Leveraging Emerging Decentralized Technology for Startups

On February 7, 2019, Sahil Lavingia wrote an article entitled “Reflecting on My Failure to Build a Billion-Dollar Company”. In it he describes the excitement of pursuing his dream.

Gumroad: A Startup with a World of Potential

Sahil’s weekend project garnered VC attention. He succeeded in securing financing. The results that transpired illustrate the issues presently before the global pandemic including:

• unrealistic growth rates
• unwarranted media pressure
• long-term financial constraints

Sahil’s company, Gumroad, faced each of these. Professionals familiar with blockchain understand how decentralized technology can mitigate them.

Gumroad makes the selling process a simple social endeavor. It’s a peer-to-peer system where creators connect directly to consumers. The company received over 50,000 views on day one. However, it encountered an unexplained downturn that would lead to clients leaving. As a venture-funded project, Gumroad needed to maintain over a 20% growth rate.

An Unjustified Downturn

After just a few years in operation, Gumroad was facing a lower than a comfortable bank balance. This is where the blockchain model really begins to shine. Gumroad had to alter its business strategy to attract new funding. Its slowed growth rate was compounded by unwarranted bad press. In essence, Gumroad had to make a choice of moving away from what made it so successful to an altered plan to secure future funding.

As an experienced business professional can attest to, changing a core business model for near-term growth can put the long-term future at risk. Decentralized blockchains regulate such concern because decisions require consensus. Future funding is closely tied to pure valuation rather than propped up by a near-term strategy. This should be reassuring because initial stakeholders have a hand in a company’s development. As blockchain assets change hands, stakeholders who are attracted to the present business model will as well.

How Decentralized Technology Can Make a Difference

There are several types of blockchain models. Proof-of-Work and Proof-of-Stake are the two most common. These decentralized models have been altered to allow people like Sahil to leverage some benefits without giving up control of their company. IBM and Amazon offer blockchain-as-a-service for this reason. Early developers of blockchain technology tend to be strong proponents of decentralization. This invariably means that no single entity will own a blockchain.

In Sahil’s case, there are two options. The first is to run a token on top of an existing chain. Control is made simple by retaining 51 percent of the tokens. There is less need for a development team to build a blockchain from the ground up in this model.

The other option is one that’s often cited for starting the whole blockchain movement in the first place. That is, empowering contributors. Gumroad began running into issues just a few years after commencing operations. It had only begun to realize its short-term plans. Low finances and bad press caused it to change its business model. Most early angel investors probably did not put up their money to see the company lose sight of its vision this early.

Concluding Thoughts

A pure, decentralized blockchain model is enticing in this situation. It enables someone like Sahil to retain 51 percent of the stake as new tokens are issued slowly over time. This means that innovators can maintain control over their long-term funding runway. Sahil expressly states that this was the first inkling of negative pressure on Gumroad.