My newsfeed is quite often filled with "listicles". You know the type of article that I’m referring to. They have titles like “five to things that you should do if you wish to live longer”, or “eight habits shared by all high performing business executives!”
While these articles are generally pretty vacuous, I try to read one or two occasionally as they can sometimes be filled with hidden gems of information. Recently I read one such article and it made me pause to think about how I view my crypto currency investments.
The article was titled “The Number One Reason Why Start-Ups Fail.” The article did not address crypto currencies directly, but tackled the more general issue of why some new businesses succeed while many others will fail. The opinion of the author was that the number one reason why new start-ups fail is that the problem that they are trying to solve is not big enough. In other words, it’s not that the new business’s product is not useful, but more often that is not useful enough, to enough people, to make the project commercially viable.
I can illustrate this with an example from my own personal experience. Several years ago, in my role as an investment adviser, I met with a potential client who had started a company to manufacture a product for pet owners. We’ll call him Joe for the purposes of this article.
Joe had identified that many people like to take their dog with them when they go to a café, and that quite often there was nowhere convenient for the dog owner to tie their dog up whilst they go inside. Joe devised a product which he called “Pet Parking “ to solve this problem. It was in essence a small hook that the café owner would fix to the wall outside the café so that you could conveniently ‘park your pooch’ whilst you went inside and placed your order. It was the dog owners equivalent of the hitching rail that you often see outside the saloon in an old Western movie.
Now it is not that “Pet Parking” isn’t an issue. I’ve got a dog. I like to go to cafés. Quite often it can be an inconvenience when there isn’t somewhere to park my pooch. Realistically though it’s not that big a problem and there are a variety of ways that I can work around it.
I can sit outside with the dog while my wife goes inside and orders, or I can tie her leash to any other convenient fixture such as a park bench or a handrail. Ultimately what often happens is that I simply go to a café is where it’s convenient to take my dog. It would be great if every café was purpose designed to accommodate my pooch, but at the end of the day pet parking just isn’t that big an issue in my life.
Joe was a true believer in his solution however, and invested over $70,000 in the project. Needless to say, the product never took off and I suspect that Joe lost his entire investment. I would argue that the problem that Joe was trying to solve was simply not big enough.
How is this relevant to crypto?
As with most things in my life lately, this article got me thinking about crypto. Crypto projects at their hearts are start-up businesses. They may not fit some of the other definitions that we apply to traditional businesses, but in the simplest sense, crypto projects are groups of people who are trying to solve problems. Just as is the case for other start-up businesses, the likelihood of a crypto currency being successful is intrinsically linked to the size of the problem that that the project is trying to solve.
If you apply this line of thinking to your crypto currency investments it provides you with another tool that can help you determine which projects are likely to be successful, and which are likely to fail.
Consider the grand daddy of all crypto currencies. Bitcoin.
Bitcoin was created directly as a result of the loss of trust in traditional financial institutions that flowed from the Global Financial Crisis (GFC). People need the ability to transact via a commonly accepted medium of exchange, but many were so disenchanted with mainstream finance after the havoc that the GFC wrought that they felt a new solution was needed. Replacing a large chunk of the global financial system is a problem of epic scale.
Contrast this with the example ofa crypto project that I examined many months ago and whose name I can now no longer even recall. This project was based around the provision of serviced office spaces to young professionals that could be paid for using crypto currency. This is a service that I am very familiar with. I regularly utilise serviced offices when I am travelling to see clients. An inability to pay for these services in crypto currency has never been an obstacle for me. That’s not to say that we won’t one day be paying for services like these with digital currencies, but a lack of crypto currency enabled commercial office spaces is not something that keeps me awake at night.
I’ve not reviewed the progress of this project in many months but would argue that the problem that it is trying to solve is so niche that it will be very difficult for this project to succeed. When there are so many compelling and creative projects in the crypto currency space to choose from, this was not an investment that I found compelling.
