It seems as though Initial Coin Offerings (ICOs) are all the rage these days and while many have been successful, there are several reasons why a project can fail. Unfortunately, there are many projects out there that simply don’t require a token for their product or idea. The market and investors are becoming increasingly savvy and cautious, which means launching an ICO is a much more difficult task.
While ICOs have matured over the past year, statistics show that in September 2017, 66% of ICOs failed to reach their funding goal. There are several reasons why an ICO will fail, but the same pattern tends to emerge from unsuccessful raises.
If you sincerely believe there is a legitimate reason to create your own token and launch an ICO, then I challenge you to hold up your beliefs to this litmus test and see how it fares. Today’s ICO market is oversaturated and highly competitive, but if you are looking for success, it is paramount to set your organization apart from the competition. An ICO can be a very powerful tool and can help you realize your dreams, if executed correctly.
Have transparency from the start
We are working in a new industry with a lack of regulations and that makes it very attractive to scammers who have no intentions of following through with promises once their ICO is complete. In a previous blog we pointed out the signs to look for in an exit scam ICO, but the same signs can be found in some legitimate ICOs that simply don’t know what they are doing.
If you are conducting an ICO in good faith, it’s important to be honest and transparent right from the start. Your intentions should be clearly laid out and be able to pass the critique from others. Project supporters are becoming increasingly more sophisticated and it will take more than just buzzwords to get them interested and excited. Hard details, a transparent plan, and honesty is needed to persuade investors to part with their money.
This includes having a strong reason to include a token in your business model. Could it run without a coin? If your project isn’t centred around the token, it is likely to fail. Ask yourself “Can my company succeed without the token?” If it can, then you need to consider another option.
Taking on More Than You Can Handle
We see so many ICOs that have poorly written code and this leads to glitches in the smart contract or allows for hackers to exploit weaknesses in the programing. This can lead to a collapse of the project, theft of large sums of money, and it leaves supporters and investors questioning the validity of your project. The majority (60%) of projects use the standardized ERC-20 token to bypass this issue as it is tried and tested. But for those (30%) who choose to launch projects on their own blockchain, they need to be very cautious.
Often we will see that these platforms can’t handle the volume experienced during an ICO. This happens more often than you think with popular ICOs are launched. Take the Basic Attention Token (BAT) ICO for example. They generated about $35M and sold out in under 30 seconds.
If you think your ICO is going to be very popular, you will experience large transaction volume, and you must ensure your platform can handle it by taking preemptive actions to mitigate the effects.
Of course poorly written code isn’t the only problem that can plague an ICO, biting off more than you can chew is a common problem too. You want to launch a token, and also do smart contract, develop dapps, and manufacture a tangible product. Sounds like a lot right? Well most of the time it is. If you have numerous ideas and projects in a single launch you might want to reconsider your progression and timeline. If you fail at your ICO, you fail at all your projects.
It’s advised to focus on just one or two things, do them very well, and consider additions in the future. If you try to do too much at once you not only run the risk of failure, but also confusing prospective supporters with an information overload. Most backers need to understand a project fully before parting with their money. So, if you can’t convey your project in clear terms and simply, it’s worth re-considering how much you are willing to do at once.
Having a Target Market that is Too Big or Too Small
Projects that are too niche or specialized can sometimes reach a point of uselessness. We read about it in crypto news all the time — a niche coin fails because nobody would actually use it nor the project. It may seem like a great idea to have a coin for something trendy, but what’s to stop them from using another established currency to pay for these things.
On the flip side, if your target market is “everyone in the world” it might be a good idea to identify your early adopters first and then move on to the rest of the world. When you don’t have a customer persona identified, it can be extremely difficult to target your marketing. Of course you want as many people as possible to use your product, but in reality, the ones that will be using it will likely be those who are already blockchain savvy and have knowledge and trust in cryptocurrency. Let’s be honest, this technology hasn’t been adopted by the mainstream world yet, so keep it simple and targeted. Once you have a solid following, a good track record, and a high number of use cases, you can begin to broaden your targeting and market to different consumer segments. Just take things one step at a time.
Having a Weak or Silent Team
If you are starting this company from scratch it is extremely important to market your ICO and build a strong community to ensure success. In past years, many founders were already established in blockchain communities, they had trusted followings, and were well established.But things have changed.
Crypto enthusiasts, tech experts, and entrepreneurs are launching projects and many of them are unknown in the crypto and blockchain space. If they expect their ICO to succeed a coordinated and strategic plan to market and increase awareness is needed. This including paid marketing, social media marketing, and maintaining community channels.
But, that being said, the advisors, investors, and creators need to be involved in all aspects of marketing. Supporters want to know who they are dealing with, the team’s background and expertise. It’s not simply good enough to have a few well-known advisors. While they will help with awareness, it really helps a project move along if the founders are available for direct interaction.
Team members should be able to flex their knowledge, answer technical questions, and interact with supports in a meaningful and genuine way. If you have a solid team in place but they are virtually silent online, you will worry a lot of people and scare off even more. Being able to answer questions and concerns on Twitter, Facebook, Reddit, BitcoinTalk, and Telegram will give your project the boost it needs.
Having a project in Beta or Alpha
Bottom line, if you can’t show your supporters a beta or alpha version of your project, it will fail. Imagine if I came up to you with an intricate, detailed project that sounds exciting and innovative, but I had nothing but drawings on a piece of paper. Would you invest and give me hundreds of thousands if not millions of dollars for a concept? Likely not. So why would you market your idea to the public without so much as a working prototype? We’ve heard all the excuses surrounding this: we don’t have the money to build it yet; it’s really technical and we’re looking for the right developers; to, we’re working on it but it won’t be ready until after the ICO begins.
Quite frankly, if you can’t prove your project and show that it works and have others test and try it out, you have no business launching an ICO. We’re not saying you have to have the finished, polished project to present, you just need proof of work. Many organizations have launched successful ICOs and that is because they had a beta or alpha version. People could interact with the platform, ask questions, make suggestions, and give real-time user feedback for improvements.
If one or more of these recommendations are a red flag for you or your project, take a step back and evaluate the effectiveness of your ICO. Is it necessary? Do changes need to be made to ensure success? If a project must be delayed for an extended period of time that is a better decision than going to market without a strong plan. You only have one chance to prove yourself and if you don’t have it right, things can go very wrong. There’s nothing worse than seeing a great idea flop because the team was too eager to go to market.