Kaupapa (or purpose) in Tech start-ups and DAOs
My name is Konrad Hurren, I’m a Research Economist at Businesss Economic Research Limited (BERL). I have a great curiosity and interest in all areas of economics, particularly in the way of doing economics as part of the Misesian-Mengerian (“Austrian”) tradition. This tradition, moreso than contemporary economics, seeks to understand entrepreneurship — of which kaupapa (the purpose, the “why”) is a huge part. I also have a strong interest in the crypto space generally.
The following is a transcript of a podcast I (Konrad) hosted with a special guest Daniel Bar. In this podcast we discuss the concept of kaupapa (or purpose, or your “why”) as it relates to tech start-ups as well as Decentralised Autonomous Organisations (DAOs). I have left the transcript mostly unedited so as to convey the ideas as fully as they were said. However, where appropriate I have added detail to my own comments or questions that were not so clear in the original recording.
The original podcast is available at https://www.berl.co.nz/research/kaupapa-led-organisations
Konrad: Kia ora, welcome to the BERL podcast, i’m your host Konrad Hurren. As part of our ongoing pro-bono work under the Bryan Phillpott Research foundation. Today we’re taking a look at kaupapa or purpose. What does purpose mean in the context of an entity, if you have one what is it, is it explicit — out there for all to see, how do you communicate it?
Daniel is an entrepreneur and investor with a primary focus on decentralised web technologies. Daniel is the founder of Bitfwd and currently serves as Chairman. Daniel is also a Venture Partner at Collider Ventures where his focus is on disruptive innovation in the FinTech space and promoting equitable business models through open source systems and cryptoeconomic empowerment.
Welcome to the show, Daniel.
Daniel: Thanks for having me Konrad.
Purpose in tech start-ups
Konrad: It’s all good. In your experience, what are some of the purposes of tech start-ups and companies in the tech space?
Daniel: It’s fairly a broad case question. Different companies start for different purposes. I think when we’re looking at any company there’s always a founder behind something whether it’s a company or a project. Or any initiative. There’s always a founder behind it. Each founder will have their why. Some founders and some teams would have a clear why. They’re easier to work with I’d say. Because you understand exactly what you’re standing through different changes happen over time because unavoidably things change. There are happy days, there are tough days. Some companies don’t have a clear why. Whenever I work with companies closely when I’m investing or doing any venture building activity I always try to ask those questions regularly throughout the course of projects because it’s very important in order to understand where are we going, right? These whys are going to guide closer. So I think I might not answer your question in the sense of there’s some kind of one answer there. I think that the most straightforward answer is to basically think of the purpose of a company as this manifestation of the deep why of the people behind it and how through the company it basically becomes the force of some sort of change in the world. I hope it answers your question maybe with regard to how explicit or implicit it is. Again, this is very case-dependent. Some companies and some teams have these very clear ways of communicating their kaupapa (or purpose) and they have a clear direction of where they’re going. They’re changing it over time. I think with your comment on DAOs we’ve discussed previously already a little bit. DAOs are very interesting in that context because there’s often a non-hierarchical leadership. It means that why is a mash of a few things and they’re not so much like a deep calling that someone has as an individual but rather like a mind that has opinion.
Konrad: Thinking about start-ups. When someone comes to you with a proposal of a venture and you try and dig out their “why” do they tend to come to you with world changing ideas or is their idea as simple as “I want to make some money”.
Daniel: It’s a good question actually. I think I’ve seen for example a founder that comes with a project company idea of eliminating poverty through a product that does a, b, and c. And then you start understanding what it is after. Is it elimination of poverty, is it using this particular technology and power people. Then you start being able to distil a clear why. In other cases I’ve come across people identify the market need rather like a deep vision or why of their own, then they start to build, they start get iterative response from customers and they funny enough sometimes they don’t necessarily have clear why just by having an iterative market response there’s a sense of why that is being unearthed over time. As a kind of a pain in the industry that is discovered and polished and further refined as they do their work.
Konrad: (post-script addition) That’s interesting. It is very close to the concept of an entrepreneur in Austrian economics. This is a person who tries one course of action, receives feedback from the market, and adjusts, dynamically. This process results in a changing “why” more aligned with what the other market participants want.
Sending messages and aligning stakeholders with your purpose
Konrad: Thinking about stakeholders in the tech start up world. When you are trying to get your message across, do closer stakeholders receive the same message as more distant stakeholders?
