The Intelligent Blockchain Investor: The Investors Dilemma

The Intelligent Blockchain Investor

The Blockchain Investors Dilemma

If you’ve ever read the book ‘The Innovators Dilemma’, you’ll immediately connect with this article. If you haven’t, you absolutely should! It’s been listed as one of the most influential business books of all time, and cited by luminaries such as Steve Jobs.

Innovation and The Innovators

Innovation is messy. It doesn’t follow a linear path. At the start it often doesn’t make sense to vast majority of people. It can seem crazy, wild and above all, risky.

Large organisations spend billions of dollars training their teams, contractors, third-party suppliers and partners on following a particular system and then along comes an innovator who says:

“Let’s throw this all out and do it differently”

How would you react?

How would your organisation react when the outcome seems…ill defined. Vaguely articulated. More like a concept than an actual 5 step plan?

Turns out most organisations don’t really do that well. They either:

1. Completely disregard the innovation, forcing the innovators to go elsewhere
2. Try to shoehorn the innovation into their existing systems and processes, forcing the innovators to go elsewhere
3. Try to crush the innovation using their market power, forcing the innovators to go elsewhere (ok, I just added that one myself, but history shows it’s accurate)
4. On very few occasions, the organisations create subsidiaries which are allowed to do their own thing. These organisations prosper.

As a result of outcomes 1–3, many innovators:

1. Make crazy claims to pump up the value of their innovations and get buy in from their stakeholders
2. Get crushed
3. Go elsewhere and nail it.

Above all, they have to choose if they truly believe in their idea and are willing to pursue it.

The challenge is that The Innovators Dilemma creates what I call The Investors Dilemma.

The Investors Dilemma: Identifying world changing ideas combined with world leading execution which result in changing the world.

The Investors Dilemma

Investors are faced with a challenge. They have free resources available for investing. They have a different perspective on a market or future market than established players, and are more willing to risk their free resources on a crazy-sounding idea.

But how do we connect these available resources with the amazing ideas?

Until most recently, the challenge has been solved through a combination of:

1. Friends and Family Investments
2. Venture Capital
3. Angel Investing

This works fine when we’re talking about a few organisations, or you have the backing of an entire Venture Capital firm.

However, blockchain has changed things.

Blockchain is Changing Things

The advent of blockchain is changing the previous approaches. I believe there’s four reasons for this:

1. The scale of opportunity is significantly greater
2. The pace of innovation is significantly faster
3. Access to technology is significantly larger
4. Delivery of infrastructure is significantly better

If the promises of blockchain are to be believed, we are simultaneously experiencing:

1. Disruption of multiple entire economic models
2. Technology upgrades measured in days and weeks (compared to months and years)
3. Exponential increases in technology access
4. Massively parallel delivery of infrastructure (compared to more linear delivery)

If you read online content, we’re either experiencing the greatest collective delusion in history or the birth of a new way of doing business which will make the internet revolution look like a prelude.

So which is it?

A Look at History

History provides some great examples for us to consider.

We have Nokia to see what happens when innovation is missed. Going from a dominant mobile phone maker to effectively out of the mobile phone business is a pretty stark example. If you’d like to read about someones experience at Nokia walking through this journey and the lessons learned, I’d highly recommend Transforming Nokia: The Power of Paranoid Optimism to Lead Through Colossal Change.

We have the Internet Bubble to see what happens when innovation is overplayed or pumped up faster than the existing systems could handle. An index (NASDAQ) experiencing a ~76% decrease in value is frankly terrifying in today’s context.

We have the Tulip Bulb Market Bubble in the 1600’s to see what happens when a group of people buy into a frankly absurd (in hindsight) speculation event.

And we have our current crop of $1 Trillion (yup with a ‘T’) market cap companies, many of which were part of the internet bubble, to see what happens when you nail it.

So which is it?

Back to Our Dilemma

Inevitably this brings us back to our dilemma.

A rational review of history would imply several conclusions we can draw:

1. The opportunity is probably significantly larger than we currently imagine (who would have thought we’d have multiple $1 Trillion companies!)
2. The opportunity is probably going to take significantly longer than we currently imagine
3. The opportunity is probably not a frankly absurd speculation event (although only history can really tell for sure)
4. There’s probably a way to analyse the blockchain universe which allows us to become at least somewhat informed about what’s going on

As investors, our dilemma is two fold:

1. Choosing if we believe in the innovation
2. (If we do) Identifying those investments with a higher intrinsic value and bigger moat to than others (i.e. more likely to succeed)

The first is an act of faith. No one can help you with that. The second is informed by analysis, insight and research.

Quick Note. This series does not provide investment advice. It is simply a framework for analysing the blockchain market. Make sure you do your own research :)

Next Stop: The Technology

With our introduction to The Investors Dilemma completed, we’re onto to next stage of our journey: The Game Being Played. We’ll start by exploring The Technology behind blockchain.

As always, if you’re enjoying this series, take time to interact. Comments, claps, tweet mentions, LinkedIn mentions and sharing is a great way to interact with a community of people who can add to our exploration. A great way to stay up to date with this series as it comes out is by following me or signing up to our email distribution. A word of caution though — please keep it respectful, fun and polite. We want a safe place to learn and grow ❤

Articles in the Series so Far:

1. Hello World ❤ An introduction to our series