Bitcoin is Key to Empowering Small Businesses

Small businesses are the bedrock of the American economy. Today, more than half of all workers in the US are employed by businesses with less than 500 employees, and they create some 66% of new jobs as well.

Despite their importance to the economy, however, small businesses have faced serious hurdles in successfully competing on the Internet. Bitcoin has the potential to finally unleash them and fuel their growth, but first we have to ensure that the currency is trustworthy through smart regulation.

Founders looking to build a new company today have access to many effective platforms they can use to go from vision to delivery. Flextronics accelerates product development by assisting companies in managing their supply chains. Once built, companies can sell their products on top of Amazon Web Services, easily scaling their server resources with demand.

Finding customers is much easier because platforms like Facebook and Twitter provide tools to engage potential audiences. Finally, once customers are ready, FedEx and UPS provide full logistics services to ensure that products are available and delivered on time.

While small businesses have had all of these platforms available to them for years, one area has been sorely lacking: payments. Today's financial infrastructure is ill-suited for the online and mobile commerce that increasingly is at the core of business.

Issues like fraud and identity theft deeply harm small businesses, which can't easily manage their financial risks. Credit card chargebacks made sense when most commerce was in-person and local, but in a globalized consumer market, such policies are cumbersome. Compared to large companies, small businesses simply don't have the resources to accept payments online easily across the world.

As I discussed this week at CoinSummit, we now have the payment infrastructure we need with bitcoin. Together with other enabling platforms, bitcoin stands to provide small businesses with the leverage they need to aggressively compete in the marketplace.

This "economies of unscale" means that entrepreneurs from San Francisco to Mumbai can create a business that can rapidly grow with just a handful of people and a dream for the future.

[post-quote]

This has not been the case since the Industrial Age started two centuries ago. Scale has been the key watchword in building profitable companies, since large enterprises have the resources to develop proprietary systems, giving them unfair power in the marketplace.

They also have the ability to spread the cost of business processes and inefficiency over a greater number of sales. Entire categories of businesses, from manufacturing to the delivery of high-quality services, could only be conducted in near-monopoly conditions, and thus, innovation often fell by the wayside.

That's why I was excited to meet with so many passionate bitcoin entrepreneurs at this week's CoinSummit. The world economy is on the cusp of transformation. To get to the promised land though, bitcoin founders are going to have to take a very different approach than they have in the past in supporting the progress of the cryptocurrency.

Unlike the cavalier attitude that built the Internet services we use every day, bitcoin entrepreneurs must instead actively engage with regulators to ensure that consumers (and businesses) are properly protected.

Bitcoin has a plethora of thorny issues that have to be addressed in order for it to reach mass adoption. Consumers need the ability to hold secure digital wallets, and the bitcoin market itself needs better stability mechanisms. Since transactions in bitcoin cannot be reversed, entrepreneurs must develop a framework for adjudicating issues about returns or refunds.

Regulators are not necessarily against change, but they are often understandably worried about unfamiliar technology. Founders should see this as an opportunity and not a threat. Only through the intersection of technology, finance, and government can we be sure to build a system that will meet the needs of all stakeholders.

For these reasons, General Catalyst invested in the Series A round of Circle, which is building out the key infrastructure around bitcoin to make it safe and secure for everyday use. The co-founder of Circle, Jeremy Allaire, who built platform companies in the app server and Internet video markets, believes that Circle can create a two-sided platform that allows consumers to safely buy, store and use digital currency and businesses to accept transactions without risk of volatility.

We also invested in online payments company Stripe, which will soon allow its customers to accept bitcoin payments in lieu of credit cards.

If we can build trust in bitcoin, we can begin to empower the economies of unscale that will ensure that its ubiquity reaches the levels enjoyed by Visa and Mastercard today. That will mean that entrepreneurs across the world can accept payments from anyone, anywhere, with limited fees and headaches. That's a revolution for small businesses, and our economy as well.

Hemant Taneja is a partner at General Catalyst. The firm has invested in BigCommerce, Circle, Stripe, and ZenPayroll. Follow him on Twitter @htaneja.

Small business image via Shutterstock