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Startups: Should Yours be a Decentralized Autonomous Organization?

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Startups are taking new forms on Web3. Unless you’re a CEO of a company, nowhere gives you more control over what you work on, who you work on it with, and how you work on it than being in a DAO, says Spencer Graham, Core Contributor at DAOhaus.

So you’re a startup founder and Decentralized Autonomous Organizations (DAOs) have caught your attention. Perhaps you’re interested in avoiding a stark power differential between yourself and those you work with. Or perhaps you’re excited by the emergent value creation made possible by bottom-up decision-making and collective action. 

StartUps can consider becoming a DAO

Whether you are an early-stage startup, one that’s been around for a few years, or an established business looking for a change, you’re now at the point of asking yourself whether becoming a DAO may be the right thing for your project and community.

A DAO is a new way to run an organization, one that is no longer driven by a central leadership but is more focused on a user-first, community-owned mentality. But what does being a DAO actually entail?
As a founder, here are three questions you should ask when considering whether your startup should be a DAO.

1. What are you trying to build?

Does the success of your project hinge on the strength of your community? To be viable, does it need to be controlled by its community? Should it be protected against unwanted control by some external entity? 

Is it important to you that ownership over what you’re building be broadly distributed? Are you interested in having your project incorporate web3 technologies such as NFTs or DeFi?

If the answer to any of these questions is yes, then a DAO may be the right fit for you. 

Some types of organizations that have proven to be a good fit for being structured as a DAO are consulting companies, agencies, and law firms. These already have shared ownership – they can become service DAOs. These are DAOs whose members come together to provide their services to clients as a collective. Becoming a DAO gives these organizations more individual empowerment, leading to better client outcomes.

Charitable organizations become philanthropy DAOs. Dubbed the future of giving, these are DAOs creating social responsibility in Web3. Using a DAO structure enables these organizations to attract a more inclusive set of stakeholders, leading to a more effective allocation of resources.

Companies building a product become product DAOs. By adopting a DAO structure, users of these companies become stakeholders, ensuring the product will continue to serve them and their needs. 

2. How will being a DAO help my startup achieve its goals?

Being decentralized makes DAOs by nature more focused on community over profit. By and large, people are engaged in what they are doing when it’s happening in a more participatory way. 

Being a DAO helps you attract better talent. Many workers are leaving the Web2 space to take jobs in Web3, attracted by the greater level of autonomy. And unless you’re a CEO of a company, nowhere gives you more control over what you work on, who you work on it with, and how you work on it than being in a DAO. 

Compared to traditional companies where decisions around things like salaries are made by a select few at the top, in DAOs these decisions are governed by all members, creating an inclusive and more satisfying work environment. 

Being a DAO helps your startup be more resilient. The bottom-up structure in DAOs reduces points of failure and reliance on individuals. Significant internal changes won’t affect contributors. DAOs are also more adaptable. They enable contributors to explore the idea maze faster by taking multiple paths in parallel. They can more reliably reach conclusions or generate results in the face of uncertainty. 

Being a DAO helps your startup focus. Thanks to the open-source and modular nature of the DAO ecosystem, you can delegate necessary but less important tasks to service DAOs or the ever-improving set of DAO tools.

Startups are taking new forms on Web3, via the DAO structure

3. Where would I start?

If you’re considering becoming a DAO at some point, then the best thing to do is to become a DAO from the beginning. It is significantly more challenging to distribute power once it’s already concentrated than to distribute it from the beginning. Starting early also allows you to build up the patterns for making decisions and taking actions in a non-hierarchical fashion in a lower-risk environment. 

If your startup consists of just a few people, you may want to use a multisig wallet. This is a digital wallet that requires the signatures of a group of users to approve a transaction.But if you expect your startup to grow to more than 10-15 people, a multisig will quickly become unwieldy and you will need to migrate to a more scalable DAO structure. 

It’s best to skip ahead to a more scalable DAO framework from the very beginning. If you use a framework that is flexible enough, you’ll still be able to move quite quickly in the beginning while also being able to scale without the headache of migrating to a new framework.

For example, the Moloch DAO framework can imitate a multisig in your earliest phases, but then gracefully scales with you. Other frameworks include Colony, Aragon, and 1Hive Gardens. 

It is generally a good idea to keep your DAO permissioned at first. This allows you to distribute power away from yourself and other founders while maintaining a high-signal environment in which you can move quickly.

Once you’ve grown and established a solid cultural and governance foundation, you may want to relax the permissioning and allow the community to participate in the project without having to be approved by the core community members.

Startups: The time is now

Every company launches with slightly different rules, structures, tools, and practices in order to fulfill their mission, build a product, or serve their stakeholders. 

In this same sense, every DAO is going to be slightly different. DAOs will use different platforms for tooling, structure their governance in their own way, and create community guidelines distinct to their DAO. 

The space is still quite early. There is no set structure for how to launch a DAO. There is no well-established playbook or formula to rely on.

The opportunity in front of us right now is to collectively learn and build shared knowledge by exploring our own approaches for how DAOs can work for us. The more we practice within this design space, the more data we can gather on best practices for how to operate as a DAO. 

It’s an exciting time – come join us!