An Initial Coin Offering (ICO) is the cryptocurrency version of an Initial Public Offering (IPO), and they have taken the digital world by storm. Many people are jumping on board to get a piece of this digital pie, but the pie (like many blockchain startups and blockchain projects) may disappear just as quickly as it is conceived. And like blockchain startups, a large number of ICOs are failing, and we will explore why they are failing faster than other traditional businesses and what’s in store for the long-term future of ICOs.

 

Bad Ideas Make for Bad Business

One of the simplest explanations for why many ICOs fail is that they were simply attached to bad business plans. Just as the burger joint opened in a primarily vegan neighborhood is doomed to fail, or the dog-walking service launched in a high-rise where 99% of tenants own cats will never succeed, the shoddy business plans attached to many ICOs are the cause of their demise.

It has been easy for people to get swept up in the coin craze without giving serious thought and attention to whether their idea is a good one and whether it merits tokenization at all. While you may have created the world’s best under-eye cream, destined to make users look 10 years younger overnight, are they really going to purchase that cream in a token system? A system that is not yet widespread enough to warrant the consumer demand needed to launch a product?  The future goods or services promised by an ICO need to be much stronger than a single product.

Defining the Audience: Too Specific or Too Broad Can Both Cause Failure

Cryptocurrency is intended to be global; it is free from the regulations of regional currencies but it is still not met with equal demand or interested across the globe, and this plays into the failure of ICOs. The bottom line is that ICOs in developing countries are unlikely to see enough demand to launch successfully. On the other hand, limiting the project to a very specific region (perhaps in a wealthier area) can still mean you won’t be able to generate enough interest and investment to make your project work. Getting this right—defining the audience and region for the ICO—is no easy task and another reason why so many fail to launch.

Low Tech Means Low (or No) Success

Understanding the technology behind cryptocurrency (specifically the blockchain technology) is critical to creating a successful ICO. Skimping in this area will undoubtedly lead to failure. Picture this: on the day you open your coffee shop, you realize that no one on your team knows how to install, program, or operate any of the expensive brewing machines you have purchased. You may as well turn the “open” sign back to “closed” and pack it in and call it quits. You cannot get the coffee to the people who want it if you don’t understand how to make it; similarly, an ill-conceived ICO without a thorough understanding of the background technology will fail. If you do not have the expertise (or are not willing to pay for it) to build a secure system for your tokenization, you will no doubt be the target of cyber attacks. The world of cryptocurrency is a battle between the good guys and the bad guys: the bad guys know how to spot and exploit your weaknesses.

Bad Marketing Makes for Bad Brands

This is another area where ICO failures are much like traditional business failures: poor marketing efforts can kill a business or prevent it from ever getting off the ground. If we think back to the coffee shop, let’s say you DO know how to operate all the equipment and you are sure your baristas are capable of serving the world’s best coffee. But you opened in an out-of-the-way location, you have no social media presence, you have not advertised in local media outlets, you are not actively participating in any local business groups, and you have not organized a grand opening event. There is no way you will sell enough coffee to stay open for the long-term, let alone a week.

The lack of marketing and established a strong brand identity kills ICOs in a similar way. Every element of your ICO, from the website you build to the way you communicate with potential investors, should be slick, polished, and professional. You are advertising your business to try and get people through your “digital door.” If you do not reach enough of them, and if you do not impress them visually, you will not see the demand needed to get your project off the ground.

The Devil Is in the Details

The ICO craze has people leaping without thinking: the project has to be supported by a realistic business plan. Too often the financial goals associated with an ICO are simply unrealistic, or the plan lacks appropriate checks and balances and tools for measuring and reporting. Any team launching an ICO needs at least one good “business mind,” if not several, to ensure the project is thoughtfully and carefully conceived and managed. This individual does not necessarily have to be a blockchain expert (though you cannot skimp on that either). An ICO’s chance of success is strengthened by a team with solid expertise in all areas. Think of some of the most successful “digital projects” in the world, using Facebook as one example. This is a platform that is constantly evaluated and measured to inform improvements and tweaks needed to upgrade the system and enhance user experience. A cryptocurrency project is no different: it has to be measured and managed constantly with a careful eye on every last detail.