NFTs for SMBs - Should Your Small Business Join the Craze?
February 9, 2022
You've seen headlines. NFTs have become hot commodities, dominating tech chatter and getting adopted by some of the biggest players in global commerce. As a small business owner, should you jump into the NFT craze?
To make an informed decision, you should understand what NFTs can do for you. At the same time, you should realize some of the potential downsides, so you don't run headlong into a fad that damages your prospects. This article will give you the basic facts about NFTs you need to plan your strategy.
What are NFTs?
Generally speaking, NFTs are digital products that have unique verifications and a wide range of potential embedded abilities. They operate on a blockchain, like cryptocurrencies, meaning that ownership can be digitally tracked and checked.
To give a more detailed explanation, let's break down the name. The term "NFT" stands for "non-fungible token." Don't feel bad if that doesn't clear things up that much.
Let's start with the "token" part. That refers to the technology that makes NFTs possible. These are digital products, closely related to cryptocurrencies. They use similar blockchain technology as products like Bitcoin or Ethereum – in fact, Ethereum provides the most well-known tech backbone for the creation of NFTs.
In general usage, the "fungible" means that something can be replaced by something that is exactly the same. Like, one dollar bill works as well as another when you want to buy something. Or if you spill a cup of sugar on the floor, you can just scoop another one out of the bag. Those products are fungible.
NFTs are "non-fungible." They can't be replaced by each other. Another way to say it: each NFT is unique. Think of it like a license plate. Two plates from the same state may resemble each other in overall look (same size, same colors, etc.) but they each have a unique number. If you lose your license plate, you can't just grab one off another car.
Now imagine that your license plate exists on your phone as a digital file – one that is registered to you. That will give you an idea of the basic structure of an NFT, although these tokens can also be encoded to provide other functions, like access to systems.
Why are so many businesses getting in on the NFT craze?
NFTs have taken off in popularity lately. In many ways, they have become the public face of the cryptocurrency world. Data on the size of the NFT market varies depending on how you measure, with some estimates showing a figure around $25 billion, while others place it above $40 billion.
Whatever the case, the growth of this asset class has been tremendous. The same data source that pegged the 2021 NFT market at $25 billion estimates that it was worth less than $100 million in 2020.
The growth of [the NFT market] has been tremendous. The same data source that pegged the 2021 NFT market at $25 billion estimates that it was worth less than $100 million in 2020.
Beyond the long list of tech innovators who have waded into the NFT craze, old-school brands like Mattel and Coca-Cola have also stepped into the market. The trend has also become a way for celebrities to connect with their fans and monetize their fame.
Why have these business leaders stepped into the market? Each situation is different. However, a wide variety of use cases exist that make NFTs compelling choices, even for small businesses. Here are a few to consider:
Certain NFTs operate like digital merchandise. Just as you could sell a t-shirt or a mug sporting your logo, you can issue NFTs as a branding exercise. In some ways, this form of NFT dominates the public imagination of the space, with digital art or items like NBA Top Shot becoming hot tradable items.
You can use NFTs like keys to unlock specialized products and services. For instance, they can act as unique coupons or as a way to access premium offerings.
NFTs also provide a way to raise cash. They can act as investment vehicles -- a digital upgrade on a stock certificate (but, as we'll touch on later, this has regulatory ramifications). Or you can use NFTs as a method for creating pre-sale revenues. For instance, if you have a particular product set to launch next year, you can offer an NFT related to that new offering that grants its holder early access, while allowing you to acquire cash upfront.
Use NFTs as a method for creating pre-sale revenues. For instance, if you have a particular product set to launch next year, you can offer an NFT related to that new offering that grants its holder early access, while allowing you to acquire cash upfront.
People tend to think of NFTs as a consumer-facing opportunity. But there are practical organizational use cases as well. For instance, each employee could be granted an NFT that offers access to various systems.
What do businesses need to consider before creating NFTs?
We've laid out some of the potential benefits of turning to NFTs. However, delving into the market comes with its challenges too. Here are some of the considerations to keep in mind as you weigh whether to launch your own NFT offerings:
NFTs exist as cutting-edge technology. That's part of what makes them so appealing. However, it also presents the problem for small businesses looking to launch their own offerings.
You'll either need expensive expertise in-house or a relationship with a third-party provider to create and maintain your NFT. Much of the tech might be over your head, meaning you'll be relying on the guidance of others to achieve your goals.
Do whatever research you can and get multiple opinions before you decide how to proceed. Also, plan a controlled launch -- something small to get started. As you gain experience, you'll be better informed and better situated for more ambitious projects.
Because the technology remains new, many aspects of NFTs fall into a legal grey area. For instance, federal regulators see some tokens as securities, which fall under the auspices of the U.S. Securities and Exchange Commission. Meanwhile, the SEC has called for more detailed oversight of the NFT market.
As such, the legal situation surrounding NFTs has become a moving target. You'll need to keep track of changes in the industry to understand how your offerings need to conform to the current rules.
Yes, NFTs have become a hot topic. And, as we've seen, plenty of use cases exist that make this technology a good choice to achieve certain goals. However, NFTs have also earned a sketchy reputation in some arenas, with a series of high-profile scams putting many consumers on guard.
As such, you should be careful how you handle your entry into the NFT world. Only form relationships with reputable partners. Make sure you have the resources to present a good product. Otherwise, you damage your brand with a shoddy offering.
How to develop your own NFTs
The building of an NFT is a highly technical endeavor. That said, many providers have set up near turnkey solutions to help you along the way. It's up to you to find the method that best matches your circumstances.
Whether you want to build from scratch or start with a more off-the-shelf offering will depend on your level of commitment and your pool of resources. However, there are some basic steps to keep in mind. However you choose to proceed, here are some of the fundamental actions you'll likely need to take as you move through the process:
- Research NFTs that other small businesses have launched and understand the possibilities.
- Decide on a specific goal. Understanding what you want to accomplish will help you develop the perfect NFT for you.
- Select a tech partner or begin building the internal expertise you'll need. This will either involve finding a third-party collaborator or beginning a hiring process, either for full-time staff or for consultants/freelancers.
- Design an NFT suited to your goal.
Follow the necessary logistical steps to make your NFT public. These can get highly specific, but the process will likely include steps like:
- Choose a platform for your NFT.
- Create a wallet.
- Actually build the NFT.
- Keep in contact with your NFT community, using their feedback to improve your offering.
Do you want to join the NFT craze?
NFTs represent both a technological and cultural phenomenon. But can they provide a meaningful contribution to your growth, especially as you look to judiciously invest your limited resources?
Don't dive into a trend that you don't understand. Use this information here as a jumping-off point for a thorough look at the potential benefits (and the potential pitfalls) of launching NFTs for your small business.