From Operating to Investing: The Next Evolution of Cryptocurrency Company Management
By Arianne Flemming, COO of Informal Systems
Building a business is hard; if you take guidance from any traditional startup mantra, it’ll tell you you must work with good people, collaborate effectively as a team, and not run out of money. In a few short months, the COVID-19 crisis has brought about years of change in the way companies in all sectors and regions do business. Business models are changing, and when that happens, so should the systems that are built around them. COVID-19 has pushed companies over the technology tipping point—and transformed business forever, speeding up the adoption of digital technologies by several years.
The systematic alteration of our society and economy has fueled a spotlight on decentralization and cryptocurrencies. Once a burgeoning industry, 2020 has witnessed a landmark year, with an explosion of institutional interest, such as PayPal announcing the launch of crypto services, and governments allocating significant resources into their own national framework, evidenced by big strides in the Central Bank Digital Currency (CBDC) space. Yet, the irony is that titans of the space who are building these large scale public infrastructure are still startups whose biggest risks are not technical — but operational.
For the crypto industry, basic operating functions are wildly different from your typical start up. In order to make these revolutionary technologies realize their potential and make it to market, blockchain startups need to set up company operations to hedge risk and be sustainable so that operational challenges don’t prevent these technological developments from coming to life and becoming the practical, useful technologies that push society forward. This means for these startups there must be a shift in mindset --they are no longer operating traditional startups -- but operating multinational entities that have global risk profiles and coordination concerns.
Statistically, the odds against a startup are formidable. There are three key facets of a company's operations that blockchain industry must be cognizant of to ensure their vision succeeds.
- Hiring: Working with the right people
- Social Collaboration: Sharing ideas to encourage motivation, trust and creativity
- Finance: Don’t run out of money
Hiring Best Practices
Talent is critical. At the heart of every successful start-up, you need a solid mix of skills, attitude, and resilience in the core team, who make the time in their crazy schedules to attract, develop, and retain the very best talent. Yet the hiring process is archaic. In an era and industry where we are moving away from routine, linearity, and predictable skill sets, we must also move away from the plug and play hiring model that has been followed for so long, and instead focus more holistically on the unique value people bring to the table, as well as their potential for development and growth. As technology automates our repeatable tasks, we are forced to change the way we work. We must complement technology and use our humanistic side of judgment, our intangible, non-linear skills that lie at the core of our defensible value to any company. It is particularly important to pay attention to these attributes during periods of intense volatility and paradigm-shifting change.
Moreover, in crypto, the search for the right hiring fit often requires a global effort. Ultimately, to hire people globally, though you may be a small startup, you need money to hire lawyers to tell you what country specific contracts to use or accountants to figure out how to pay the relevant employment taxes in each country. The surface area of risk just grew exponentially, not only is it hard enough to keep up with one country, these startups have to keep up with many.
It’s a full-time job staying on top of the employment laws and tax registrations required to hire people in different cities and countries all over the world. Oftentimes it requires establishing a new entity or subsidiary. This process is time-consuming, and operationally challenging. One alternative is using a costly Global Employment Outsourcing organization, which is not always a feasible option for smaller startups. Another solution to navigating the legal and tax complexities of a global workforce is to hire in hubs. Crypto startups could concentrate hiring in locations within a 1 hour radius (or commuting distance) of a hub/zone, so that being together in person is feasible and allows a balance of fully-remote and in-person time for employees to work wherever they feel empowered to do their best work. These efforts can help startups hedge their hiring operational risk.
Social Cohesion and Collaboration
In the highly remote blockchain industry, remote and distributed startups need proactive plans for building trust and accountability in their organizations, because without these efforts, tech solutions like Zoom and Slack can only take us so far. The downside of remote work and isolation are often brushed off. Instead, opponents claim that you can strike up a chat with colleagues in Slack video call any time you want. These actions often take more time and energy than simply asking someone a question next to you in an office setup. Response lags, delays, set up issues, the process of writing, reading, sorting through 50+ Slack messages, all take a mental toll. We can’t rely on tools to fix the problem of limited interaction.
Our current remoteness has added more blind spots into understanding how your colleagues are thinking and acting. While remote-only culture promotes independence, the social cues humans require to develop trust and security have been eliminated in a remote-only environment.
