Cointelegraph tapped into the experience of several startup founders to get an idea of things aspiring entrepreneurs should avoid when starting their own business in the cryptocurrency industry, which for many is still uncharted territory.
Before big banks began taking a serious look at Bitcoin, some visionaries realized the potential of this new technology early in the game. Many have since started their own companies, such as CoinBase or BitPay, while others’ ventures fizzled out or fell victim to “wild west” conditions of this volatile space.
So what are the most common mistakes that Bitcoin entrepreneurs make? In a follow-up to the 5 must do’s for any Bitcoin business, below are five things crypto startups should avoid to boost their chances of success in the new industry.
1. Don’t Push Your Product If It Isn’t Ready
This may seem like common sense, but far too many startups have made the mistake of promoting a product that’s not ready for market, or worse — one that’s not even operational.
Does your product work? If so, it will not only demonstrate to customers and potential investors that you are for real, but will also facilitate trust, and provide you with feedback that can be used for further improvement.
Simon Dixon, the CEO of BnkToTheFuture, an online investment platform that recently passed the $10 million invested mark for blockchain startups, explained to Cointelegraph:
"We love to invest in Blockchain businesses where we can play with the technology already. We like to see how customers are using it and what they are saying about it.”
Without a tangible product, your idea might still attract believers and even lead to a successful crowdfunding campaign. However, not every company is Ethereum, which has been criticized as “vaporware” by some. And while it’s true that software needs time to be developed, tested and honed, a ready-made solution will undoubtedly be much more attractive for users and investors alike.
“I think currently the climate is very untrusting and so I would advise not to say much before you have something real and tangible in hand,” adds Dor Konforty, CEO of Synereo, a fully decentralized social platform. “It's less about ‘ready for market’ than it is ‘working technology.’"
2. Don’t Pitch Ideas to Investors
The invention of Bitcoin opened the door to a whole array of new possibilities around blockchain technology. Hundreds, if not thousands, of novel ideas have sprung up in the minds of ambitious entrepreneurs, from new payment methods to literally going to the moon and beyond by using the blockchain for space exploration.
Dixon says:
“Blockchain ideas are normally funded by the founders. Launched products with customers and a team behind them are funded by investors.”
In other words, ideas are a dime a dozen. Thus, investors are attracted not to just promising ideas, but preferably a launched product that has already established a customer base, along with a team to support further development.
This is because investors are averse to risk. A brand with a ready-made product, an experienced team behind it, along with a clear vision already has a greater chance to succeed than an idea that hasn’t yet materialized, no matter how good it may sound or how glossy that PowerPoint presentation may be.
“Clearly articulate the real-world problem your startup is solving and quantify the value,” adds Ribbit.me CEO, Gregory Simon.
Does your product address a real-life problem? How big is the profit potential of the solution? These are all crucial things to address before making that pitch to potential investors.
3. Don’t Use ‘the Blockchain’ (If You Don’t Have To)
“Is using the blockchain for the problem you're trying to solve really the way to go?” asks Konforty. He continues:
“Too many crypto projects see the blockchain as the ultimate solution to all problems, not bothering to explore the issue they're trying to solve deeply to see whether what the blockchain provides is relevant at all.”
Indeed, many firms, particularly in traditional finance, have jumped aboard the bandwagon using the “blockchain” as a buzzword, while divorcing it from Bitcoin, to create an image of a tech-savvy and forward thinking company.
“It becomes a sort of ‘me too!’ situation where people want to have a blockchain-related product, rather than to overcome a pain using novel means,” adds Konforty.
So ask yourself, is your product reliant on a blockchain to function? Can you use it for transactions, record keeping, as a data layer or for some other application? If not, then it might be best to go the old-fashioned route in order to avoid disappointing your customers and investors.
4. Don’t Be Anonymous
Anonymity is great if you are a user who values privacy. However, executives whose company’s success depends on reputation must not only be visible, but they must be real people who interact with their customers and business partners.
One telltale sign of a scam, still all too prevalent in the cryptocurrency industry, is a company without an ‘Our Team’ page, with no photos of its members on its website. Even though some fraudsters are brazen enough to flaunt their online gravitas, most criminals would prefer to keep their identities secret and run off with the cash before the dust settles.
“Transparency is vital for the future success of a company and an important part of this is trust,” said Ronny Boesing, CEO of CCEDK. “It’s the human factor that is vital for success, which is impossible with anonymity.”
Having a transparent team that customers know is real people will instill greater confidence in your product and company as a whole.
5. Don’t Keep All Your Eggs in One Basket
If you are finally seeing an influx of funds — from crowdfunding, investors, sales, etc. — your next move will be to ensure that these funds are secure. Incidents such as the Mt. Gox heist have taught us that digital currency stored in a single place is not only a welcoming sign for hackers, but also for the authorities to confiscate your funds, if they deem your actions illegal.
“It’s getting better than it was a few years ago, but unfortunately, if your startup is remotely related to Bitcoin or blockchain technology, be prepared to have bank accounts shut down with little to no notice,” explains Gregory Simon. “It’s not that banks hate Bitcoin — it’s just the regulatory uncertainty and the bitcoin counterparty risk uncertainty leading these decisions.” He concludes:
“It’s a good idea to have multiple bank accounts set up just in case.”
Multiple wallets, cold storage, multisig, escrow accounts, and other security measures would all help to ensure that your money is stored safely. Because what could be worse than successfully raising funds, only to lose them all because of something that could have been prevented?
Are you an entrepreneur, or are you thinking about starting a company in the crypto space? Please share your own experiences, suggestions and comments in the section below, which may be used for similar articles in the future.
Note: This is the first part of a multiple part series on ‘Do’s and Don’ts for Bitcoin Businesses.’ Be sure to look out for part two with more tips coming soon.