“Hire From the Field You Want to Attack”
Interview with LuxTag Cofounders Rene Bernard & Jeff McDonald
Finding success as a tech startup is difficult enough under the best of circumstances. But when you base your business around blockchain technology and mix in the uncertainty of cryptocurrencies and a global pandemic, things become even more complicated. Yet, LuxTag has been able to find multiple verticals to serve and create positive momentum moving forward.
LuxTag cofounders Rene Bernard and Jeff McDonald sat down with Roland Siebelink on the latest episode of the Midstage Startup Momentum Podcast. They discussed both the unique challenges and successes that LuxTag has experienced during the company’s startup journey.
- How Rene and Jeff foresaw the future of blockchain technology years before it happened.
- The challenge of navigating the boom-and-bust cycles of cryptocurrencies.
- The difficulty of having technology before there was a use case or a problem to solve.
- How LuxTag copes gets developers to stay with the company.
- Finding a balance between investing in technology and recognizing the importance of sales.
- The importance of finding employees who have the same background as your core target group.
Roland Siebelink: Hello and welcome to the Midstage Startup Momentum Podcast. I’m your host, Ron Siebelink, and I’m a startup coach. And I have today with me two co-founders from LuxTag, a truly global company that I want to hear all about. Rene Bernard is the business co-founder and Jeff McDonald is the technical co-founder. Thank you guys for joining.
Jeff McDonald: Thank you. We’re glad to be here.
Rene Bernard: Yeah, let’s make this happen.
Roland Siebelink: Let’s make this happen. Excellent. Rene, I’m going to start with you. LuxTag, what kind of company is it? What do you do? And especially, what difference do you make in the world?
Rene Bernard: Wow. Okay. We are here to create a world of honesty where people don’t cheat each other and don’t even have a chance to do so because we secure items, assets, and even graduation certificates using digital certificates of authenticity using blockchain technology, which is one of the latest hype technologies in security. And we are engaging consumers with connecting them to the products and the manufacturers through tags. That is where the name LuxTag comes from.
And when you asked what LuxTag is about, it came from luxury product tagging. But at this moment, we are not only at luxury. We are actually, as you mentioned, a global company in various industry sectors at this moment, tagging physical items, assets, and even intangible assets to make them secure and engageable.
Roland Siebelink: Excellent. Okay. Then Jeff, we do have to hear a little bit more about this little key word that some people may have heard about, blockchain. Let’s take away the veil of ignorance. Of course, everyone knows about blockchain. Is this closely related to the trends around non-fungible tokens and authenticity that way? Can you engage our technical audience with exactly how you are doing this?
Jeff McDonald: Sure. Yes. Rene and I have been in the blockchain world for many years, since 2013 or before. And we were very fascinated, originally, by the idea of Bitcoin, of course, because that’s what was popular back then. Bitcoin allowed for the first time ever this new kind of asset class, this new kind of money, this money of the internet. Nick Sabo, a famous blogger, says, “Trust minimized.” Or as other people in the community say, “Trustless.”
And that means it’s money on the Internet that you don’t have to have a third party. You don’t have to take someone’s word for it. It’s digital money, but it can be your money. It’s not the bank’s or the government’s. And like I said, this was a new digital asset class. But when we examined the technical aspects of the blockchain, even back in 2013, in 2014, we knew that it wouldn’t be the only asset class. We knew that other than Bitcoin, people would start making their own coins, companies would start making their own coins. There would even be something, which as you mentioned, was called an NFT, a non-fungible token.
This is an asset class where you can think of a Bitcoin as a fungible point, a whole coin, money itself. A non-fungible token is an individual token. It’s a unique token. It’s a specialized token. It’s a one-of-a-kind, it’s a collector’s item. You could think of a property title. Every property title for a house, in theory, should be at least a little bit different than the property title next to it because they all have a little bit of different information in it.
And we realized that the blockchain could be used not just to store assets like money, fungible assets, but also unique assets. By 2016, we started working on this idea of non-fungible tokens. Now, the idea didn’t exist back then. This word, non-fungible token, hadn’t been invented yet. We actually developed a standard called the Apostille Standard. I was the main author of the Apostille Standard. Talked about it with Rene. Talked about it with our third co-founder Faeez, who isn’t here with us today but had a lot of great input.
We thought, yes, this is going to be big. We should make a company making these things, these tokens that are non-fungible using the blockchain to secure them. Everybody can see it. Everybody can understand what it is. Everybody can know that this unique asset is on the blockchain and who it belongs to. And we thought, “Wow, this is going to be great. The world could use this and a hundred different use cases.”
