousands of users over the course of the year.
The use-case of their product has generated interest for the Brazil Ministry of Planning as well as for Crypto Valley (Zug, Switzerland) when they ran a pilot to register government-verified citizen IDs on the Ethereum blockchain.
Funding type: Self (at least at the moment)
Colony aims to enable the creation of decentralized organizations that are broadly meritocratic, meaning that when it comes to decision-making and power, it’s merit (rather than wealth or status) that should determine who has influence. It’s like Aragon, but with a focus on the tasks part of an organization.
Colony had put in roughly 2 years of intensive work before releasing increments for their product along with the technical whitepaper. Composed of a team of 8 purebred developers, they have advanced their dApp without any crowdfunding.
In their case, the product included cognitive — as well as social — variables which made it harder to assess the success rate during the initial stages. Therefore, their team chose to spend all resources on creating the Colony environment.
Customer Reaction + Faster Development = ❤️
Eric Ries describes an MVP as follows:
“An MVP is the version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.”
Most startups rely on the feedback of the community they have built over time. At this point, its members can vary from hundreds to tens of thousands, which constitutes a generous sample.
Despite the fact early versions of any product are by definition imperfect and prone to bugs, the community can give early indicators whether the team is on track with their idea or not.
The lean method, if applied to the ICO market, can have a dramatic effect of boosting the success rate for startups and set a new standard for proper execution.
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