There is a famous saying in the business world that culture can eat strategy for breakfast. Organizations are made up of people, and the culture of the organization determines how they behave. The best strategy in the world cannot overcome behavior that is contrary to the organization’s mission and values. At least not for long.
Right now, culture is a vague thing. You intuitively know what it is, but it’s hard to define. I admit that I didn’t fully understand what culture was until I read Ben Horowitz’s book<what You Do is Who you are>. It’s a great read for anyone who wants to better understand the hows and whys of culture. Your organization’s culture is how you make the little decisions every minute, day in and day out.
How long does it take to respond to customer emails? How do you welcome new employees to your team? Who speaks during meetings? It’s also a fluid thing, always mixing in different directions. This is why great cultures are so powerful and why toxic cultures are so destructive.
Culture is obviously an important part of any company. But what about decentralized projects …… Is culture a thing? Does it matter? Now that I’m working at DeFi, I’ve started to think about a lot of these questions. My conclusion is that culture is actually more important for decentralized projects than for traditional organizations. Let’s zoom in…Why is culture important in decentralized organizations?
Reason #1: Culture is important to DAOs for the same reason that culture is important to traditional organizations. They involve people.
There is a misconception that DAOs in particular don’t need people because smart contracts manage everything. This is clearly wrong. The best comparison I can think of is that smart contracts are to DAOs what internal regulations are to traditional organizations. The bylaws describe the mechanics of how the organization operates.
What they don’t do is run the business. You can have a perfect set of bylaws and a failing business. Similarly, smart contracts describe and execute the operational mechanisms of a DAO. What they don’t do is make business decisions. How should the network evolve? Should fees increase or decrease? What assets should be supported? Who should we hire? People make these decisions. Smart contracts execute and enforce the decisions that are made. This is a long introduction to the first answer to this question …… Culture matters because people are involved in it. When you have a group of people working together to get something done, the culture dictates how those people work. It’s how you distinguish between a successful and a failing organization, centralized or decentralized.
Reason 2: Culture is important to DAOs because it is the most enduring and pervasive force in the absence of traditional leadership structures.
In traditional organizations, culture starts at the top. Founders or executives set the cultural tone and lead by example. Whatever culture their actions create is gradually embraced by the rest of the organization, for better or worse. A culture that reinforces the mission and values necessary for the team’s success may be a good culture. A culture that reinforces behaviors that run counter to the team’s mission and values is likely to be a bad culture.
If a company finds itself off-track with its culture along the way, there is a leader or leadership team that can right the ship. in 2017, we watched YouTubers navigate very publicly. The ability to make changes quickly is one of the main benefits of a centralized governance structure. Truly decentralized organizations are typically flatter. They lack the hierarchy and leadership structure that we see in traditional organizations. In these cases, the role of culture and values is elevated. In the absence of a CEO and management team, DAO contributors take their cues from the mission, values, and culture established early on. People will come and go, but the community culture remains.
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How is culture formed in DAOs? Stirring the pot …… No decentralized project, whether it’s a public blockchain, a DeFi protocol or a service-based DAO, starts with decentralization. Everything has a creator. This means that for a period of time, the project is managed by one person or a small group of people. Bitcoin, Ether, MakerDAO, Yearn. they all started this way. Another churner …… Even after many projects ‘decentralize’, most are still controlled by the original insiders (because they hold a large supply of tokens).
This is not a bad thing. In my opinion, it’s actually the best way to bootstrap and scale something new. Because decentralized projects usually start the way traditional companies do, the culture is formed in the same way. Culture starts with the founders. The way they act every day sets the benchmark for others. As a company grows, it’s hard to lead by example because the founders don’t interact with everyone on a daily basis. To encourage certain behaviors, leadership adopts a set of values and institutionalizes them. They write them down, communicate them, and hopefully reinforce them. The same thing happens in decentralized organizations. The people who start a decentralized network or DAO have a specific way of behaving. As the network or DAO grows, newcomers take cues from the early contributors. Now, this model is frustrated by truly decentralized organizations because the founders eventually take a step back from the control they exercised early on.
So what will happen to the culture? Ether is a good example. Vitalik Buterin, one of the founders of Ether (but actually the leader of the project), gradually withdrew from the role of founder because he knew it was in the long-term interest of the Ether network. Fortunately, Vitalik’s mission and culture and the team created early on were so strong that they not only survived the decentralization process, but have become the most valuable asset of the Ether ecosystem. With intent, the culture can be strengthened and perpetuated as the number of contributors grows. Sometimes the opposite is true. Without intent, cultures can fragment. Contributors to a decentralized organization revert to their default way of operating. Everyone is autonomous and it is easy to lose the collective goals and values that drew people to the project in the first place. What is a good DAO culture? Believe it or not, the ingredients of a good DAO culture are the same as the ingredients of a good company culture.
- A clear mission. People need to know why they want to contribute. A clear mission gives everyone purpose, and purpose is a fundamental need for all. It also helps keep contributors. The most committed and passionate contributors will continue to support your mission as long as you are moving toward it. Without this, people tend to jump at the first sign of trouble, or when something new comes along.
- Strong values. What behaviors do you want to define for your community? Establishing a core set of values that will serve as a standard for future behavior is important not only for existing DAO contributors, but also for new contributors.
- Early. Timing is important. Establishing a clear mission and a strong set of values early in the life of your DAOs will give you a cultural foundation that will not diminish as your numbers grow. If you don’t realize these components early on, you will end up with the loudest sounding mission and values in the room (rule of thumb, these are usually not the values you want).
- Reinforced by leaders. Establishing a mission and values is only half the battle. Values need to be continually reinforced by the actions and decisions of community leaders. Sometimes this is the founder. Other times it’s a working group or committee member, or a contributor with a large social media following.
- Ownership Every DAO contributor should feel like an owner and be responsible for the success and culture of the project. This is a surefire way to maximize the value you get from each person. One of the best examples of these components at work is Index Coop, a decentralized asset management company that creates and maintains crypto index products. index has a community handbook that outlines the principles of co-op operations, the co-op community, and the people involved in the co-op. The existence of this document is a testament to its intent, and it serves as a North Star for existing and new contributors. This kind of documentation is not common in decentralized projects, but I hope it will become the standard for DAOs, especially in the future.
Other decentralized projects with great cultures include Friends with Benefits, Yearn, SushiSwap, KrauseHouse and Llama. All of these projects have very clear, simple missions and strong values. In the case of KrauseHouse – referring to former Chicago Bulls GM Jerry Krause – the mission was to acquire an NBA team (one of the most ambitious DAOs to date) For Llama, the mission is to help manage the crypto treasury.
Piecemeal thoughts
Thinking about the future of DAOs from a cultural perspective raises a number of interesting topics. One is something I’ve explored before – the decision structure of DAOs. If they evolve into smart contract type companies organized by functional areas (product, finance, HR) rather than a truly decentralized, flat ecosystem, then cultural factors can be managed as they would be in a traditional organization. The other is ‘stickiness’. Communities are ephemeral in nature, with low barriers to entry and little effort and discomfort when leaving. This can affect talent retention, which is just as important for DAOs as it is for traditional organizations.
What keeps people in the same job for years? Much of it has to do with the process of finding and landing a new job. It’s a tough job. But it’s also about the sense of purpose that people feel, the security that comes with the pay and benefits, and the responsibility that comes from working on a team with other people who expect you to show up and get the job done every day. You don’t want to let your team down. How do you create a DAO structure and culture that increases retention? I don’t know all the answers, but a higher barrier to entry coupled with a strong sense of mission and ownership seems like a good place to start.
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