Crypto — A design thinking framework for protocol design and investing
Part 1
Introduction
I spent the early part of my career in various investment roles across both public and private markets. As my career progressed I moved earlier and earlier along the growth lifecycle until I ended up setting up and running a technology incubator focused on financial services within the venture capital arm of a global financial services firm. My background has given me a unique perspective on the intersection of finance and technology with regard to building technology products from the genesis of an idea. As with many incubators and venture development studios we built our own methodology focused on the principles from design thinking. I see many opportunities to apply this framework to the crypto space right now.
This article is the first in a mini series of brief articles that dives into the various steps of the design thinking process and how this can be applied to both building and investing in crypto protocols. At the end of this series you should be able to understand the overall process and consider how it might apply to your next startup, specific feature or your next investment in the crypto space.
What is design thinking?
Design thinking is a human centred framework for solving complex problems.
Building startups and innovating is an exercise in problem solving. By solving human (users) problems, we drastically de-risk the chances of our startup or new product/solution not being adopted in the market. Originally credited to the design and innovation firm IDEO in the 1970’s (check out: https://www.ideocolab.com/ventures/ for their blockchain specific business), the design thinking methodology has gained real traction among the innovation community over the last decade. Design thinking itself is a solution to a painful problem for innovators, actually, the most painful problem:
The number one reason startups fail is because there is no market demand for that solution. According to CB insights this applies to 42% of startup failures.
Design thinking is technology agnostic. In fact, the design thinking methodology focuses on user problems and validation around these problems before considering any solution at all. It is evidence based rather than hypothetical choosing to focus on past actions as validation rather than fanciful future scenarios. Design thinking can help both investors and builders:
- Validate the size of the market opportunity
- Understand if there is market demand for your new startup/product
- Spend less time and less money while getting faster validation
- Drastically de-risk the startup/product
- Ultimately deliver a better solution that meets the painful needs of your target users
Problem solving — why it matters
Before I give an overview of the design thinking process, I want to spend some time explaining why so much of it is focused on identifying the problem. The term product/market fit is often banded around in early stage startups as a target for startups to achieve but what does it actually mean?
Effectively, product/market fit is the harmonious marriage between a painful problem the user has and a solution that solves that problem. Micheal Seibel of Y Combinator articulates this well:
“As a founder, I never took the time to really understand what that meant and I thought it was just an investor marketing saying. Now, when I talk to founders I extend the metaphor to illustrate it more clearly. If your friend was standing next to you and their hair was on fire, that fire would be the only thing they really cared about in this world. It wouldn’t matter if they were hungry, just suffered a bad breakup, or were running late to a meeting — they’d prioritize putting the fire out. If you handed them a hose — the perfect product/solution — they would put the fire out immediately and go on their way. If you handed them a brick they would still grab it and try to hit themselves on the head to put out the fire. You need to find problems so dire that users are willing try half-baked, v1, imperfect solutions.”
Finding the right problem
Imagine the following problem of teenage obesity. There are many problems beyond diet and exercise that cause teenage obesity but for the purpose of the example below, I’ve concluded that the two driving forces are diet and exercise. Imagine that you are starting a new company tasked with solving the problem of teenage obesity. Where would you start!?
As can be seen above, we need to drill down a problem into its smallest component elements from a first principles perspective to focus in on the most painful and meaningful problem. By emphathizing with users (more on this to follow) you may find that one of the biggest reasons why many teenagers and their families have a poor diet is because they don’t know how to cook. Conversely you may find that their diets are acceptable but they spend no time exercising because they can’t afford a gym or they have no time to exercise. As you may quickly notice, our startup could focus on anything from making cooking fun and enjoyable all the way to inexpensive, short workouts focused on their busy schedules — very different potential solutions to the same root problem of teenage obesity. The above example is not perfect but I hope it illustrates why so much time in the design thinking process is focused on understanding users and their most painful problems.
Process overview
There are various flavours of the design thinking process however most follow the 5 core steps shown above. Core to design thinking is that one must always start with understanding, defining and validating the problem (as discussed above) before a solution of any kind is explored.
This was a very brief introduction to design thinking laying out some simple context for the series to follow. In the series to follow I’ll deep dive into the actual process adding colour with crypto specific examples that will aim to bring to life how you can apply parts or all of the process to your next crypto startup, feature or investment.
If you are a builder or investor in the crypto space and want to discuss how the design thinking methodology how it can be incorporated into your next project or crypto investment please feel free to reach out to me directly via my Twitter: Native_0x
