First Stage Investor

How Startups Are Building More Trustworthy Businesses

How Startups Are Building More Trustworthy Businesses
By Andy Gordon
Date February 18, 2019

Scrap Connection was the first company in our First Stage Investor portfolio to build a business model around trust scores. I’m betting it’s not the last.

So what’s a trust score? And why are so many startups incorporating it into their business models?

Trust scores can be as simple as Uber’s five-star rating system. Another variation tallies thumbs-up and thumbs-down votes. Others generate scores based on a few questions you answer each time you use a service (like Airbnb).

Trust scores take many forms. In academic terms, their purpose always comes down to providing feedback, aligning interests and preventing abuse. In plain English, trust scores point you to buyers, sellers and service providers who won’t screw you (which I don’t think is asking too much).

Scrap Connection’s model provides a great illustration of how trust scores are used. The company operates in the scrap trading sector, where 80% of traders say it’s difficult to find trustworthy trading partners. Up-to-date information on scrap traders is spotty, at best. And abuse is rampant.

So Scrap Connection created industry “reputation scores” that traders can access on its platform before pulling the trigger on a deal.

Scrap Connection founder and CEO, Chris Yerbey, told me that identifying the need was the easy part. As a former scrap trader, he lost his shirt trusting the wrong people.

The harder part, he said, was developing a fair rating system that would be resistant to manipulation. His team spent about a year creating a brilliant system of checks and balances, which helped convince me that this company was worth recommending.

Chris was addressing an issue of trust in a single sector. But there are dozens of other sectors that have the same problem.

I know from experience. As a globe-trotting businessman (in a former life), I was victimized by unscrupulous businessmen more than once. And things have gotten worse.

Thankfully, startups are finding ways to use trust scores to address this problem. Chris says that Scrap Connection has created a “safer supply chain” in the global scrap market. Customer satisfaction and retention is being improved in other sectors as well, including supply chain, logistics and trade finance.

Blockchain-based companies are increasingly using trust scores too. It’s a great fit. Scores can be tracked in a secure, transparent way and can automatically trigger rewards – usually in the form of a company’s native coin.

Jobs platform Ethlance uses blockchain technology to provide an immutable and transparent record of feedback, where users can see which freelancers have the highest scores.

Personal auctions platform Listia is using the blockchain-based Ink Protocol to promote good faith in transactions. And the reputations aren’t siloed – scores earned in one marketplace can be accessed in any other marketplace.

Payment network and crypto development platform COTI takes into account users’ identities and transaction histories to assign trust scores. Those with high trust scores can use the system for free.

This is just the beginning.

Wouldn’t it be interesting to know which journalists have high trust scores and which have low ones? What about politicians, investment advisors, lawyers, real estate agents, tax accountants, dating app users and surgeons? (This AT&T commercial is hilarious but cuts too close to the bone!)

I could have used trust scores when I was traipsing all over Asia trying to close deals with parties I barely knew. Now the need is so much greater.

I plan on keeping a close eye on companies that use trust scores in innovative ways to disrupt dysfunctional, scuffling markets.

Invest early and well,

Andy Gordon
Co-Founder, First Stage Investor

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