Start-ups fail for many reasons. There are a multitude of different crypto projects to choose from when making decisions about where to invest your money and they will succeed and fail for a variety of reasons. As a simple rule of thumb however, giving consideration to the simplest of questions: "What Problem Does This Project Seek to Solve?" can be a very useful tool in weeding out some of those which are least likely to be successful.
Photo by Josh Seff on Unsplash
Hi Ag,
This makes complete sense. The cryptos I've recently swapped out to cover industries or needs that a dying to have either further competition (SAFEX vs Alibaba, ebay Amazon) or just fill a niche or create value - IUNGO (decentralised WIFI), DENT (buying and selling of unused phone data) and NEXUS (Connecting with a sister company sending small disposable rockets into space to enable micro-satellites cheap access to orbit).
Top bit of of writing, man. I'm going to check out your other articles.
Nick.
Thanks Nick,
Glad you found it informative!
Hey @aghunter 😊
Totally agree about the importance of the problem being solved. We focus a lot of tools on measuring the size of the problem before we invest much time or money at all.
I think with crypto a lot of the issue is also timing. People who are into crypto understand the problem and the solution way before their potential market even see the problem.
It's not enough to solve a problem - you have to solve one that is 'on the radar' of your target market.
Although in some cases I think crypto projects will time it really well. By the time they have built and tested, the general public will be waking up to the problem.
... nice to see one of your posts 😊. You haven't been in my feed much lately
Hi Bec,
Its been a while. Real life has this annoying habit of getting in the way of my online persona :)
I think timing is huge, and also accepting that you don't know everything. If you had told me 15 years ago that I would have had a camera in my phone I would have laughed at you! There are a lot of technology project that are probably solving problems I don't even realise I have.
Don't you hate it when real life gets in the way! 😉
Team, project, working product and does it solve a problem and is it needed? If it ticks those boxes it is worthy to be a cryptocurrency. Further research is a must. Good luck everyone.
Geez, I've missed these long-form posts.
And after seeing this latest $800 trending post (30 sec read) I thought, we were heading in the wrong direction - https://steemit.com/life/@cliffpower/making-a-difference
But to the point. The number one reason most crypto projects fail is they just focus on crypto and as you say that niche is too small.
People either don't have crypto to spend or won't spend it because they believe it'll moon (one day) and don't want to be that guy that paid too much for a pizza.
Which makes a crypto-based business difficult to build. Although everyone wants someone else to develop crypto businesses for their tokens to push the price forward but very few are actually prepared to spend their crypto to support them.
I see our initial business model acting more like a faucet. We have the ability to distribute Steem tokens to people who wouldn't normally be interested in crypto, and for zero dollars down they can earn a few tokens in exchange for finding and publishing deals.
The deals/coupon market in the USA is conservatively enjoying over 10 Million views a month. So that's a whole lot of attention we can tap into.
Then phase 2 (group buying deals) will help people to spend those crypto tokens if they choose.
Now we've really focused on making a deals page that looks like other deals sites on the web to ensure people are comfortable spending time browsing. And it's only when they dive in a little deeper will they learn about the reward opportunities and blockchain back end.
And now I think of it, they might not even be interested in claiming rewards at all and we should provide a means to donate to a selected charity account instead.
See this is why we need you around more. You stimulate healthy discussions.
Glad to have you around again. And keep 'em coming.
Thanks mate.
I agree completely with your point above about a lot of the projects being too niche. I think because bitcoin was a currency, everyone has jumped on the currency bandwagon and maybe lost sight of the point of technology, which is to make things easier for people (ie solve a problem.) I'm looking into a few projects at the moment that I will hopefully turn into articles. So of the ways that blockchain is being applied in the real work is fascinating. Ive reached a point where I am less interested in who will be the next bitcoin and more interested in who will be the next amazon or google.
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ICOs are always a risky business! But So are other cryptos! #Tulipcoin
Based on the argument above... from the beginning we can sense what project will succeed and what project go fail. It's not about how good there marketing and promisses are but how much problem it will going to solve. Communtiy around the coin also bring it to succeed.
This make a lot of sense. I think it is applicable to our everyday life.
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