Posts Tagged: PayPal

The challenge facing Bitcoin start-ups

There is not doubt that Bitcoin / the blockchain is a revolutionary technology. Once implemented, the blockchain might be able to disrupt many verticals that are built around managing the transfer of ownership by replacing a centralized approach with a decentralized (and hence usually more efficient) approach.

While the blockchain can be applied to a range of verticals, from passports to wills, vacation rental keys and movie tickets, most of the start-up activity to date has focused on using Bitcoin for payments. After some initial excitement, anecdotal evidence shows that Bitcoin transaction levels are declining. This is partly due to the fact that it is not quite clear what problem Bitcoin solves for the North American consumer wanting to buy something online or in a store (credit cards actually work very well in this case), partly due to the strong existing network effects of current payment systems. Ben Thompson had a great post (The Problem with Payments) a few days ago outlining why it is so hard to build a payment solution outside of the existing system in the US.

In order to succeed in a market with existing strong network effects (such as the payment structure in North America), you need to focus on an underserved niche where your product provides something that hasn’t been possible before. Then if you get enough traction in the niche, you might be able to expand into the mainstream market over time.

PayPal is a perfect example. The company managed to succeed because it helped eBay buyers and sellers complete their transactions in a more efficient and trustworthy way during a time when P2P commerce was exploding. PayPal later went on to actually replace many credit card payments as users became accustomed to the service and had money in their PayPal wallets that they were ready to spend.

So instead of trying to replace credit cards and other established payment methods, Bitcoin start-ups should think more about where Bitcoin has a competitive advantage. Traditionally, this has been in cash-based businesses (gambling, “getting money out of China”) where Bitcoin has seen some impressive initial traction. However, more interesting areas are those where current payment fees are very high (e.g. remittances), consumers are underserved (the “unbanked”), or existing payment infrastructure is weak (e.g. in some developing countries). And the real opportunity might even lie in completely new use cases.

The block chain is a powerful technology but getting traction beyond initial excitement from early adopters might be challenging given the strong network effects of the existing structures that the Blockchain tries to replace. We all see the end goal but getting there is a tricky question. I am rooting for the entrepreneurs that will figure out how to put the blockchain into real action.

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Investors need to actually use their portfolio products

PayPal President David Marcus recently stirred up the hornet’s nest with a memo scolding employees for not installing and using the PayPal app. In part, the email read: “Everyone at PayPal should use our products where available. That’s the only way we can make them better, and better.” (you can read the complete text of the email here). While Marcus’ memo touches on numerous high-level debates like passion vs. paycheck, there’s one important message for start-ups, managers, employees, and investors alike: Eat your own dog food.

Investors, really? Should an investor really be expected to use the 10, 15, or 20 products in his or her portfolio? I say absolutely. After all, a great product is the basis for a successful company and an investor who doesn’t understand, know, or use the product is most likely a sub-optimal sparring partner and advisor.

A PayPal spokesperson further clarified the message of the memo: “We really want to be driving the best customer experiences that are possible. And part of that is having every employee be the customer and utilize our services wherever you can, and if you see a problem, highlight it and tell people to get it fixed.”

As an investor, using a portfolio company is easier when dealing with consumer apps and companies. For example, I’m a regular, sometimes heavy, user of Frank & Oak, Indiegogo, Indochino, Escapio, Clarity, Smore, tindie, and Twenty20. My wife uses Julep and Chloe & Isabel.

It’s naturally tougher to be a user for business apps, particularly vertically-focused apps. For example, Figure 1 is a photo-sharing app for medical professionals and Clio offers practice management software for lawyers. And I’m neither a doctor nor a lawyer.

In these cases, the investor should at least sign up for the service to get a high level impression of the workflow and user experience. As a start-up founder, you should make it a priority to include product presentations in board meetings or schedule separate sessions to go through the product demos.

At the end of the day, the more hands that touch your product, the greater the opportunity to improve the user experience. And you don’t necessarily want to trust the opinion of advisors who have never used or tried your product.

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Breaking into the Valley? Use the “Canadian mafia”

Canadian flag outside the Maritime Museum of t...

(Photo credit: Wikipedia)

There is a PayPal mafia, a Facebook mafia and a Twitter mafia, all powerful networks of entrepreneurs and investors based in the Valley. And now there is a really strong “Canadian mafia” emerging. It started to formalize with the launch of the C100 a few years ago. The organization is comprised of a select group of mostly Silicon Valley-based Canadian entrepreneurs, technology executives and VC’s and has launched some amazing programs like “48 Hours in the Valley” or the “Canada CEO tech summit“. But even more importantly, the Canadian angle is starting to open doors in all sorts of places.

I spent the past month in the Bay Area and found that one of the most successful ways to get into a specific organization is to find out if there is any Canadian connection. And interestingly enough, there are Canadians (or people with a connection to Canada) sitting almost everywhere. You can find them in the big Internet companies like Google, Apple or Facebook; you can find them in major tech blogs and among conference organizers; you can find them among VC’s or super-angels. And Canadians are actually starting to talk about a Canadian mafia and feeling proud about being part of this emerging community.

So the next time you are trying to get that important meeting, try the Canadian angle – it might be the most powerful way to break into the Valley.


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