Not just property titles. But yes, you could make little items and video games, or you could use it for securing birth certificates or graduate diplomas or identification. You could even use it to make a voting registration card and then use that voting registration card on the blockchain to vote. And your vote itself could be a non-fungible token. We were just fascinated with this idea, thinking about, yes, blockchain is going to explode. Money is going to explode. And when it does, we will be there to take part in this non-fungible token economy.
Roland Siebelink: Excellent. Of course, I want to hear many more examples of how you apply this and which use cases you’re primarily supporting so far. But before that, I’m actually intrigued in hearing about your history because you said you were both engaged in Bitcoin already in 2013. But can you guys tell me a little bit more about how did you meet? What was your background? I think our audience actually also wants to hear what is this global company all about. Where are you based and where are you from? Shall we start with Rene?
Rene Bernard: We are now based with our headquarter in Malaysia, Southeast Asia. Actually, Malaysia is directly next to Singapore, which is known as a big business hub. But it is a much more affordable seat for a company; office space, more affordable salaries, and all the utilities you need to spend money on as a startup. We are very well positioned here in a good environment with good support from the local government as a startup business. Happy to be here, but our market is not only here. Our market is truly global. We are hoping to leverage on a rather low-cost environment and international funds with an international pricing level flowing in. That’s one of the little secret sauces in our startup.
I can actually say more than three quarters of our funding came in cryptocurrency tokens. And as believers, we are people who do not easily let go of these tokens because why sell them when we know they will be going up until the market shows us. We might be right, but it’s a long-term game and a startup business and making it to a break-even point, more revenue than running costs is a short-term game, a midterm game. It’s not that we have unlimited time or five years, 10 years to make it. Whereby, with blockchain and cryptocurrency tokens, we are in it for the long-term.
This is a little thing which is haunting us until now. Yup. Even nowadays, we did not break even yet as a business, even though it’s already going into our fourth year right now. We did not break even. We are still using our cryptocurrency funds from investment rounds. We are hoping for the best and doing the best on two fronts now, on startup work right to bring in business, bring in revenue. And the second leg of hope here is that we can extend our runway through our token appreciation. It’s a multiplier of risk, which I think is maybe one of the learnings. It’s risky to run a startup business already. And to have a majority of your treasury in an asset class which is highly volatile is another risk enhancer.
Roland Siebelink: No matter how big of a believer you are, right?
Jeff McDonald: As a startup founder, as an entrepreneur, you need to be able to believe in your product. You need to be able to believe in your technology. That was never our problem. We were always thinking this was going to happen and it more or less has happened like we thought. What we didn’t predict was the high volatility. I would lead in - and Rene knows more about this, or can probably speak to it a little bit better - it’s not just our treasury management.
We definitely had lessons learned with treasury management, making sure that if you’re holding an asset class, that you could manage it correctly. There’s things that we could have done. We could have put in some margin orders. Took 10% of the supply and put in a short at a leverage, so if the market went down, we would be covered. That’s why going short and long was originally invented on the stock market was so that farmers or people in the oil company or any commodity can make sure that their future expenses were covered. That was one thing that we could have done with treasury management.
But another problem with the boom-and-bust cycles of the blockchain is that it affects our customers. When people have made money, and the times are good, and the economy is good, people want to reinvest, people want to explore. But when times are bad, when there’s been a boom or when blockchain as an industry, as a whole, has gone through a lot of negative press cycles, then our customers are more hesitant.
We have a double whammy or double-win multiplier working in the blockchain industry. We have the ability of our past funds to go up and give us more runway. But we also get more clients whenever the market is good. And the opposite happens whenever blockchain is going through a down cycle too.
And so, this is something that we as startup founders have had to try to learn how to prepare for and react to. And blockchain is such a new industry in such a new phase that I think that at least we’re learning this lesson before a lot of people. Maybe I could share that. A lot of this sounds obvious to the listeners. But this was some lessons that were learned. Nobody told us this. It was a lesson that was learned. In hindsight, it seems pretty obvious.
Roland Siebelink: Maybe we can also start moving to the customers we talked about. Where does LuxTag apply? What businesses do you serve, businesses or consumers? And which use cases have you found the most compelling for LuxTag?
Rene Bernard: Because we are a business company, after all, the business model is from serving customers and make them pay for our solutions. Not only to grow token prices of cryptocurrencies. We had started, as our name says and as I introduced, LuxTag with the focus on luxury product manufacturers because we saw that this is something where we need customer engagement. We need authenticity. We even need an ownership tracking system.
Roland Siebelink: Actually verifying that a Louis Vuitton bag is authentic?