Remote-only may work very well for companies with a strong product-market fit, as these companies know what they need to work on and when, but what happens when conditions change? Will leaders, managers, and employees identify shortcomings, problem-solve, and change course when the transactional nature of work won't do so? Is remote-only communication good enough to ensure that assumptions are not made? Building something people want and coordinating to stay on top of users’ needs is a more complex coordination effort.
These are complex HR and process-oriented issues that, generally, startups don’t have to deal with early on in their lifecycle but issues remote crypto startups face all the time . Management and human resource attention suddenly became much more important and complex than it might at a traditional 15-person company where everyone sees each other every day in the office.
Looking beyond 2020, we will evolve to work differently, but the future of work is not as remote as we understand it today, namely, fully distributed companies with no physical office space or human to human interaction for employees. The future of work will be a hub-and-spoke model, a model that more easily allows businesses to be globally distributed while concentrating teams in zones (via spokes) which act as a home base for employees to interact. This model, which can be used within large and smaller scale companies alike, allows teams to choose how and when they want to work, encouraging self-motivation, trust, intuition, freedom and creative output. This model will make running a global business operationally easier, while also fostering trust and cohesion within the groups.
The remote nature of the blockchain industry is truly wonderful, it opens many doors, it brings together people from all over the globe to passionately work on hard problems together, forcing people to coordinate and build trust in new ways in our changing world, but it comes with tradeoffs. It means what would traditionally be straightforward operations, now has forced these crypto “startups” to act more like global companies with international offices, employees, payrolls, taxes, risk profiles, employment laws, and internal coordination processes. Social cohesion has changed and adapted, while the industry has been in a perfect position to deal with the COVID-19 pandemic from a remote work perspective, there is a non-negligible cost of being remote, something these startups must address in order to be competitive and sustainable in the long run and to be able to bring these revolutionary technologies to light.
Financing in Crypto
All kinds of blockchain startups from dev teams building public infrastructure, to exchanges, to wallets, to validators, to companies building decentralized applications, are often taking payment in tokens. Some of these tokens may be liquid, some not liquid, but we still live in a world where we have to pay bills in fiat. This introduces a whole new element of treasury management that many founders, particularly technical founders, have never had to consider. There is a new level of both currency and liquidity risk to manage that traditional small startups don’t generally face until they are much larger organizations.
These startups are no longer just thinking about cash, but rather the entire balance sheet of tokens alongside cash. These startup operations are no longer about making sure you have enough cash in your checking account, but you need to balance your token holdings while making sure you keep enough liquid cash on hand to pay salaries, lawyers, rent and taxes which creates a large risk exposure for companies who receive revenue in non-cash assets. These startups have moved from just operating the business to becoming investors in a fund;a clear hedging strategy is essential for maintaining cash and reducing crypto volatility risk.
We’re seeing many traditional hedge funds and public firms expanding their asset management to include crypto on their balance sheet, and holding BTC as a store of value and to hedge against inflation. These companies also have large finance teams on staff to help secure and monitor this, small companies focused on building don’t have such luxuries.
For companies holding a balance sheet of diverse assets, they must determine their asset management strategy, it could be conservative, and passively hedged to manage cash, focusing on sustainability for a very long time, or it could be aggressive and actively targeting returns like a hedge fund, or it could be something in between. Overall, for these startups it is most critical to not get too complicated or take anything for granted, setting clear strategies to manage cash while keeping sight of the potential upside, so that in the next crypto winter they’ll be able to survive.
The future of work is changing, accelerated by the COVID-19 crisis and larger macro shifts in the global, distributed workforce. Business and operating models are vastly different than they were even two years ago, so why are we still operating in the past? In the cryptocurrency space in particular, while we may functionally be startups coordinating to build software and validate it in the market, we’re operationally not running startups anymore, but building global businesses that are far more complex than we could have anticipated. We’re in a transition period where in order to bring these revolutionary technologies to become widespread practical applications we must make sure we hedge our operational risk and take a holistic approach to hiring best practices, social interactions and financing to ensure employees needs are met, and to inspire the next generation of leaders and doers in the emerging technology space.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.