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Hypergrowth of Marijuana - Scaling a New Industry

November 27, 2017  |  Posted By: Chris Hoover

It’s high time that we look at the scalability considerations particular to budding industries.  Notably, a high-profile outage recently befell MJ Freeway, a seed-to-sale platform serving legal marijuana sales. 

The recent outage is only one in a series that have plagued the “cannabis compliance” platform, causing Nevada and Washington to withdraw from MJ Freeway contracts, and Pennsylvania may soon follow.  In June, MJ’s source code was stolen and posted to Reddit, though subsequently removed. 

Leading a hypergrowth business in a nascent and potentially hypergrowth industry sometimes offers defensible first-mover advantages - especially when those industries tend towards natural monopolies and network-effects businesses(e.g. the early days of eBay and Facebook).  But these businesses and the platforms that support them can also suffer from astonishing levels of complexity.  Let’s examine a few of the areas in which complexity grows, and how a business might respond with strongly-rooted strategy.

Nascent industries often suffer from “regulatory whiplash”, and we can expect this to be the case with the legalization of a formerly controlled substance.  Regulatory developments may trail innovation by several years, and sometimes nearly a decade.  Businesses frequently must pivot quickly or withdrawal, as new legislation requires major rework of code and processes.  We’ve seen the Affordable Care Act require prompt leaps in the processes and leanness of small businesses, and we’ve watched nations attempt to drive cryptocurrency back beyond their borders.  Information systems innovators continue to battle uphill in the areas of unmanned aerial vehicles and self-driving cars

New industries aren’t the only areas in which governments may throw regulatory curve-balls at innovators.  Substitutes (alternatives to existing, well regulated entities) such as Uber and Lyft in the livery industry, often struggle with incumbents using existing (and outdated) regulations to create hurdles to progress. 

Further intensifying the complexity, growing US companies must forecast, understand, and comply with federal law as well as state law in each of the 50 states in which they operate.  At the writing of this post, 29 of 50 states have legalized some degree of marijuana consumption or sales. 

Though political environments can be daunting, a careful analysis of opportunities will stack first movers’ odds toward success.  Examining national, regional, and local governments’ histories of passing business-friendly legislation (or leaving the fields unregulated) provides a great start.  Regions previously known for aggressive web censorship will likely lack the ripe growth environment needed for new tech innovations.  Legislators who proactively but freely encourage experimentation can not only accelerate a hypergrowth industry, but also do the same for key partner industries. 

Hypergrowth requires all involved partners to accelerate scale in parallel.  Considering MJ Freeway’s example, a broad array of dependencies must be evaluated.  Cannabis’ cash-only origins and the prohibition of big banks to finance the new industry steepen the hills that companies must climb.  Add compliance audits on both medical and payments standards, and the hill grows higher.  Partners in security (consider MJ’s source code breach) and intelligent distribution methods must move nimbly to protect and prosper new and rapid growth.

In a new hypergrowth industry, diligence into prospective partners ranks in equal importance with the diligence of new market research.  The success of the business depends fully on it.  What stigmas and hesitance, founded or unfounded, might make partnership premature?  Some technologies simply move too early.

Internal partners deserve equally careful evaluation.  Leadership must seek top engineering talent to predict and preempt caching issues like MJ Freeway’s mentioned in this BI article.  Further, what talent might the business inherit from its predecessors?  Attracting industry expertise is crucial in creating new disruptions, and care in hiring must be exercised when the predecessors thrived by circumventing law enforcement. 

Cloud computing boasts massive advantages in scalability, yet a certain degree of forecasting IaaS needs must still be done before architecting with a cloud provider.  New research may be required to precisely understand the seasonality of consumer demand and sourcing raw materials.  Spikes here translate directly to spikes in compute time.  Research must also identify acceptable consumer-driven metrics for SLA, RTO, and RPO. 

Typically, industry analysts,  cloud providers, related industries, and even competitors can provide insight into the rough size of these needs.  But If the industry is new, the analysis will be new. 

Each of these factors compound, requiring far greater foresight, risk mitigation, and agility when building a new industry.  These rare opportunities require exceptional focus, and any priorities that fall short must be weeded out.

Using consistently proven principles of scale, AKF can help with sharpening this focus and performing the first-time analysis of scalability needs in a new industry. We can help you scale the right way!

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