According to recent research, by the end of last year, more than $20 billion was raised through ICOs.
We watched the boom of these offerings and witnessed the test to a famous thesis of the importance of social capital for rapidly scaling companies.
Many projects were under the assumption that there is a massive benefit in building a large community as soon as possible, even before there is any actual tech product developed. The overall premise was: if we raise a lot of money without going through strenuous traditional VC fundraising cycles and have a vast global community from the beginning, we win.
Seems reasonable at first glance, especially since in the traditional VC world, traction is such a massive key to success.
However, according to research, it is not always beneficial to have a significant public community.
In a company funded by “traditional VC”, there is usually a different growth curve. A company will form, start working on a prototype, and start trying to gain customers for its prototype.
Typically, once they have a pilot/customer or two, they can raise a little bit of capital, which they will use to build out a stronger (though still small) team.
This will focus and refine the product until they can bring it to a slightly wider market, and try to charge customers for a product which is continuously being refined and “market tested”.
Once the company has achieved a “market fit” product, it will usually raise a large amount of capital to spend on marketing, and this is when the size of its community booms – nucleated by a core of early adopters who have been using and appreciate the technology.
So the “explosion of growth” happens fast, but it needs to occur on a strong company foundation.
This is in contrast to many of the companies from the ICO era, whose community consisted – and still consists – of token holders whose participation in the fundraising event was driven by speculative returns instead of the desire to use the technology.
It is also worth noting that in a traditional VC-funded company, issues associated with having a sizeable public presence and community are typical. By the time a company reaches C+ status, it has scaled its technology enough to start reaching for social capital, and the sums of funds can get bigger. Many companies who do choose to expand their communities then quickly hire a C-level executive whose job is to manage, lead, and design long-term plans for a successful company/community relationship.
When it comes to new blockchain companies attempting to raise large amounts of funds forgoing strenuous VC cycles, the story is a bit different. They assume that the community should be following the development of the company and will be excited that there is actual development.
Many blockchain companies are only now launching a proof of concept technology, and to do so concentrate their attention on the development of tech. They are acting like early-stage start-ups but have the liabilities of mature companies. They think that PR and marketing can fix apparent problems they are experiencing with their token holders/community, so they spend more money on PR and marketing.
While those are critical services, this approach also only fixes the symptoms rather than addressing the issues caused by the lack of executive community management within an organisation.
How do we solve problems that blockchain companies experience with their social capital?
I believe we can eliminate many issues if companies hire a C-level executive whose role is exclusively dedicated to the task of leading the company’s community. Facebook, Google, and other large companies who possess significant social capital all understand the value of this and have executives and teams dedicated to community leadership and support.
There is a misunderstanding about executive roles, and sadly, the CEO is often burdened with the responsibility of playing the role of the community leader. We should understand that a CEO’s job is to build and lead the company – driving the development of a community is outside of their scope. The same goes for the CMO – for some reason, they are often assigned this task and yet, once again, it is outside of the reach of their expertise.
If you choose to acquire and grow social capital for your blockchain company, do it right – hire an ECO (Executive Community Officer). If you can’t afford to do so, use a company that offers this service.
A proactive strategy is key to success.