Why 95% of Blockchain Startups Fail

KEY TAKEAWAYS

Many startups fail, there is little mystery about that, as companies try to carve out their niche in a challenging world. But blockchain startups have a higher failure rate than most, operating in a turbulent and changing environment. We explore the reasons why.

The blockchain landscape is as controversial as it is revolutionary. Where phrases such as “to the moon” and “HODL” are the rallying cries of the bold, a statistic demands our attention: 95% of blockchain startups fail and meet their demise in a year on average.

This failure rate is even higher than that of other types of startups, 90%.

Granted, there are many reasons for each startup’s failure, with reports showing the industry’s lack of regulatory clarity, high competition, and lack of education as some of the main culprits.

However, while these factors play a pivotal role, the answer to why many promising ventures in the blockchain space fall to the wayside involves more than just external contributors.

A startup is a purpose-driven entity. In the tech space, it begins with a vision that seeks to revolutionize an aspect of the universe. Whether it’s a decentralized finance (DeFi) platform that empowers individuals to take control of their financial destiny or a blockchain-powered solution that tackles real-world issues, a startup stands for something beyond itself.

Regulatory Uncertainty & the Myth that “Blockchain = Crypto”

Cryptocurrency lacks regulatory clarity, and its ever-changing legal landscapes across different regions affect the startups operating globally.

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This regulatory uncertainty concerning crypto affects other startups that come up with groundbreaking blockchain-based solutions to address real-life problems — due to the misconception that blockchain means cryptocurrency, according to Göran Almgren, Co-Founder of Enigio, a tech company that creates digital original documents.

Consequently, the startups struggle to achieve partner engagements and investor confidence. Both institutional and retail investors may hesitate to fund projects because of this “blockchain = crypto” misconception and a legally uncertain environment, especially when startups cannot assure legal compliance.

READ MORE: Top 10 VC Funds for Crypto

Moreover, regulatory uncertainty can lead to operational difficulties. Startups may need to allocate significant money and resources to navigate complex legal matters, which can divert their focus from product development and innovation.

Plus, any legal battles and regulatory fines can lead to financial burdens, potentially draining the resources of these young companies.

Blockchain Buzz Word and Lack of Education

Blockchain technology is not a panacea for all problems; not every problem requires a blockchain solution. Many startups rush to implement blockchain without a clear use case or value proposition.

This misalignment between technology and real-world needs can lead to unsustainable projects, as seen in the case of the discontinued TradeLens project, a joint venture by Maersk and IBM aimed at improving global supply chains through a permissioned blockchain.

On the other hand, the lack of understanding and education in the field is another crucial factor. While blockchain and cryptocurrencies have gained mainstream attention, a substantial knowledge gap exists among the general public, investors, and even some entrepreneurs. This knowledge gap can result in poor decision-making, lack of due diligence, and susceptibility to scams and fraudulent schemes. 

For instance, the Australian Securities Exchange (ASX) canceled its long-delayed project to replace its aged Clearing House Electronic Subregister System (CHESS) with a blockchain-based system. The decision was made “in light of the solution uncertainty.”

Promotional Challenges

In promotional activities for the solutions, the developers face difficulties getting necessary attention through multiple social platforms like X (formerly Twitter) that are primarily overcrowded with topics other than blockchain. So, it is hard to find the target audience for their solutions.

Speaking to Techopedia, Justin Hunter, the founder and the solo developer of Graphite, built as a decentralized and encrypted alternative to Google Docs that shut down a few years ago, highlighted the importance of targeting the blockchain community for promoting blockchain-based solutions.

He explained that in the case of Graphite, a significant issue that he realized later was that it wasn’t announced to the blockchain community.

Hunter said,

“Managing multiple social channels is a nightmare. Again, it’s a necessary evil, but it is time-consuming even for larger companies…At Pinata (the company I currently work at), we have a decent-sized team, and managing multiple social channels is still a challenge. Focus is finite, and you have to be intentional on what you spend that resource on.”

He also emphasized good quality blogs, video strategy, and Search Engine Optimization (SEO), saying,

“People think SEO is too saturated and blogs may not have a big impact these days, but they are wrong. Content remains one of the best marketing channels available, especially in blockchain.”

Back to the challenges of digital marketing through multiple scattered social platforms, developers struggle to keep up with changing trends and often get frustrated with the reduced productivity in their solution development, resulting from focusing more on promotional activities.

Even more painful is lower user engagement due to too much content, competition with giant social media accounts, and constant need for new content ideas. They find it hard to hire skilled social media personnel. Measuring how social media efforts help business growth is tough for them.

Speed Over Hype: The Key to Success in the Blockchain Space

The problem with the blockchain space is less about the lack of finance and more about the speed of building functional products. Given the fast-paced nature of the area, companies that tend to win are those that speedily deploy high-quality products before the hype and momentum dry up.

To get to speed, blockchain startups need to balance the developmental and promotional realms. Hunter highlighted the contribution of “more niche and targeted social networks that cut through the noise easily.”

In a conversation with Techopedia, a spokesperson from Kahuna, a startup building a unified communication and collaboration platform for blockchain project creators and their communities, they described the necessity for quality connections that allow crypto enthusiasts to seamlessly discover and interact with cutting-edge projects transparently.

“Speed, quality, and transparency—these combinedly redefine blockchain interaction.”

The Bottom Line

Even with a high failure rate of 95%, there is still hope and tremendous potential for blockchain technology. This optimism is well-founded, especially considering that the global blockchain technology market is projected to reach a valuation of 1,200 billion USD by 2030.

While most onlookers point to the lack of talent, market volatility, and technical challenges as reasons for the failure of startups, it is worth considering that perhaps most of these startups are failing simply because they cannot bridge the gap between ambition and execution.

In the ever-evolving blockchain landscape, success often favors those who can swiftly turn their vision into a tangible, functional product. The breakneck pace of this industry means that companies must have innovative ideas and the ability to bring them to market rapidly, balancing developmental and promotional activities.

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Jinia Shawdagor

Jinia Shawdagor is a seasoned fintech writer based in Stockholm, Sweden. She has made significant contributions in the form of unique articles on cryptocurrency and blockchain to esteemed publications such as Cointelegraph, CoinMarketCap, and Bitcoinist.