THE WORKER-LED DAO

Too many start-ups begin with ambitions to change society for the better, motivated by the passions of visionary founders and supported by early investors who share their values -- only to be slowly overtaken by financial institutions looking for short-term returns, and forcibly shifted towards a path of exploitation.

But more and more companies are looking for alternatives, and recent developments in blockchain and the decentralized web have opened exciting new routes. Chief among them is the worker-led DAO, in which workers have a say in company decisions through a governance structure that is formalized on the blockchain.

While companies like Facebook reserve absolute control for their founders, worker-led businesses distribute that power equally to all employees, creating a true community of peers with shared values and goals. And by using the rapidly growing blockchain tool set of DAOs, this can be baked into the structure of the company at a technical level.

What is a worker-led DAO?

As mentioned above, a DAO is a community whose central operations are determined democratically on the blockchain. The crypto technology at the core of a DAO provides a rock-solid assurance that major company decisions cannot be made without the approval of a majority of voters; it makes it technologically impossible to move company funds without that consent. Technically, anyone can be given voting rights in a DAO, from customers to investors to workers; but we'll be focusing on a common version, in which only workers are allowed to vote. The primary reasons for this are explored below.

For more details on the DAO model, see Getting Started.

The worker-led DAO model has a number of advantages. Worker-led DAOs are:

• Built for the long term
• Socially responsible
• More efficient
• Overflowing with talent

The incentives for a typical public company are to increase its share price as quickly as possible, usually at the pace that investors need to provide returns on their funds. This often means sacrificing the long-run prospects and reputation of a company in favor of immediate wins. On a small scale, this can look like accepting an unsavory contract; on a large scale, it could mean hiding a product's environmental impact for decades.

But worker-led businesses are different: relative to institutional finance, employees are just as invested in the success of the company, but on a much longer time horizon. They benefit from a steady income over many years, or even decades -- not a big one-time payout. As such, successful worker-led businesses have incredible longevity, far outlasting their conventional peers.¹ If you're a values-centric founder, this is the perspective you want your business to take. It provides a chance to leave a true, lasting legacy.

Perhaps the most famous motto in Silicon Valley is “don't be evil”; today, the company that created it has paid billions in fines for monopolistic practices, fired workers for trying to organize, and censored itself to please authoritarian regimes. This isn't because the people who work there are evil; on the contrary, they still have a reputation for being especially socially conscious on an individual level. But the structure of the business and its incentives forces them to sometimes do the wrong thing; they must prioritize short-term shareholder profit over all else.

Again, worker-led businesses are different. Since they're steered by the collective decisionmaking of their employees, it's possible for them to give up a short-term opportunity in favor of maintaining long-term values.² As a founder, you start an organization to represent a certain set of principles, and you hire people who are aligned with them. A worker-led company helps ensure that those principles stay at the heart of the company's decisions, allowing for some appropriate business-advancing compromises without turning entirely toward profit maximization at the expense of all else.

While DAOs are a novel technology, smaller-scale worker-led businesses have been around for centuries. Studies have consistently shown that these worker cooperatives are more productive than their traditional, investor-led peers.^{3 4} Why? Workers have more information about day-to-day operations than investors or executives, so they're better able to spot key inefficiencies. And when they have a voice in choosing leadership, they're much more likely to care enough to raise these issues and to be listened to when they do. This tends to streamline core processes significantly over time.^{5 6}

Most start-up founders agree that the majority of their job is hiring the very best people.⁷ Talent isn't just key to the company's success; at this early stage, when product-market fit is still shaky, talent is the company. Employees at worker-led businesses rate virtually every aspect of their jobs as more fair and fulfilling, materially and psychologically.⁸ As democratic workplaces become more widespread, it will be harder and harder to recruit without one. It doesn't take many of these organizations to siphon off the most effective top performers; those on the correct side of this brain drain will have a massive competitive advantage in implementing their visions.

How to use this site

Convinced that a DAO would be a beneficial model for your own start-up? Head to the Getting Started section to learn about the details of the structure and its technical implementation.

If you need help explaining this model to potential investors, we've put together an FAQ aimed at them. It should address common concerns from those who have yet to invest in a worker-led DAO.

This guide for founders was created by Trevor Pels in collaboration with the Aspen Tech Policy Hub. Trevor has founded a Y Combinator-backed start-up and worked as a product manager at Google, Facebook, Pinterest, and Lyft.