On Tuesday (January 8th), Erik Voorhees, the founder and CEO of direct cryptocurrency conversion platform ShapeShift announced that his firm was forced by circumstances (partly, due to “crypto winter”) to lay off a third of the staff, i.e. 37 employees.
Voorhees started his blog post with this sentence:
“The latest crypto winter is upon us, and today ShapeShift felt the bitter frost.”
However, as it became clear later in this post, although the 2018 bear market was not the only reason for ShapeShift’s troubles (as he noted himself, ShapeShift “made a thousand mistakes”), the 2017 bull market did manage to hide the ramifications of their mistakes (“Hundred percent growth every month has a way of obfuscating reality”).
“Crypto, like the moon we strive toward, is a harsh mistress. We ride high and fast during the ascents, growing at rates unseen almost anywhere else in the business world (ShapeShift grew 3,000% in 2017). And when the markets turn, the crypto recession is similarly dramatic and severe.
None of it surprises those who have been through these cycles. But even with that experience, navigating these tumultuous seas is a continual lesson in humility.
As a company, our greatest and worst financial decision is the same: to embrace substantial exposure to crypto assets. Much of our balance sheet is comprised of them. We accept the volatility, we accept the risk. And our proclivity to attach our own fate to that of the crypto market is not altered by the recent pain.
Booms and busts are intrinsic to any frontier.”
Lack of Focus
“As a company, we’ve made a thousand mistakes. The most thematic has been a lack of focus. Years ago, we saw ShapeShift as a simple tool. As a result, we naturally built other tools that would be useful in tangential ways. These turned into a family of crypto brands and services…
Here’s the lesson we learned: regardless of any particular project’s marketability, they were pulling our attention in too many directions.
They cost financial resources. They required legal review. And then further review, and then additional review after that.
They diverted talent and changed hiring priorities. They required attention from our executive team. They consumed time and focus. And ultimately, the whole of this family of projects was less than the sum of its parts.
Product diversification is fine, but it has to be at the right time. We did it too soon. Our attention branched in too many directions, too early.
In truth, what suffered was our core business. The magic of ShapeShift was real and apparent, and yet it wasn’t sufficiently nurtured. I can lay this mistake at nobody’s feet but my own.
And it was not only the ShapeShift product that was in part neglected, but our own organization: the people, and structure, and communication within our company. Our commitment to “People Building” was insufficient.”
People and Structural Issues
“We’d grown too fast, given our (in)experience as leaders. By the time we learned how to manage a 10-person team, we were 30. By the time we learned how to manage 30, we were 80. Then 100. Then 125. Our understanding of how to organize people grew, but not as fast as the people.”
“Our own growth coupled with that of the industry meant increasing scrutiny. The grey area within which we were once comfortable was feeling less so. So we started exploring every nuance of complex financial services regulation. As we stepped into this mire, immense legal bills and risk assessment forced resources to be diverted away from important parts of the company.”
“Business was declining from both aggregate market recession and increased competition. Our imposition of KYC’d accounts, themselves the result of trying to be cautious in a challenging regulatory environment, caused many of our most valuable API partners to leave us for competitors who have not perceived regulatory risks in the same way. We expected it, but still, it stung both financially and psychologically.”
“Our balance sheet returned to Earth as asset prices were falling. We were partially hedged, and while we were not naive to the risks, by the early December drop, it dictated material course correction.”
Reactions From the Crypto Community
Bitcoin advocate Matt Odell:
You may as well just shut it down now that you require KYC. Cut your losses.
I imagine your volume dropped off a cliff when you did that?
— Matt Odell (@matt_odell) January 8, 2019
Gabriel Shapiro, American lawyer specializing in blockchain-related legal issues:
Great message from @ErikVoorhees “My hope — and goal is — that financial sovereignty becomes a pillar of 21st-century civilization.”
This story also shows why blockchain start-ups should find a good atty who shares their ideals EARLY–and integrate them into product development https://t.co/pc77jokrHv
— Gabriel Shapiro (@lex_node) January 8, 2019
Jesse Powell, Co-Founcer and CEO of cryptocurrency exchange Kraken:
This industry throws you 100 curveballs and then you find out the game is soccer. You have not lost clients' money. You provide a valuable service. You have a strong brand. You employ 70 people. You change course and you survive. I'm bullish. #trueleadership
— Jesse Powell (@jespow) January 9, 2019
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