Imagine web3 is your high school.
DeFi is where the calculus superstars, the statistics gurus armed with graphing calculators, and the extroverted sports players ended up.
NFTs are where the art kids, the theater stars, and the band and orchestra members went.
DAOs are where all the history and literature nerds went. (I'm one of them.)
And it makes things.......interesting.
From a day-to-day level, DAO work can be pretty fun for the history and literature nerd in the DAO space. You might be in a meeting where an ancient Sumerian Zigguart takes up a whole slide deck screen (check). You might start talking about hunter-gatherer societies on a twitter space (check). And you might use philosophy and theory rather than accepted business best practice to back up your ideas in a forum post (check).
Moving through the DAO space has been a richly intellectual experience for me. As a former liberal arts college student, I can talk about theory and ideas all day. I've written thousands of words on a single line in an obscure Shakespeare play (Helloooo academia). I love this stuff.
But...even the English major in me can start wondering about the sustainability, the profitability, the business side of what we do. Especially as I watch Silicon Valley lay off employees as we nosedive into a recession.
DAOs feel like they've emerged out of an academia-based, theory-loving mindset. That's not a bad thing—it just means we need to get creative when it comes to making enough money to pay contributors and keep on keepin' on.
In this hyper-financialized space, it's a huge paradox that most DAOs aren't profitable. It doesn't mean they won't ever be profitable, or that they can't work as effective businesses. But it does mean we need to shake away some old ideas of what it means to be a successful business and what DAOs need to support their core teams.
It seems that the sun has set on DAOs that tout their token as their product and that rely solely on "token go up" to pay contributors. But when it comes to other funding models, DAOs get stalled. They don't really launch products (yet). They sometimes provide services, but mostly within Web3. They don't talk much about business strategy or profit and loss.
It often feels like we're living in an alternate reality from how businesses work.
Of course, it's not all about money. But....when it comes to having a fleet of skilled contributors giving at least 70% of their working hours to your org (let's be real...does anyone in web3 work on just one project?) money is a huge piece of the question that we can't ignore.
I think a lot of this trepidation around being blatant about money-making comes in part from the pure greed we saw in web2. Platform monopoly. Selling of personal data. Billionaires on billionaires on billionaires. It all got very icky over there. And in web3, we want to cleanse ourselves of the ick.
We're here to opt out, not opt back in.
But DAOs will be a very short-lived experiment if we don't get serious about making money.
Inspired by this Orca twitter space and the I Pledge Allegiance episode where Hasu dug deep on DAO profitability, I'm breaking down ways DAOs can marry business sense and DAO sense into something that maybe, someday, will become profitable.
Embrace hard decisions and disagree-and-commit
Making a solid profit in the web2 business world often means you're pretty ruthless about what you ship, who you hire, who your fire, what you do with your runway funding, and where your business is headed. (While these ruthless decisions can't always be the case in all web2 orgs, they're certainly the stigma). It feels centralized and just plain wrong when compared with the open-source, public goods, positive sum ethos of web3.
But, to build a lasting business, those decisions need to be made at some point. Unless you get very lucky, I'd say you need to make many hard decisions to make real, sustainable revenue.
Hard decisions are tough for DAOs because compromises are often needed to move a proposal to a vote, and a compromise isn't typically a hard decision, it's a "both parties are kinda happy but also kinda pissed off" decision.
How can DAOs embrace disagree-and-commit, where two parties agree to disagree but choose one path forward, rather than going around in circles looking for a compromise that doesn't exist? Especially when there are pass rates and voting thresholds required to move something forward?
One way is to keep most decision-making inside small groups who are accountable to the DAO for funding and critical feedback. Then, a smaller number of decisions pass through the voting process—but those would be the big-ticket items that need serious debate and discussion.
Keeping the majority of decision-making in a guild/team/pod level is a good way to drive the organization forward at speed, allowing small groups to make their own hard decisions. But, those teams must still be subject to the larger DAO—members, token holders, whoever is the decision-making group in your org—for funding.
Then, you end up with a pyramid like this:
Then, the hardest and most critical decisions are made at the DAO-level, keeping subject matter issues and small problems within teams. This gives the DAO a few hard decisions to focus on, rather than many hard ones.
Once a decision has to be made at the DAO level, it's extra hard because it takes longer to reach consensus. So only the biggest decisions should be reserved for it. Like this inverted pyramid:
Another way to approach hard decisions in DAOs is borrowed from the Teal philosophies: when the organization faces an existential threat, key leaders can use the advice process (asking others for feedback and advice on an idea) at scale to work out a solution.
Giving contributors shared responsibility over the issue—in this case, finding a profitable path forward—can help energize new leaders.
"When employees are fully engaged with the advice process in a crisis, they are asked to share responsibility for difficult decisions and trusted to make a contribution. This is empowering and helps the organization to grow."
—Reinventing Organizations Wiki, Crisis Management
Simply saying, "We need to find a way to make enough money doing X to pay our core team Y. How should we do that?" can be a powerful way to move a conversation forward about profitability. Leaders will emerge, and new solutions will come.
Having a visionary CEO is not a prerequisite to running a great company....but having many great leaders is.
