You might be wondering what the managers of a cryptocurrency hedge fund are doing talking about business models.
It makes more sense than you think.
In fact, crypto companies have already upended the way many companies conduct their business. Whether it’s increased transparency; implementing faster, cheaper, and more secure transactions; or decentralizing internal structures to provide for more efficiency and growth, crypto—and the blockchain it’s built upon—have fostered a vast amount of innovation in a very short time already.
So why not managers of a cryptocurrency hedge fund?
Every decade, we witness companies of different sizes, structures, and industries grow into behemoths. In the 2000s, it was social media companies like Twitter, Facebook, and LinkedIn. In the 2010s, it was Netflix and other streaming companies. Outside of tech, the last decade has seen massive growth from companies in the medical, energy, and media sectors. Who knows what new goliaths are waiting around the corner in the 21st Century’s version of the roaring ’20s?
And yet, despite these wild, massive successes, there always seems to be a delay in the popular adoption of these new, innovative models—a “wait and see” attitude that permeates both the public and private markets and keeps us from leaping to the “new and improved” way of doing things right away.
And this hesitancy is all-too familiar for many business owners. Even a decision like upgrading tech is an exercise in anxiety, indecision, and handwringing.
“Should we spend money now on a new _____, or should we wait until next year when it’s better/faster/stronger?” “Will it be too late by then?” “Can we do without it at all?”
What ultimately happens? “The printer is fine! Just give it a whack! It may sound broken, but it’ll work … I think.”
Upgrading to a New Model is Always a Trade-Off
Whether we’re talking about upgrading business tech or upgrading business models, the scenario is the same: it’s a two-way street.
In one lane, you have the high-speed urgency of upgrading ASAP. Battling day in and day out with old and outdated tech can be enough to send a business (not to mention its employees and customers) to an early grave.
In the oncoming lane, financial reality is moving just as fast and creating just as many headaches. The barrel of money isn’t bottomless, and the realization that those upgraded assets will start to depreciate before they’re even out of the box is a bitter pill to swallow.
For every business, there’s a “fiscal upgrade sweet spot” where the size of the company is small enough, and the streams of revenue are significant enough that being on the technological cutting edge confers an actual competitive advantage (think Apple).
But when the profit margins are too thin and the number of needed upgrades is too massive, keeping up with the latest trend becomes cost prohibitive (think Macy’s – a company that may hold the world record for the slowest checkout time ever).
Companies big and small struggle with the “need vs. desire” quandary when it comes to upgrading, but startups with smaller budgets feel it the most. While startups aren’t always broke, their founders tend to dream bigger, expand further, and hire more prolifically than they should, reinvesting their profits along the way.
Nevertheless, expensive upgrades can cripple startups just as they’re starting to hit their stride. For an upgrade to make sense, the investment must deliver a true competitive advantage at a reasonable rate. If it doesn’t, the upgrade will likely contribute to the company’s downfall.
Upgrading to a New Business Model is a Trade-Off, Too
Which brings us back to business models. Tech isn’t the only thing companies need to look at upgrading. Sometimes, the very business model upon which they operate needs to change.
Depending on the size of the company, business model pivots can be positive or negative. Smaller businesses have a clearer advantage in this regard, only because they’re financially more agile. Startups can make major changes to the core functionality of their operations more easily, more rapidly, and more economically than a larger company.
The impact of a business model transformation on a company like Macy’s, however, would create painful financial, strategic, and operational ripples across the organization. It would take legions of die-hard believers to update the model of a former retail titan like Macy’s to any level of respectable glory. In the end, what’s the pivot? Cloning Amazon?
The point here is that businesses must stop applying the same level of scrutiny and groupthink to every facet of their operations. Colleges and universities share much of the blame for promoting this “one-size-fits-all” lens. Today’s MBA no longer serves as the pantheon of business knowledge and economic expertise; rather, it symbolizes the pinnacle of business conformity and the death of innovation.
Just as a company must strategically decide when to upgrade its tech, so too must the business’ executives choose when to stick to the gameplan or pull out the trick plays.
Resistance is Part of the Path Forward
Transforming a business model is typically met with great resistance.
Those mired in the traditional business model morass will find it difficult to come to terms with the idea that there might be a better way of doing things and lash out with condemnations and accusations of wrong think.
It’s easy to take these slights and insults personally, but it’s important to remember that those who tear down new ideas are simply revealing their lack of creativity and their inability to make real strides forward.
Surprisingly, many entrepreneurs and startup owners believe there’s a set way of doing business that translates directly to success. Product offerings aside, they believe that applying their product or service to a certain business model will naturally lead to the results they seek. The relatively high failure rate among startups would seem to indicate otherwise.
As Web3 nears form, these business leaders must change the way they think and begin developing new models and methods to manage the innovative products that are going to transform the next century.
Gumbo LLC created an original business model for our hedge fund. In doing so, we can charge less, spend less, lose less, and generally maintain a fair and equitable model for crypto hedge funds that serves as an alternative to the often incorrigible, and almost exclusively used 2-and-20 model.