Premature Optimization Kills
Too many companies are trying to automate digital securities. We need more handholding.
One of my favorite Paul Graham essays is Do Things that Don’t Scale. In it Graham provides several examples of companies that are now juggernauts, but which started out doing very manually intensive things. He provides the example of Stripe.
Startups building things for other startups have a big pool of potential users in the other companies we've funded, and none took better advantage of it than Stripe. At YC we use the term "Collision installation" for the technique they invented. More diffident founders ask "Will you try our beta?" and if the answer is yes, they say "Great, we'll send you a link." But the Collision brothers weren't going to wait. When anyone agreed to try Stripe they'd say "Right then, give me your laptop" and set them up on the spot.
Stripe literally makes pennies on the dollar. For them to be profitable, they need to pump millions of dollars in transactions through their network every day. And since they target small companies, that means they need thousands of customers before they even being to move the meter. In order for the business to work at scale it will have to be automated and optimized for them scale.
Before you can scale, however, you have to create a product and a business model that works economically. Oftentimes the only way to do that is to sit side by side with potential users, help them set up the product. (As an aside, we’re doing this right now REI DAO, so if you are interested in real estate tokenization and group buying of commercial real estate then please book a time with me.)
User Testing Changed My Life
I vividly remember some user tests we did in the early days of SurveyGizmo (now Alchemer). We paid five people from Craigslist $100 to come in and use our product. We gave them a scenario that “your boss just told you she wants you to conduct a customer survey and to find a product to do it. What is your first step?” Then we watched as they searched Google and looked at each of the results. Every 30 seconds or so we ask “what are you thinking now?” or “what is your next step?”
We originally had planned to conduct 10 user tests, but after five we had such a long list of improvements that we tabled them and got to work. We discovered so much about the language people use, the analog models in their heads, how they think about the problem their boss gave them and much, much more.
One particular case I remember was we gave to a user was to create a survey question and add some multiple choice options. After that, we told her the boss had changed her mind and wanted her to delete one of the options. She spent a solid five minutes trying to find the delete icon next to the option. To us it was the most obvious thing in the world, but to her it was a complete mystery that brought all work to a halt. These tiny little UI issues can make or break a product, and we never would’ve in a million years realized that some people were stumbling on it without user tests.
Note: we did these tests after we already had over 700 users. A year later we had more than doubled our customer base thanks to changes from those tests. I say this merely to reiterate that it’s never too late to start user testing. Do it now. Start today.
Infrequent Processes Need Lots of Testing
One thing we realized pretty quickly with SurveyGizmo is that most companies don’t do surveys very often (or at least not 15 years ago when I joined them) so it was incumbent on us to make the user experience as easy as possible because people forget how to use your product if they’re not in it every day.
In a sense, this is how investing works. Writing posts like this requires familiarity with Word or even just email, and once you’ve written a few thousand words in your life you can find your way around most word processing tools.
Successful investing, on the other hand, is a very, very infrequent process. For every 100 opportunities you look at, you may only pull the trigger on one or two. (Traders are a completely different breed altogether and I don’t consider what they do to be investing.)
This is true for general partners who orchestrate deals, and it’s doubly true for passive investors. A GP with $50-200 million in assets under management may only do three deals a year, and their passive investors will average less than one per year.
Which brings me to digital securities platforms.
Most Digital Securities Platforms Stink
I am and always have been an early adopter of business technology, and I’ve written hundreds of thousands of lines of production code. I’ve been an early adopter since my first computer, and I first got online in 1993. I’ve been building complex spreadsheets since around the same time and given a test drive to practically every new productivity tool on the market.
All that said, I am surprised and often completely mystified at how difficult many of the the web3 platforms are to use, or even understand what they do.
This problem is common throughout web3, but for this essay I’m going to focus on tokenization.
Issuing a security is an infrequent process. Trying to boil it all down into a UI plus some YouTube videos is not going to be enough.
Here are a couple of example showing what I mean.
SQF Coin has a nice looking web site and it appears they’ve closed several deals in Florida and Massachusetts. Cool. But as an investor my first question is, who are these people? So I click the About link. It takes me to a video showing how to create a wallet. Oookaaay, but again, who are the people behind it? Why would I even need a wallet?
So I scroll, and scroll, and scroll some more until finally I see a list of team members. Some of them have links to LinkedIn and Facebook. Others do not. Nowhere do I see a real FAQ about how it works (though there are some about affiliate links, which gives me serious MLM vibes). Their Twitter account has 66 followers and says they’re based in Wyoming. Really? Wyoming?
There is also a 25 page white paper, but it’s mostly just a poorly written explainer of what blockchain technology is along with a rather incomprehensible explanation of their token offering.
As it happens, I did contact one of their team members through LinkedIn and had a good conversation, but that process was entirely on me. Aside from some flashy graphics, there is nothing about their site that inspires any confidence.
Another player in this space is RealT. They have been active for a few years and so I have a better feeling about them. Their team page lists a substantial management team with bios for each. So far so good. They have a Marketplace menu item, so let’s see what that’s about. When I get there, it immediately wants me to start a KYC process. Really? I barely know you and now they are insisting I jump through all those hoops?
There’s also some things that seem kind of… off? The footer lists their address as Boca Raton, but if you go to the blog, most of the posts are in French. I assume this has something to do with the founder being French, but it’s an odd choice for an English language web site
Focusing on Customers Instead of Tokens
The notable exception in the web3 real estate space is Lofty.ai - not surprising since they come out of Paul Graham’s Y-Combinator. Their home page focuses on how easy and inexpensive it is to invest and makes no mention of blockchain. They show a marketplace of properties on the home page and don’t gatekeep it. Instead of using big words like tokenization they stay focused on the process of investing in real estate. The blog page is vibrant and shows the photo of the author for each post, giving off a more trustworthy vibe.
Real Estate People Are Not Tech Savvy
I guess I shouldn’t be too surprised by any of this. Despite the glossy photos, real estate investing as an industry is generally several years behind when it comes to technology. Web sites are very generic, with stock photos on the home page, bland language like “we provide above-average returns by employing value-add strategies and blah blah blah.”
Easy to Say, Hard to Do
So now that I’ve taken potshots at others, what about my company? Are we any better?
We are still pre-launch at REI DAO and figuring out what resonates with our audience. While our home page mentions blockchain, we don’t make a big deal of it. Instead I created a video to explain that our focus is on general partners.
Once you’re on the inside, we have a Welcome checklist that explains the concept and a multiple asks for you to schedule an orientation with me.
Honestly, though, we still have a LOT of room for improvement. We have a weekly meeting where we struggle to figure out the best entry points and how to communicate our value propositions. If you’re a UI/UX person, I would love your input. It’s easy to see when something isn’t working, but creating something new that does is something else altogether.
What I can say is that we plan on doing a lot of handholding. It’s core to our business, and I wish more web3 companies would do the same.