Daniel: That’s a great question indeed because in any sufficiently complex system in organisation and start-ups are naturally a little bit complex. Different stakeholders are carrying different parts of the story and quite often they would definitely get different messages. It’s not necessarily a contradicting or conflicting message but more over just factually they play a different role and therefore if they some kind of overarching why and a mission statement often it would be explicit and then that message would be there but specifically about what would be the incentive carries the conversation that they are engaged with in working on company or a tech start up if their customer, or employee, or if their organisation is a partner can be a very different conversation in terms of alignment while ideally having obviously the same interesting overarching mission.
Konrad: How do you align investors, employees, and other stakeholders with your purpose?
Daniel: That’s a good question. The word alignment is very important here in your question because when you’re looking at the tech company I’m assuming a very important part is for example shareholders or anyone who’s basically …or not necessarily shareholders but employees that get shares or don’t get shares. There is an importance of being aligned and kind of making sure that whatever it is that is being carried out whatever work that is being carried out is something that serves a big pie rather than a small one like we often discuss. Rather than having a small slice of a big pie than trying to get a small pie all for your own. I think the alignment that is to be (? thoughts) in putting together stakeholders and investors and everything is in my opinion and this is what I’m trying to do in any venture that I’m working with is basically on how we create this win-win-win situation. How are the customers, shareholders, partners, employees, founders being served all around? This is not some kind of a template for these things. It’s very much like a … again, going back to an iterative process it’s very much identifying opportunity where they just end up being really natural and the close they coming from a DNA of a founder, they coming from the needs in the market, they coming from the skill set in the environment or the employees or customers are. That’s kind of a gold standard and the spot you want to reach and doing that is through constantly iterating and polishing.
Konrad: Maybe we can explore this idea, feeling the right alignment or communication. In your experience, do you find that there is natural alignment and natural purpose that comes out through? Do you sometimes find that in your experience founders tend to force an alignment?
Daniel: The sad answer is that most organisations in the world don’t do it right. It’s not to say that it’s all bad but naturally. Ideally we want to live in a world where everyone is free, creative, and expressing themselves in a very authentic and unique way. There aren’t hierarchies and somehow all this magic contributes to a very productive and beautiful situation. This is what we want it to be. But practically look around you and you’ll see corporations, corporate slaves. I often quote a famous entrepreneur and investor. He says that the suits and ties on the people’s necks are like a collar. I think you have a lot of these around you but people are fitting into templates and not necessarily being fully aligned. They’re aligned merely to the amount of monthly salary. There are two dangerous things for a human or human invented two difficult things: heroin and monthly salary. This is the reality around us. In my opinion, technology as a creative force is coming to basically enable this ability for people to express and be creative in different ways. We’re transitioning to this world of positive sum games instead of just in a need to get through the month. If you look at organisations that do it better than others it’s through this ability to give people paths for growth and make people find good leadership is finding your way by facilitating people to express and grow and by creating positive work output and that’s kind of like the sweet spot we want to get to. Leadership and finding all creative expressions is not something that is just a push-play thing. It’s a bit of a craft that we all need to know often they say there isn’t any kind of overnight success. It somehow looks like it but there is fifteen preceding years of super hard work that makes it look natural and super easy. This effort of fifteen years or however long is basically crafting like improving this craft of creating win-wins and alignments and stuff like that.
What if stakeholders disagree?
Konrad: You mentioned the addiction to monthly salaries and the need of creative expressions in an organisation. That relates to employees maybe slightly disagreeing with the current purpose of an organisation. Are there any trends or special systems that imply tech start-ups different to legacy industries when it comes to employees being able to disagree with the current kaupapa (or purpose, the “why”)?
Daniel: I guess your question is what would be the difference between being involved in the start-up world to legacy industries, corporate, and stuff like that. I think we can look at the very basic things. For example, when you’re an employee at a tech start up, particularly if you’re the early-stage employee, you have a different incentive structure than what you would have at the industry or in a big corporation. One example is that a lot of start-ups use employee share option plan which basically gives employees the ability to become shareholders usually in favorable terms and by that what they’re working towards is a greater thing than just a salary because they’re working towards the mission of the company, they believe in it, and then they’re able to become part owners. This is something that should be aligning employees. There are mechanisms to introduce this also into large corporations even like publicly treated companies sometimes would be able to offer, more common in tech companies. In some cases, cooperatives are able to offer this kind of thing. So yeah, I guess there are ways you see implemented in tech start-ups. In terms of the fact that those groups disagree there’s a super nihilistic stream part of the story which is the part where all are engaged in productive work output based only on the capital inputs or monthly salary. Yeah, I’ve seen cases that you see workplaces where people disagree with management, people don’t believe in the vision. Nevertheless, they take part because they’re in the system that provides work output and they can go on by paying mortgage and whatever it is, right? This is quite common. But you also see other cases when its wonder and magic and you have management, leadership that is empowering rather than dictating orders and stuff like that. We have all kinds of organisations.
