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How Not to Fail a Blockchain Startup: 4 Practical Tips

Nowadays, you come across information on blockchain, initial coin offering (ICO) and how startups are using them, almost everywhere. So let’s discuss some must-knows for anyone eager to launch their own blockchain startup and acquire investments using ICO.

Understand How Blockchain Really Works

The recent hype around cryptocurrency and blockchain is part of the reason why virtually every startup is using these tools. As a result, the founders of a startup often don’t have a full picture of their business.

For instance, John Rampton, the creator of the payment service “Due” admitted that he used to be such a founder, “I reckoned it would be easier for me to understand the work of blockchain in practice, so I hoped that I would deal with the blockchain with time. However, it turned out to be harder than I expected. The lack of knowledge caused a lot of mistakes.” Rampton realized that some of the systems “can operate successfully without operational redundancy and blockchain” only after attempts to introduce a new approach to his project.

Due to a lack of substantial knowledge, he didn’t select an optimized technology stack. He wasn’t alone in this. For example, an entrepreneur decides to use the bitcoin blockchain, because “at least I’ve heard of it, and it works longer than other tools.” Later it turns out that there are many “custom” blockchains that are better suited to his project needs.

Therefore, before implementing blockchain in an existing startup or creating a new one, more time on theory survey is needed. Rampton advises us to study forums on this topic as well as google companies well-known in the blockchain domain and to look up blockchain projects in similar niches. If an information search doesn’t give you any results — well, there must be a reason for it.

Define What Blockchain Will Improve In a Particular Business

In fact, despite its growing hype, blockchain far from improves all the aspects and functions of business. For instance, speaking of applications with a lot of information from various sources, the size of blockchain itself can grow rapidly. This happens because of the peculiarities of the technology implementation, as blockchain replicates itself on every new node. (In this case, the search for external data sources is needed in order to speed the system work.)

Therefore, the second step after studying the work of the technology itself should be its adaptability analysis in the specific business domain. In our case, the blockchain has proved to be an effective tool — we created a lead generation platform for blockchain SNOVio and it worked more efficiently than existing centralized services (Hunter.io). Decentralization and the introduction of smart contracts has helped improve the quality of data in the system — members receive remuneration for the supply of relevant information. In the end, the business receives higher quality leads than traditional lead generation systems, and the details of all transactions are stored in a separate register.

However, we didn’t manage to find such an efficient application of blockchain in marketing domain at once. But if we had hurried, we would have made a mistake.

Think About Monetization

To create a successful blockchain startup, you need to not only understand its technologies and application to solve business problems, but also to think over the project monetization strategy. During one of Quora discussions, Wayne Vaughan (Vaughan Wayne), the founder of the Tierion, infrastructural blockchain startup, identified current popular monetization schemes of such projects:

  • SaaS (Software as a Service): blockchain companies may charge a fee for its infrastructure and API use (Tierion and Blockcypher).
  • Professional services: there are some startups developing customized projects for large clients like IBM, Deloitte and Gem.
  • Commission and subscription: this is another type of blockchain company. It creates its own networks and ecosystems including different partners. It then charges commission for transactions performed or introduces a paid subscription (SNOVioChainR3Cev).
  • Agreements on services level: there are some companies in the blockchain domain creating their own infrastructure for customers, paying them fees for keeping a definite uptime and services supply(Bloq and Microsoft).
  • Cryptocurrency speculation: frequently, in the course of ICO, companies produce their own tokens. The management of the company may receive part of them. Then, these companies can focus on increasing the market value of their tokens. It can be achieved by selling it to speculators(FactomConsenSysLisk).

ICO is Not a Guarantee of Success

Cryptocurrency and blockchain are a new game where the rules are not properly laid down. This can be seen in the objectionable attitude of regulatory authorities in some countries. For instance, the Chinese government has recently banned the use of ICO. In summer 2017, the US Securities and Exchange Commission stated that tokens released in the course of ICO should be considered as company shares. Therefore, a company whose “shares” were bought by American citizens can be regulated by the financial legislation of this country (which is very strict and complicated). As a result, many startups simply prohibit participation in its ICO to American citizens.

Travis Sher, a Partner of Digital Currency Group, indicated four factors aggravating the use of the ICO as a capital raising tool:

  • legal uncertainty;
  • overestimation of many startups;
  • lack of control;
  • lack of success stories in this business domain;

In addition, the organizational process of ICO requires certain costs, principally related to marketing. Benoliel Micah, the Owner and Creator of FireChat, has estimated that the cost of a successful ICO advertising campaign varies from $50,000 to $100,000. For fundraising, a lot of companies perform so-called pre-ICO. Then, after having managed to raise their marketing budget, they get down to tokens issue.

Conclusion: Not a Guarantee, but a Chance

Despite increasing public and business interest, the blockchain is not yet part of everyday life. Right now it’s just a tool, with its related pros and cons, that a startup founder should keep in mind.

However, its perspectives shift all expectations. From the statistics available, we can see that by the early summer of 2017 blockchain projects had attracted $327 million by ICO — more than had been previously invested by venture investors ($295 million for the same period). Tech startups in the blockchain domain not only raise capital successfully, but also create problem-solving products, thus bringing services to a new level.

It means that the use of blockchain does not guarantee success, but it gives a greater chance of success when applied to useful projects and good ideas.

Author: Alexander Lashkov, Content marketing expert at Smile Bright Media Inc.

Link of the article: https://www.indiehackers.com/@AlexisKr/how-not-to-fail-a-blockchain-startup-4-practical-tips-c796ef4eaa

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