How Entrepreneurs Fail At Blockchain Startups

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The development of a project to completion is a marathon. Unfortunately in the business world, not everyone makes it.

Presently, there are more failed blockchain projects than there are successes. As a consultant on a number of blockchain projects, I have discovered many of the same patterns will repeat themselves. Such issues can serve as red flags that a project is doomed from the start, even with the best idea that could change an industry for the better.

Generally, a successful blockchain platform starts from a well crafted idea. This leads to the majority of startup companies beginning their initial efforts with the best of intentions. Entrepreneurs are meticulous in discussing their ideas and visions within their own group. The hours spent at coffee shops has made them galvanized and energetic towards completion of their dreams. However, since dreams do not guarantee success, here are some issues that should always be addressed by any blockchain startup.

Organizational Structure:

Meeting a new blockchain startup group is always insightful right from the beginning. It amazes me how often I sit down with a group of blockchain entrepreneurs and have to ask, what is your business entity? This is when I get a group of confused looks pointed in my direction. Whether it is an LLC, C-Corp, or even just a partnership written on a short contract, you need a business structure.

A business entity needs to establish who owns it, who contributed to it and what are rules for its operation. Often overlooked is also the details as to when the entity will end. There are major tax and governing consequences to the business entity chosen which varies by jurisdiction. Such a decision needs to be made by the blockchain startup group and with the correct information before venturing out into the business world at large. Very often the response I am told is, “we have a handshake agreement.” In professional terms, that means as a group of people you have no organizational structure, aka – nothing.

Family and Friends Will Equal Conflict:

When it comes to family and friends starting a business, it is not uncommon to discover that one family member of the group supplied all the capital while the other holds all the power and ownership. Also, it is common that family members of a group operate on faith that everyone will be honest. If people were generally honest, I wouldn’t have a career. Family and friends have a higher potential to cause conflict for a project because they do not operate within normal business parameters. In other words, they know where you live and telephone calls don’t stop at 5pm. This situation can be avoided by having everyone’s role spelled out in contract form along with rights and responsibilities listed under the organization’s governing documents. It also helps to avoid litigation down the road. Trust me, family members sue one another regularly and the conflicts are epic.

Understanding Professionals:

For consultants, tax professionals, lawyers, programmers, or other professionals, we serve in a limited capacity. Our job is to assist with the blockchain startup endeavor in a very specific role. As someone contributing to the project with a specific task, it is not my job to serve in a managerial or ownership role. When dealing with young entrepreneurs in particular, this becomes important as a distinction. I often experience the situation where a member of a group is calling me because there is a conflict among the members in the blockchain startup group. Also, there are complaints because milestones to a project are being missed and the head of the group is not leading the others or ensuring work is completed. For professionals with a limited role on a project,  it is not our job to break up conflicts. As individuals without any ownership or managerial roles in the business entity, we have no authority to break up conflict and take over a project outside of the scope of our engagement, even if we could do so based on our age and experience. Our job is to complete our contractually assigned tasks. Whether the project is a success or not, we still are entitled to our payment for services. Like Evel Knievel, we get paid for the attempt.

Lead or Get Out Of The Way:

I worked on a number of projects whether the principal owner of the startup company did not know how to lead others. It reached a point that major decisions needed to be made and the owner was paralyzed to make them. Weeks would be lost to inactivity because the principal owner did not know how to deploy the individuals working on a project or to ensure others were completing their assignment tasks. If you are going to be the principal on a start-up blockchain project, you need to be prepared to lead others. If you are not comfortable in that role, there is no shame. However you need to make a decision to bring on others to lead the project or reconsider why you started a blockchain entity in the first place.

Is Your Project Legal?

This may seem like a simple question, but with all good blockchain ideas, there needs to be a compliance view perspective of the activity. On a number of occasions I reviewed a potential white paper or business plan and had to ask questions such as whether the group was licensed or approved by a government entity for their particular blockchain project. In an extreme situation, a rookie entrepreneur may ask, “Are you saying I need governmental approval to use our blockchain platform to sell plutonium on the open market?”. You need to research your blockchain idea and how the industry you wish to apply to may require additional regulatory compliance, licensing, government approval or even insurance bonding.

In Conclusion

While these are not the only problems that start-up blockchain companies face (let’s not forget about the SEC regulations, investors and funding), these are easier problems to solve with advanced planning. Remember to research your idea to see what the legal and regulatory requirements are or will be. Create a business entity and get all the principal owners signed with a contracts and business governing documents that details as much as possible. Hire the right professionals to assist your project and know how to lead everyone towards completion of milestones on the road to success.

Edward Maggio is the Editor in Chief for Business Blockchain HQ. He is an author, attorney and blockchain expert who uses his knowledge of commercial transactions and project management to support blockchain endeavors in Washington D.C. and New York City.

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