I think we’re seeing a very big shift right now in how startups are created and operate. But before we dig into that, I want to spend some time talking about work.
For centuries, work has been incredibly inefficient. In the “barter era”, one person would do work in exchange for someone else’s work. E.g. I’ll make you a silver fork in exchange for salt and spices. There were many things challenging about this type of economy. 1) There was no common currency to transact and understand value, and 2) on a macro level, it was hard to know whether your good or service was really needed and whether it was going up or down in value. E.g. Is there a surplus of spices? Should I be spending time in spices or something else this year?
Money came along and solved the first part of that problem. Tribes and groups of people adopted currencies that are the predecessors to modern day money. You could carry around some form of fiat and use it to buy things. You could sell your goods and services for fiat. This helped standardize commerce.
Eventually, the Medici family in Europe established ledger-based banking so that you could take your goods and services to one location in Europe and it would be good for a credit that could be used at another Medici bank. Coincidentally, around the same era, the Yap money system in Polynesia had similarities where money was actually represented by large stones, and there was a record of who paid with which stones. The large stones were too heavy to be moved, so the pointers of who owned those stones did were written down on a similar ledger-based system.
Money solved fungibility issues. But it never really solved the latter problem of understanding where your good or service fit into the broader landscape of what is actually needed in society and how it was valued.
And for centuries after establishing complex monetary and lending systems, this problem still came to a head often. In 2000, during the dot com bust, it became clear that tons of people built out companies and products that no one wanted. Overnight, many of these companies went to zero and many people in the internet industry were laid off. Time and again, we’ve seen companies hire up the wazoo only to do massive layoffs of employees who gave their whole lives to a given company.
In fact, as an individual worker, you often don’t know if a layoff is coming. You often don’t know if things are going well / not going well within your own company. Management typically doesn’t tell you. As an individual, you also don’t know if you should be taking this job or this other job, because beyond the salary, you don’t really know what it’s like to work at a given company until you start working there. And traditionally, you’ve only really been able to work at one company at a given time.
This brings us to today. As of writing this in 2021, mobilizing money isn’t the number 1 issue for companies. It’s attracting and retaining talent. Now you may be thinking, “Well that’s nice and all but I’m still having trouble raising money for my startup.” I have 300+ portfolio companies at Hustle Fund – all with varying degrees of fundraising troubles. But all of them — even once they have the money — are in a war for talent. Even the most well-funded companies who are no longer startups are having trouble finding and retaining talent.
Folks, the current way that startups are being created is starting to break. Under the current way of building startups, you have to figure out what potential users want and will pay for by doing customer development, pitch investors who are not your customers / don’t get it / are traditionally slow, fight in this war for talent against Google, and lastly, as a founder, get burnt out and combat personal mental health issues in the process. Does that sound like the best way to deploy resources for our society?
But what if we flipped startup-creation on its head? What if you start with a mission and values — not founders? For example, at my company Hustle Fund, our mission is to democratize wealth through startups. And to that end, we are furthering capital, networks, and knowledge in startup ecosystems. Even though I’m a founder of the company, it doesn’t matter if I personally work at Hustle Fund or not. It’s the mission that’s important and the people who want to work on that mission. And if no one cares about the mission, then the organization shouldn’t exist regardless of what I, as a founder, think about it.
And if you start companies with missions instead of with founders, then you start to attract people who have lived and breathed that mission before. Those people really get it. And those people are also would-be customers or users. And maybe these same people are not only working on this problem together in a cooperative way but are also investors in the problem — both through work and capital.
When you start with organizations that are centered on missions, then you start to chip away at existing startup problems. Such as understanding whether you’re building something people want – your colleagues are also your customers. They are also your investors and are more value-add through their feedback and network. You also solve for mental health issues. Founders often feel like they *have* to stay at their own company because there is often no one else to lead in the early days.
For all of these reasons, this is why I think we’ll see the rise in the decentralized startup. In fact, we already see many Decentralized Autonomous Organizations (DAOs) in play — this is not a new concept and DAOs are precisely what I described above.
Magdalena Kala tweeted a few articles on DAOs that I think are really good and are all worth reading if you’re not that familiar with DAOs:
DAOs, of course, are not immune to the fight-for-talent problem. But, unlike at a traditional company, often you’ll see various people working on goals or milestones for DAOs in a part-time way. Traditional companies often require their workers to sell their soul to their organizations. But, DAOs mostly just care about getting stuff done. And the transparency around what is happening in the organization gives everyone a clear picture of where a project stands, what is happening, and who is doing what (and getting paid what). In a traditional company, most of this is opaque. You can see if a DAO is going well, but in contrast, you really don’t have a clue with a traditional company.
A DAO that I think is really interesting is the Friends with Benefits DAO (h/t to my business partner Shiyan Koh for showing me this). It’s basically a membership club of inclusive thinkers and creators. They list their values upfront, and people who resonate with the mission can pay (invest) to join the group. This in turn becomes a community that funds the mission, and over time, as they build and monetize, the community who is also their customer base, will benefit. This is the ultimate — having your investors and customers wrapped up as one.
I think we will see many more DAOs formed in the coming years, and reiterating what I mentioned in 2018, I do think that some form of crypto will disrupt traditional VCs over time. But I also think decentralized startups will start to appear even without “typical crypto components”. There will be startups formed around missions that don’t start with founders nor involve crypto but have radical transparency. There may also be decentralized startups formed without Discord channels (personally, I’m unclear how anyone, myself included, can do deep work anymore with so many Discord channels) and just rely on wikis / Notion pages / Mirror / etc to document what work is being done without minute-by-minute chatter. I think we will see startups formed with people who work at multiple places simultaneously or are all contractors – such as how Gumroad is set up. And in that scenario, the need to raise so much money for the company actually becomes *less important*, because you don’t always need funds to cover someone full time and compete with much crazier full-time offers from FAANG companies. This mitigates the fight for talent issue.
At my own company Hustle Fund, some of these concepts are things we’ve thought about and have experimented with a bit. We’re not quite a DAO, but we are a bit DAO-like. We have a number of talented people who are part-time because they believe in our mission, and we are excited to be able to work with them in any capacity. Our GMs also have a ton of autonomy with their business lines that align with our mission — I often don’t have the foggiest clue what is happening with the day-to-day on their businesses, and that’s ok. In fact, that’s great. So at Hustle Fund, which is completely distributed, we have leaders of different facets of our mission who reap strong upside when their particular projects go well. In many ways, a structure like this requires working solely with entrepreneurial people – people who enjoy running with things without centralized instruction or authority.
Ultimately, the most ideal working environment for an individual is to be able to work on a mission (or many missions) you love with people you enjoy. You’re happy with your compensation and feel like you have strong autonomy to be able to have an impact. You get crystal clear transparency get be able to make good decisions for both the organization you work for as well as for yourself personally. This is what I think most people want for themselves and their families, and why I think we’ll see the rise in decentralized startups in the years to come.