Rene Bernard: Exactly. Authentic and then you own it and maybe even some provenance; where does it come from? We did not want to go into the sector of the government-controlled ownership, registries, like the land registries or even medical matters, which is a regulatory burden or complicated to start. There’s the private sector, valuable items, most importantly a clear use case. And that was even what we initially pitched, brought forward. And we had gone to Switzerland. Proudly, we met with large watchmaker brands. We had engagements.
However, it’s not easy for an innovative tech disruptor or startup company to work with these hundred-years old, established brands. A brand, for example Rolex, they create their own steel, their own glass, their own everything. It’s in-house, everything. And they wouldn’t just outsource the technology for some blockchain tagging to a startup from Southeast Asia.
We were a bit naive in going that way, trying to offer our services. But we met companies like this one and in that category. But we learned our lessons that that’s not the best way to go forward, so we went broader and then we got success in mainly two sectors. One is the food and beverage sector. The people genuinely care about what they eat. Is it really organic or is it really from where it says to be?
Second sector where we are now in is educational credentials. Micro-credentials, which links the regulated educational sector into a wallet of your credentials. Besides the micro-credentials of the other smaller educational institutions, all can form a ECV with authentication tags and all these features serve the headhunters, job portals, employers, universities, and the graduates for lifelong learning authenticated.
We have F&B. We have this educational. And another sector we are working now is actually not really a sector, but it’s part of a business model. It’s the software as a solution system, a SaaS model, which will be called BrandTag by LuxTag. BrandTag is the solution which is a DIY sign-up solution where you prove that you are that company. We will do a verification check on you or you upload the trademark document, and then you can create SKUs. You can create products, you can serialize your product. And you can download serialized codes through our codes, or even order from us and NFC tags, which we ship you to attach to the product. And then you can - a little bit like a Wix editor website - where you can design a verification page for your end consumers, a verification of engagement page. It’s a DIY solution where you pay a subscription fee and you can tag whatever you want.
Roland Siebelink: How long did it take you to land on these verticals as your success verticals?
Rene Bernard: Three years. We are still with validation and with these things. Sorry to answer this one right now. Maybe it’s not exactly your question, how long did it take? Actually, we made lots of mistakes in our startup journey. We came from the technology side. We were technology people. We loved this new cool technology, and we wanted to embed it into the real world.
Now, find a problem which our core technology can solve. Normally, the startup approach is a bit different. You identify problems first.
Roland Siebelink: I still wouldn’t want to be the entrepreneurs that start on the solutions side, especially in the Bitcoin and blockchain. This is why I love talking to people with European backgrounds as entrepreneurs, because they’re not afraid to talk about their problems and their mistakes. That’s harder with Americans, right, Jeff?.
Jeff McDonald: I always want to spin the good side of the story. But that’s because I’m positive. I’m very positive.
Roland Siebelink: Absolutely. And I think good entrepreneurs can do both. And then also open up a little bit about where they can still improve. And I think that makes them ever so more credible. I love this.
How about your team? Can you talk a little bit about the history of the team? And I’m guessing that maybe there was some difficulty as well at some point in time when your funding dried up so much. How did you cope with all of that and how does the team like now? Maybe Jeff again?
Jeff McDonald: I can speak to the technology side. Blockchain is such a new technology that you’re always having to teach the developers. There’s very few university programs where you can just hire somebody. Now that is coming. It is coming. There are some universities doing that. But when we started LuxTag, there was none of that. Anywhere in the whole world, there wasn’t a single program. And so, we had to teach our developers everything from scratch.
And then the big problem that you have next is that when the markets are hot, everybody’s willing to pay a lot of money for a developer. There’s a lot of people that will offer our developers extra money, higher salary to go work for them. Luckily, we have a nice office atmosphere. Everybody likes each other. And a lot of times, our developers will just come and tell us, “Hey, so-and-so offered me a job.” And then Rene says, “Please stay, please stay.” And they say, “Okay.” He’s been a wonderful head of the company, creates a positive atmosphere that makes people want to stay. Eventually, yes, we do have some people leaving.
Roland Siebelink: Most founders always want to hear how have you divided up your resources? How much is in business? How much is in tech? How much is an admin at this stage?
Rene Bernard: I think I can respond to that. We can divide it into these three categories: Sales, business development, tech, and admin. And we have now the majority of our focus on the business development and sales. On the second rank would be tech expenditure and obviously salaries. And then the last one, management and admin part.
But as a technology company, sometimes I feel we might need to put more toward tech. But then, we can build the greatest things, if we don’t sell them for who do we build them? I’ve built the business and the business models around it and even designing. Let’s call it designing the solutions and doing the validations and talking to the customers. It doesn’t require a blockchain developer but a business engineer.