Focus on Decentralised Autonomous Organisations (DAOs)
Konrad: I want to switch the focus to decentralised autonomous organisations. We have very wide variety of audience members. Would you like to give our audience an intro to decentralised autonomous organisations?
Daniel: Yes. It might be. It’s a bit of a complex topic but I’ll try my best. Decentralised autonomous organisations. Let’s start by thinking about the words that compose this thing. One — there’s ‘organisations’ in this term. And the organisations is the foundation of how we as humans do all kinds of things. So company is an organisation, government is an organisation, a family is actually an organisation. Often you have a neighbourhood community as an organisation at facility things. You have all kinds of different organisations and if we think about the theory of the firm you have a virtual world we’re basically participating in because we have this shared written and unwritten…so like written contracts and unwritten cultural norms that somehow the combination of those consist of what becomes a company or an organisation. This is something to understand. This essentially a made-up thing we, humans, are able to create and by that like facilitate different activities and things. Organisation is one part. Then, decentralised, second part. Decentralised is a bit of a fuzzy term because sometimes it refers to network architecture, the fact that there is no central permission and authority for one party. Sometimes it refers to the fact that there is privacy to different participants so there’s no some kind of omni observant super users sometimes it refers to the fact that it is run on decentralised network. So there are different aspects of what decentralised mean. Sometimes it’s defined as permissionless. It really depends on the context. Let’s say it’s something to do with the distribution of privileges of the system. This is like what decentralised mean. Autonomous is a bit of a mean but basically this is something unstoppable, something that is running on its own. And what we’re talking about decentralised autonomous organisations the supervisory thing which is imagining some kind of power, some kind of aligns all stakeholders and participants and this is unstoppable and continuous and never need to ask permission to participate or not. This is how a lot of this movement has started. But having said that ideal to what does it actually mean in practice we have a few steps to make and where currently DAOs are is at the early stage of starting to identify what are the possibilities and how does it compare or change legacy organisations structures.
Konrad: I want to unpack this concept of permissions. (Post script addition) in the legacy system permissions in an organisation centre around who makes the decision on what to do. Then there are other levels of permissions such as who can write to the accounting system. In a decentralised organisation it is different isn’t it? You can sell and trade your right to make decisions and/or write to various systems. Am I correct in saying that?
Daniel: There are different layers to it. I think that if we look at the example that you’re referring to for instance the accounting systems. So quite often when we look at permissionless decentralised systems we’re thinking about use cases where shared ledgers are a part of the system and that could be an accounting workflow where multiple people are able to provide input and participate in transactions. In other cases, it’s the ability for multiple people to engage in the system without requiring permission or participating without being approved. There are different layers to what decentralised permissions mean.
Konrad: It’s an exciting time with DAOs being so early in development. What purposes (or kaupapa) do you see DAOs existing for?
Daniel: That’s also a great question. DAOs as we define them is a very general purpose thing just like the firm or organisation. So naturally different DAOs with different teams are taking kind of more weight in dictating the mission they would have different purposes and different ways of conducting activity and different impact in the world. You would see examples of DAOs that have quite a lot of spotlights are investment DAOs, so people that congregate together organisations and pull together capital and due diligence on different early stage tech initiatives and decide to invest or not and help support those tech projects, venture building services and stuff like that. So this is like an impact I guess the mission would be to basically support creating changes through empowering the early stage. Others are public goods for example. We have a DAO in Curacao. It’s called CuraDAO that is pulling together some funds and then it’s working with community leaders in order to provide them some grants into things that support the general public as a public good like parks or agriculture or stuff like that. So that’s a different organisation and different purposes I suppose. It’s a general purpose thing.
Konrad: Our economics textbooks famously say public goods can only be provided by a certain entity. Well, yeh ok, now we have DAOs. So maybe the textbooks are wrong. With what you just said. Do you think DAOs are more naturally suited to solve certain problems? Or do you think they will remain general and every purpose might be covered by a DAO?
