The Bear Market Blues: a broad look at challenges inside crypto companies from late 2019 into 2020
In late 2019, I spoke with multiple protocol teams and a handful of application companies as I considered where to work next. Given the unique perspective of being a candidate, I was able to receive a felt sense of the organization while learning about their challenges directly from leadership.
The state of crypto is, as expected, dejected. Companies are distressed by the markets, and the prevailing feeling I experienced was confusion. Team members often pointed to missed milestones or miscommunications as the problem seemingly missing the root cause of issues.
Based on my experience, two fundamental challenges appeared across the industry:
- Organizational: Lack of experience running an organization
- Strategic Direction: Uncertainty about what to build now that scaling feels solved
Organizational challenges can be broken down further into (1) Leadership cohesion (2) organization-wide process.
Leadership cohesion: It comes as no surprise that founders are unorthodox. A founder’s vision and single-mindedness is the reason the product exists in the first place. As a company grows more significant, the founder’s perspective becomes amplified, and often their strengths become their weakness. A vision held too tightly won’t be open to learning the market dynamics, and single-mindedness can mean raging fires outside their tunnel vision receive no attention.
Instituting a strong leadership team is one option to balance an eccentric founder (balancing when necessary and not otherwise) and help ensure success. After all, the product created is a direct reflection of the founder.
Organization-wide process: As teams hit 30 employees, they begin to face growing pains. Although protocols desire the ethos of decentralization, they face the reality of hierarchal efficiency. As a result, implicit and unclear decision making arises. Miscommunication is chronic since everyone is inferring what to do and how to behave. If you see implementation and execution issues, the likely culprit is not having organizational-wide processes and structure.
I experienced this issue first hand at Coinbase when we hit 50 employees, 70, 100, 300 up to 800. It may seem intuitive to hire someone with experience at a ‘large company’ or implement lots of processes, but that would be an overcorrection. Companies need different methods at different stages, and it’s essential to take the time to identify the specific problem being faced.
Strategic Direction The majority of protocols and companies are at a loss about what to build next (excluding the wildly visionary protocols). If you look back, Ethereum rose out of Bitcoin’s failure to deliver a smart contract platform. As Ethereum faced scalability issues, entrepreneurs jumped in to solve the scalability problem. Those that solved the apparent problem don’t have conviction for what to do next. Worse, the market became saturated with protocols offering scalability without any differentiation.
Nearly every protocol I spoke to repeated the need for dev tools, use cases, DeFi, and NFTs. Without arguing if this is the correct strategy, it’s clear protocols are making the same mistake: solving the apparent problem. My concern is that once we solve “dev tools” in a few months, we’ll face the same challenge: lack of differentiation.
Over time, imitation makes the trend obsolete. As Warren Buffett says, “What the wise do in the beginning, the fools do in the end.”
To truly address the issue, protocols need to determine their mission/vision from first principles, and then develop a strategy with conviction.
Note: once the market turns around strategic and organizational challenges seemingly disappear. In bull markets, the challenges shift towards scaling and keeping the wheels on your rocketship.
Fun fact: Fred once plotted Coinbase’s employee engagement score against the price of bitcoin. Correlation doesn’t imply causation but we were happy when bitcoin us up and less happy when it wasn’t.