There's a pervasive idea in web2 that a visionary CEO is necessary for a company to be successful. Steve Jobs and Apple, Bill Gates and Microsoft, Elon Musk and Tesla, and Mark Zuckerberg and Facebook are the visionaries that are touted as the best of the best. Business leaders of web2 are skeptical of DAOs because of they lack that single visionary.
To me, that's like saying a great country needs to be ruled by a monarch to be effective: I just don't buy it.
The corporation is so recent (didn't fully pick up speed until the 1800s) that I believe we're still in the divine right of kings phase when it comes to company best practices and standards: we're in the 1400s, at best.
I believe the visionary CEO idea is more about correlation than causation. In our complex, unpredictable world, it's nearly impossible to assign causation to one agent amidst a complex web of other factors and agents. While those CEOs were certainly talented in their craft and effective in their leadership, I believe we're moving past that phase of work and into an entirely new one, which gives way to democracy.
To me, DAOs aren't leaderless: they have multiple leaders with different backgrounds and experiences. A leaderless DAO is anarchical, a leader-full DAO is effective. Those various leaders can set the tone for the direction of the organization, not a single figurehead.
And, those multiple leaders can even lead the DAO toward a bigger mission than a single leader could—as long as they're united by that mission and not fractured by their interpretation of it. Which is where disagree-and-commit comes back in, and moving the organization toward its true purpose must take precedence over individual egos and opinions.
Mapping this back to profitability, it's critical that DAOs have one true purpose that leaders can gather around. If there are many ego-guided purposes all competing for resources, the DAO will never make enough money to continue paying its core team. A unified mission is necessary for profit.
A public-goods-ethos is sometimes applied to things that aren't public goods...which stalls revenue generation.
Using cryptocurrency to fund public goods without taxation is one of the most revolutionary ideas in the crypto space. But not everything we build in crypto is a public good.
I think a lot of our public goods ethos bleeds into everything in the DAO space. (This is something I've written on before, arguing that guilds in BanklessDAO aren't a public good and shouldn't be funded indefinitely by the DAO.)
In DAOs, we act like a public good by shying away from talking about how we're going to make money. We don't know when or how to get into the conversation because something about it feels wrong. It feels too Degen when we're tying to be Regen. And, because DAOs attract many people like myself who love debating theories and ideas (again, not necessarily a bad thing), we can go in circles for years on a single forum post.
In a recent episode of I Pledge Allegiance, Hasu spoke about how DAOs often end up giving away all their earnings to token holders, but don't keep any to run their company and bring in profits. They hope that those token holders will return the favor by becoming active contributors or jumping into governance, but the reality is that most of the holders just dump the token.
In this case, clearly defining a DAO's mission and place in the ecosystem early in the organization creation process is essential (are you noticing a theme yet?). Is the DAO building a public good, and funding a small core team to keep it running? Is the DAO trying to ship products, make a profit, and hire a large team? Making pivotal decisions like this early is important in DAOs.
Even though we're in the ownership economy, where users get more power and ownership than they've ever had before, DAOs need to balance that with making enough money to at least take care of their core teams. And if we look at every DAO like a public good, taking care of the core team will never happen.
"The future of work doesn't have to suck" — best thing I've ever heard on a twitter space
I got to speak with some DAO service providers on a Twitter Space (you can listen to it or read a recap), and one of my favorite things I heard that day was from Cokie, founder of Twali: "the future of work doesn't have to suck."
Because right now, if you're trying to make a living as a full-time DAO contributor, the future of work undeniably sucks.
You're probably bouncing between multiple DAOs trying to grab bounties and hold a bunch of roles. You're dealing with coordination nightmares and endless meetings. You're struggling to progress in a single career path, instead just picking up work as it comes. You're paying out of pocket for healthcare, and probably going to struggle qualifying for a loan to get a mortgage to buy a house.
The future of work doesn't have to look like that. Really, it doesn't! That's what motivates me to keep working on making DAOs better every day.
And profitability is a massive piece of it.
We literature and history nerds can figure it out—I believe in us. But we can't figure it out if we don't look at businesses and co-ops and governments and corporations of the past. We need to take some of our own medicine—read a history book!
I'll see you again in a few weeks, but only after I've finished my own history reading list. What interesting books and articles are you reading? Let me know on Twitter.
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A couple things I've written recently:
- I did a deep-dive into Web3 UX and the problems we need to solve to make mass adoption a reality, written for a project I'm contributing to: Bankless Card. Read and mint the Mirror NFT here.
- How many DAO contributors does it take to screw in a lightbulb? The end comment of this newsletter answers that for you.
- Recap of a Twitter Space roundtable of DAO service providers that I hosted.
Articles + Pods I've enjoyed recently:
- Hasu—the current state of DAO governance on I Pledge Allegiance
- It turns out DAOs need to make money??? Twitter Space hosted by Orca
- Governance Learning Forum survey results from Other Internet + Orca
- Decentralized Media in Web3 Is Not What You Think It Is by Steph
- What's the difference between a DAO and a community? Twitter thread by Rafa
Annndddd something totally out of left field, if you need a break from DAOs (because we all do sometimes): Alien Debate—Sara Walker and Lee Cronin on the Lex Friedman podcast.
Thanks again to Cosmic Clancy for the header image!