Daniel: I definitely think that the latter is the option and we already see it actually. There are probably about five-six DAO platforms providers. So platform providers are platforms through which you can launch your DAO without having to develop it from scratch similar to how you have to launch the website with Wix or launch a product with kind of like a drag and drop thing, Facebook group, whatever. There are different DAO platform providers that already allow you to do it. And then there’s also kind of customized self-made DAOs for mission specific things. We’re already seeing how DAOs are already on a spectrum. You have DAOs that are fully permission so they’re not fully decentralised. It’s actually just like a … sometimes people call it digital organisation instead of decentralised organisation because it’s quite still centralized. In this case, there would be you have DAO with three members. It could still be using the same platform or using blockchain technology. In other cases, there’s dxDAO, for example, one of my favourite DAOs actually. It has well over 200 members and whenever you’re interacting with this group there’s never a person that is going to assume the leadership. It’s always a collaborative collective discussion. They share this process and ethos of making the decisions and doing their work in a very open, transparent and collaborative manner which is very different to how we use work. If you’re working in any company in a c-world you think oh I’m going to talk to account manager or the CEO or marketing manager or the sales, tech depending on whatever question you have. In dxDAO with their purest and extremely decentralised approach. On the one hand, sure, there are people that are going to end up owning deliverables. But at the same time whenever they engage in decision-making it never comes as someone bringing their decisions to the organisations. It’s always as someone bringing their proposals to their organisation and then being able to gradually as a hive mind get towards something and then eventually submit it as an on-chain event that triggers real world outcomes. So we already see basically, to your question originally, those things serving multiple purposes and taking multiple shapes and forms.
Aligning purpose in a DAO
Konrad: Just to unpick this example, the example of a more pure DAO. How would a DAO like that align its participants with its kaupapa (its purpose)?
Daniel: That’s a good question. I think there are few things you see that are kind of well-understood and there are a lot of things that still need to be improved at the early stage. I think that one very clear thing that is fairly well-understood is that the power needs to be distributed in order to get alignment from larger audiences, right? If in the company traditionally you would have majority shareholders, stakeholders, leaders, executives, and then we have employees that often don’t have shares at all. In the legacy situation, the alignment has to come through all those incentive games. In a very purest decentralised situation, some of the alignment comes from the fact that people all have ownership and there’s not so much like an executive hierarchical leadership. In reality, I have to say, it’s really difficult to achieve because even in the dxDAO and other great DAOs out there if you look at the top ten, top fifteen reputation voting power holders often the picture that you see is that there is a small group controls the load of voting power. This part is still not very easy to immediately give power to a large base of participants and achieve this kind of magical collective alignment on that front. But there are things that also. There’s an element of culture configuration I’d say beyond just the incentive design that takes time to develop. Basically, to have a culture of the people involved that is very much inclusive and collaborative and takes the time and patience to introduce processes and norms that are aligning people and empowering then you start seeing it. And you see it in dxDAO and other DAOs that are doing really well. And if you don’t then I mean sure you can still use DAOs and often the picture you’ll see is very similar to how traditional organisations work.
Power dynamics and purpose
Konrad: Maybe we’ll cast our minds back to tech start-ups. You mentioned they have multiple purposes both explicit and implicit. Is there a power dynamic between investors and founders whereby the venture capitalists might change the implicit or explicit purposes?
Daniel: That’s a very important topic in start-ups, I would say. Short answer is yes. There’s always influence that takes place between investors and other stakeholders naturally. Sure, sometimes there are investors that are very passive and investors that are active, hands-on. We see all kinds of them. I’d say that besides just thinking about how this purpose is altered or if it’s explicit or implicit I think. Going back to what we’ve mentioned earlier which is how to think about designing win-win-win situations, When working for a tech company or I’d say any other company for that matters when you’re bringing outside capital, you’re bringing basically like a resource. It’s very important for founders to think about this resource not as something that is coming as some kind of a no background no nothing I need money to execute my mission let me just take it from anywhere. Where you’re taking the money from is super important and you definitely want to have a strategic partnership between the investors and start-ups because if you’re going to take money from investor a or investor b those people besides money are also going to bring other value, add other value. Because they’re buying a piece of the firm or a company they would have their incentives to add value to whatever it is the backstory that they come up with. If it’s a tech company that is in the blockchain crypto space and someone has a portfolio of tech companies. So naturally what they would want to see is how their portfolio is becoming helpful for that new portfolio addition that they bring and they will try to support with partnership with those kind of companies and they do those things regularly. This is one of the value add that you’re pitching yourself founders why they should take money from you because you can give them potential access to partnership with existing portfolio companies. Sometimes also this can be a negative thing. If someone comes with an agenda they want to promote because of their existing investing interest (?) before they invest in you and the capital that comes into your company is going to come with overhead of trying to listen to their like them indulging in pushing their agenda it’s very important to understand what are people’s interest in order to choose how to let it influence you as a founder. So this is a very very important consideration. And it’s a great question you’re bringing in.