Roland Siebelink: Yeah. Maybe with your SaaS product at some point in time, you’ll get some product-led growth, where people just sign up and it starts growing. But that’s still a pipe dream for a lot of companies.
Rene Bernard: We did a soft launch. We did soft launch our SaaS solution and we are accepting now - let’s call it, trial users. Obviously, free trials to get more insight on what needs to be tweaked before we do the proper paid launch, hopefully, in July this year. The tech and designer team is working on that right now.
Roland Siebelink: That does lead me to what you want listeners from this podcast to get out of this and how they can help you. It sounds like you have the trial ready for that?
Jeff McDonald: We have multiple products, depending on what the customer is and what they want to use. I would suggest that people come to our website. We have BrandTag for products like Rene was saying, possible food products. We have another product that you could come and try out called Papyrus. You can use that. e-Scroll for documents. We have quite a few different things, and of course, we have an app that’s been launched on the Apple Store and the Google Store. If you wanted to come into one of these programs like Papyrus or BrandTag and make some items, then there’s a way also to stamp your items on the blockchain. Use our desktop app through the LuxTag website, produce items, make basically non-fungible assets on the blockchain and then have those visible to your customers on the app that they can download from the store. It’s quite cheap. It’s a lot.
Roland Siebelink: High value is what you’re saying, right? Excellent. Rene, you want to add to that?
Rene Bernard: I would like to say, what I would love to convey to the listeners is another interesting opportunity for everybody. We at LuxTag, especially Jeff and I, had been discussing this earlier, we want to scale up our outreach. Our outreach to businesses in the world and to enable others to work with us in making that happen.
Actually, we had partnered with a Danish company to set up BrandTag Europe. And they represent and resell our BrandTag solution in Europe. And they are helping us a lot with giving direct good feedback on how to build the product. They have good customer exposure. At the moment, we are looking for partners and resellers around the world shaping this solution and then reselling in a revenue share model with us.
This is something that our business development efforts are toward. Not only toward customers but even toward partners and resellers because we think that’s the best way to leverage. Ideally, we are looking for partners with business and exposure toward packaging, distribution, maybe services for the manufacturing industries, and even law firms. Somebody who is interested in using and deploying this technology without reinventing it. We have it! Please work with us and embed it into the real industry.
Roland Siebelink: Last question is always, with all that experience in running - not only LuxTag, but I think, Rene, you mentioned this is your third company already, and Jeff, I’m sure you have some experience there as well - what would be the one lesson you would give to founders coming after you? And what have you learned about being a founder that you wouldn’t have thought before? What would be the one lesson to impart? Let’s start with Jeff.
Jeff McDonald: You get a very good business partner like Rene.
To find a very good partner that can balance you out. Because no single entrepreneur, unless you’re just extremely lucky, is going to hit a home run their first time around. Finding somebody who’s experienced, finding someone who’s connected, and understands the whole scene. And I think that you really need to understand what it’s like to run a business. You really need to understand what it’s like to have a product. And you really need to understand your customer base. Having different people in your company that can know these different parts and specialize on it, I think is a wonderful way to spread. Start off with a really great team.
I think that’s one thing about Rene and myself is that we’re both lifetime learners. We’re not complacent. We want to build and we want to make the world better. And we’re always bouncing ideas back and forth between each other.
Rene Bernard: My advice is to validate better. Make sure that you’re working in the right direction because what we did is that we lost not months but we lost years of time. I’m telling myself now, it’s an expensive learning curve. To stay optimistic. That it was a good time. But we could have saved a year or two and maybe a few hundred thousand dollars too.
Validate better. That links towar the team. The team which we have now lacked the exposure or the experience and knowledge about the target business sectors we want to approach and validate or sell towards. Tech people, admin people, business people, but even the business people we had hired and we are working with right now are more from the technology sector. I would advise others to hire people from the field you want to attack.
Jeff McDonald: One of the things that we learned is that everything was blockchain at the beginning. We got people that knew blockchain this and blockchain that. And if we were going to pick luxury items, we should have immediately hired people in luxury. Or if we were going to build our product around food, we should have hired some people that had specialized in the food industry with a lot of connections. If Rene and I could go back and do that over again, we definitely would have.
Roland Siebelink: Awesome. Okay. That’s great advice, get more customer orientation and then involve yourself in that world.
Awesome, we are out of time. Thank you so much, Jeff McDonald and Rene Bernard - if I pronounced that correctly this time - the technical and business co-founders of LuxTag. It was an honor to have you on the podcast. And thank you so much for joining.
Jeff McDonald: Thank you.
Rene Bernard: Thank you. Have a good day.
Roland Siebelink talks all things tech startup and bring you interviews with tech cofounders across the world.