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From Startup to Scale-Up: Overcoming Web3's Top Barriers to Growth

Update
Since this post was written, Hyperledger FireFly has reached 1.0. Learn more here!

In one of our Tech Tuesday’s we talked about lessons learned building consortiums. That article was largely geared toward bigger companies using blockchain technology to build multi-party systems, which is a popular function of the tech for the enterprise. But blockchain poses different challenges for smaller companies and startups, companies looking to build agile, customer-focused applications.

A startup in this space has to perfect its business model, master emerging technologies, and in the end package applications in a way that is accessible to customers familiar with web 2.0 experiences. All of these challenges are then magnified when you try to scale. In this article, we’re going to look at the challenges that keep web3 startups from growing. After you read, shoot us a note and let us know if we missed anything.

1. Vendor Lock-in & Management

In the web3 space, there are countless vendors—partners for node running, wallet management, OATH, storage, encryption, etcetera. It may seem you need a vendor for everything.

Add to this the idea of vendor lock-in and you may become dependent on this network of vendors for products and services, coordinating with different account and technical leads, weighing down each dev cycle. This makes growth slow and expensive. If you buy proprietary software or hardware, sign a long-term contract, or use a custom underlying data format, you’re surrendering some control over your business. At its core, vendor lock-in puts too much power in the hands of someone outside of your business. If you get stuck, a vendor can raise prices, offer poorer quality products or customer service, and make changes to the products regardless of your best interests.

For startups who are looking for a service or platform, it's important to consider how easy it would be to switch to a different vendor if necessary. Does your partner allow you to pick up your business and leave whenever you want? If you want to add a service from another provider, how easily is it to plug this code in? Is the vendor you’re choosing a partner for growth or a weight you’ll have to carry?

Vendor lock-in is even more troublesome in the web3 space because the industry is evolving so rapidly. You simply don’t want to build on a tech or service that might change, disappear, or lose funding due to another crypto winter before you get your business built.

This is platform risk. Platform risk arises when you build your business on top of an existing platform in order to leverage its existing services without any guarantee those services will exist in the future. The process of integrating web3 applications is slower, meaning you may need more time to get started, and platform risk will increase exponentially the longer it takes you to build.

How we help start-ups solve for vendor lock-in

First, we believe in open source. That’s why we worked with the Hyperledger Foundation to create Hyperledger FireFly, the first open-source Supernode, a complete stack for enterprises to build and scale secure web3 applications. This allows you to build with confidence knowing the brain of your web3 application is never stuck with us.

We're also multi-cloud, multi-protocol, and support integrations with the leading wallet providers, cloud storage providers, SSO providers, and more. We're technology agnostic, which means we aim to support whatever the leading tech in the marketplace is, giving customers choice and ensuring they never get stuck on a dying platform. With Kaleido, you’ll always have access to the cutting edge web3 building blocks you need.

Finally, when you build on Kaleido, be it a digital asset platform or custom NFT experience, you own your chain, your nodes and your data. This allows you to control decentralization and realize the value of web3 without feeling trapped.

2. Gas Fees

Sometimes gas fees are low, which means that businesses don't have to worry about them. But what if they spike? Bored Ape learned the hard way when gas fees spiked and the cost of a transaction exceeded the value of the product. Unpredictable fees make it hard to achieve scale, hard to build a business plan, and hard to scale teams.

So how do you get maximum performance and ensure that the security of your chain and the decentralization of your chain are never compromised?

You could set a budget and work around that. That way, you'll always know how much you can spend. But if you hit your budget, you stop doing business. This means your scale is tied to your budget and you’re a hostage to the market. We like to think about managing gas and achieving scale in a different way.

How we help start-ups avoid gas fees while standing up their business

We help you build applications on app chains that are gas free, which allows you to scale your business without worrying about fluctuating market conditions. This is huge if you want to mint thousands of NFTs or track a product at every stage along a supply chain, as each transaction becomes not a cost but an advantage you have over competitors.

