When Early Is Too Early: An Anti-Post-Mortem for Blockchain
The 1992 engineering technique we use to tell whether a new technology is valuable or not.
“What’s your take on blockchain now?”
A founder asked me in a meeting.
The quick answer:
We are still waiting for the tidal wave of blockchain startups.
The honest explanation?
Beyond developers and crypto-nerds, blockchain certainly hasn’t scaled beyond the population of early-early adopter customers — and we are starting to see the post-mortems already. But I argue those are unwarranted.
Why? Blockchain hasn’t yet lived up to its early hype. But most early technologies don’t.
Before I explain my thinking, let me first walk through some context:
When is technology “too early”?
There are several known perils when founding companies in new tech areas:
The technology can be too high-friction. Nuances aside, speed and uptime are easy to measure — whether you take bandwidth constraints on online video, pre-2007, or scaling constraints on enterprise blockchains now.
The market may not be ready. That is, buyers are not ready to plunk down credit cards for what you’re building (maybe they are a lot more risk-averse, i.e. classic late adopters). For example, handheld computers were big and clunky in the 90s and weren’t ready for prime time until they were smaller, more elegant, and better packaged in the ’00s.
The focus on technology and UX obscures the third point, which I actually believe is the most significant (and the one founders most often ignore, to their detriment)…
The customers don’t care enough
While there are ways to measure just how much your (current and potential) customers care, chances are that you intuitively know. As captured in Marc Andreessen’s blog post:
“The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of “blah”, the sales cycle takes too long, and lots of deals never close.”
And at the root of why customers don’t care enough isn’t tech or UX…
It’s when inertia or the cost of change is greater than the increased value you provide.
When you can’t explain your tech innovation clearly and convincingly — what you’re building and who it’s for — you risk being seen as “too early.” Do customers want, or sufficiently understand decentralization? When customers aren’t convinced that what you’re offering is ten times better than what they already have (even if it’s nothing), they will not switch. In other words, your new tech toy is not desirable enough to be anything but a niche offering.
For founders of companies in new tech areas like blockchain, the stakes couldn’t be higher.
It delineates either being “first to win the space” OR “too early to scale”.
Another way to look at it is the first two stages of scaling for new tech:
- The first stage: Experimenters, early adopters and tinkerers try it and apply it to a hobby area, and then it can slowly spread. They will adopt even despite high friction because their delight in trying new things is the 10X factor.
- The second stage: It clearly fits into a high need customer use case (and overcomes the constraints of being too early or unpolished) — and finally can move closer towards mainstream (late user) adoption. For blockchain to go beyond hobby marketplaces, it needs to get to the second stage.
So, how can you clarify your value, get customers to care, and scale-like a high-growth startup?
For all this, I propose that we revisit the humble use case.
So, what is the use case? Why is it important for blockchain?
Conceptualized by Swedish software engineer Ivar Jacobson back in 1992, a use case is a specific situation where a product or service could be used.
Just like a story arc, it has certain requirements:
🎙 A story or scenario about when your solution is used
🎰 The market you’re addressing
🔧 The need or problem you’re solving
At Founder Collective, we are big fans of use cases to drive our conviction in a new tech space. (More personally, I started my professional life as a UX developer, and leaned heavily on use cases to validate software interfaces.) In fact, it’s how we as investors think about new technologies like blockchain — I’ll make the case that you should evaluate all your early ideas using use cases.
Whether you’re a founder, developer, or investor, use cases force you to be specific and clear in your thinking, which has many benefits downstream:
⏱ You save time and resources (After all, every single startup is resource & time-constrained, right?)
❗️You prioritize better. (The more efficiently you can build and hone in on an exciting commercial opportunity, the more competitive your business)
🗺 You can make the best possible product, and win at going-to-market!
For blockchain, a few good use cases have taken hold — but it hasn’t touched most consumers (yet). One benefit of blockchain technology is that it allows the opposite of “security through obscurity”, instead of providing the opposite: security through transparency. It thus can provide confirmation of transactions through a publicly verifiable record of the handshake occurring. One good blockchain use case is “paper ledger” businesses (digitizing ledgers in businesses where records are often still paper-based) because there are obvious customer markets and pain points. It makes a cumbersome process more efficient. An even more specific example is in shipping logistics, where blockchains can be used as a ledger recording the movement of goods (formerly kept track through paper records filed at each port of entry).
The user stories look like:
“As a ship captain, I can digitally sign a bill of lading, so that I can release goods.”
“As a port manager, I can digitally sign a bill of lading, so that I can accept the goods.”
“As an auditor, I can view a record of this transaction, so that I can prove it occurred.”
This is a very simple example, but one where there is a clear use case, and it feels similar to the development of a SaaS product.
The other great use case is for currencies: where the publicly verifiable record of the transaction occurring is as valuable as the transaction itself, so quite materially significant for the transactors.
What do great use cases have in common?
🏹 They are *very* specific, and will highlight the following:
💊 A strong pain point: If you are making an incremental improvement on existing solutions, your customers may choose to stay with what they have. Founders sometimes overvalue customers’ need to have the latest tech. In fact, founders are obviously more likely to be early adopters; the majority of the market, not so much.
🚄 The potential for quick adoption: If you’re going to spend years waiting for purchase decisions, it’s tough to learn and iterate fast. The savviest founders prioritize attractive market segments where adoption can be the fastest (because of buyer conviction, decision-making frameworks, adoption speed, and above, severity of pain point). Early blockchain efforts focused on enterprise use cases, but the long sales cycles and major efforts from incumbents mean that its tougher for young, scrappy new entrants.
🌎 Large market worth tackling: This is more of qualification for venture funding. Any insufficiently large market may not be worth pouring venture money into, but could still be very worthwhile for a bootstrapped or side project.
To conclude, blockchain founders can utilize use cases for speed and growth, if they:
🎟 Pick one use case to address: One problem, for one set of customers, in one industry. If you’re trying to do everything, you’re not being strategic.
🍭 Be relentless about low friction for adoption: How can you make it easier for customers to adopt you? Listen hard to objections during a sales meeting, and better still, seek them out. Develop blockchain software that is as easy to use as a SaaS product.
🛣 Strategically choose your first market segment: Where is the highest need, lowest friction for adoption, and fastest sales cycle? Start here.
💦 Understand acquisition costs: Distribution beats product. If you can’t get the word out effectively, your undistributed product is the tree falling in a forest with no one to hear it. What will it cost you to acquire new customers, and distribute as fast (assuming profitably) as possible? Understanding your cost of sales or digital acquisition (depending on your product) is the new COGS. Determine whether the term “blockchain” even needs to be part of your marketing strategy or if it’s a distraction. Our first blockchain investment does not mention blockchain anywhere on their website. Inventors and makers are still so focused on saying “blockchain for XYZ” when they really should be saying “we are solving XYZ with this tool.”
💖 Inspire a “ready-made” community: When you can inspire or tap into a community of already engaged users, you gain one more vector for growth.
🕺 Double down on what uniquely works for you: There will always be quirks in what you’re good at, and taking advantage of them is an often overlooked strategy!
What’s the best use case you’ve seen? Leave a comment, or tweet me @parulia.