While helping you build without gas, we set up a plan for the event you need to connect to public networks. Our bridging, interop experience, and public chain knowledge allows us to help startups ease toward public, gas-based ecosystems for auditing and listing of assets without interfering with the day-to-day of the business. This gives you full control over how you build your stack for scale.

3. Controlling Decentralization

At first, most startups just need to prove their business case and don’t need to worry about decentralizing. Other companies want to build on a permissioned chain, perfect their business case, then go public. Finding a balance is hard because decentralization is scary. It requires giving up control, trusting others with your data. You also need to know who needs to run a node, who needs to be a validator, and what consensus algorithm fits your business goals. So how do you test your way into decentralization in a way that reduces risk and helps you gradually onboard stakeholders?

How we empower startups to manage decentralization

We approach each use case as a distinct challenge and support a spectrum of chains from private to public. Our ability to support a variety of consensus algorithms is another way we give you flexibility as you build your business case and control decentralization. We help startups manage their way into decentralization and make security, governance, and onboarding new members one-click simple. This is how we help you start in a controlled environment, perfect your idea, then seamlessly enter the broader web3 world.

4. Interoperability

Most companies eventually want to list assets on multiple marketplaces. Or they wonder, what if my use case ties in with another project and I need to move to a new protocol? What if I need to support custodial and non-custodial wallets to provide value to the full spectrum of my user base? What if an exciting partner or customer loves my product or service but has a hardline requirement for which underlying protocol the system is built on? The questions all point to the idea that web3 products encounter issues when they are siloed to a single chain or ecosystem.

This means interoperability is the goal. Interoperability is how blockchain networks interact with each other. Web3 project users are less likely to consider owning assets on other blockchains as long as asset transfer across blockchains remains impossible or largely insecure. Besides being insecure, users have also complained about slow and unreliable applications, making them inaccessible to the general public. So anything we build needs to be able to talk to other networks.

Why our open source platform is the best answer to interoperability issues

Web3 companies need to build for the future. This sounds like a business cliche, but in the blockchain space it’s even more important. That’s why we built a platform that is chain agnostic. We also built ways to get data in and out of the blockchain so you can easily integrate with legacy systems. It’s why leading global brands choose Kaleido to scale hardened, enterprise-grade applications. From sidechains for scale to Digital Asset Platforms built around the enterprise, we have the tools.

A picture of interoperability from the Hyperledger Foundation.
Hyperledger FireFly is an open-source tool that helps developers manage and connect use cases across different chains. Image Credit: Hyperledger Foundation

5. User Experience

Users expect web 2.0-type performance in their application, the same latency, easy interfaces, and we know users drop off when a web3 education is required to interact with an application. Startups also want to build an experience that is simple for customers to use. New web3 applications need to be able to integrate with legacy systems like SSO, data storage, and analytics platforms to achieve real ROI. Add to this wallets, connections with exchanges, and novel asset classes and it’s tough for the average customer to enter web3 applications and start using them right away.

Bring web3 to your business, so you can bring it to your customers

From our NFT experiences to our consortiums, all our products are designed to make it easy to build familiar user experiences that customers understand and love. Simplicity is also how we think about the user experience. SSO integrations make it easy to tie application access and wallet creation to existing user profiles, and once in, your customers don’t need a suite of web3 tools or full crypto wallets to use, interact, and return to the experience you’ve created.

Conclusion

Developing a business on blockchain technology presents a unique set of challenges for startups. Many technologies you’ll use are still in their infancy, which means that there is a lack of experienced developers and engineers, platform risks to navigate, and challenges around use case applications and data handling to answer upfront. This can make it tough to get a product live and start finding customers.

Add to this that we need to make web3 more approachable if it’s going to solve real problems for people.

Finally, once you figure out how your business is going to work, how you can monetize, you need to scale. There are a number of things that hold back web3 startups when it’s time to scale. We’ve seen them all—and we can help. Let’s connect to talk about lessons we’ve learned over the last few years and see if there’s a dedicated solution we offer that can help you grow faster and smoother.

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