The Contradiction of Web3 Businesses - Control vs Ownership
The latest business trend seems to be for companies to describe themselves as "Web3 businesses". Most of them are the same companies that a year or two back were claiming to be "in the metaverse". But let's put aside the marketing fluff for a moment....
Image by Reto Scheiwiller from Pixabay
What Even Is a Web3 Business ?
The first problem we face is that the actual definition of Web3 is pretty woolly and vague.
Everyone seems to agree that whatever it is, it's built on blockchain technology, and that ownership is decentralised. Most agree that control is also decentralised.
But beyond that, if you do a search for a definition of a Web3 business, most of the definitions have a smorgasbord of other elements they may or may not include. Things like owner-generated content, NFT's, tokenised financial assets, and open source code, to name just a few.
Most of those are irrelevant to what I'm discussing today, but it serves to illustrate the way we haven't yet really pinned down the definition of what Web3 is.
How Businesses Are Created
Almost every business is formed by either one person, or a very small group with shared goals and interests who have often known each other for a while. Amazon was created by Jeff Bezos and his wife, Google by Larry Page and Sergey Brin, etc.
The only case I can think of where a business isn't founded by an individual or small group of inspired creators is when a state creates nationalised or state-run industries, which tend to be centralised behemoths often built on the compulsory purchase of previously private businesses.
But for most businesses, it is the vision of those initial founders which keeps the company focused and driving growth. Even when a business scales up massively and the founders step back from day-to-day operations, it is they who set the culture of the enterprise.
The Problem of Ownership
The big problem with Web3 businesses is that they are still started in the same way. Someone has a good idea, and decides to act on it. Starting any kind of business requires immense drive, energy and commitment.
But a Web3 business has a decentralised ownership model. Lots of people gain a stake, whether through activity, by buying in, or some other method. The individual stakes are not necessarily equal, but we still end up with a whole group of people with ownership who are usually the users of the business.
These owners of a Web3 business don't necessarily have the time, interest or expertise to understand the business in depth, any more than customers or junior employees of a supermarket understand the intricacies of the logistics operation involved in getting their bananas from halfway around the world. They are also unlikely to have the same drive to succeed as the original founder or founders.
Meanwhile, the hard part for the creators of a Web3 business is that they are expected to give away ownership of the thing they have put so much effort into creating. It's very hard to let go and let your baby grow up !
I suspect that many founders will fall at this first hurdle, and find all kinds of way to dilute the shares of outside investors. It might be holding back a high percentage of the tokens created for some pretext - "for the team", for future marketing, as a decentralised rewards fund, or whatever - the terminology is less important than the fact that they still own or exercise control over enough of the token pool to exercise effective ownership.
The Problem of Control
Assuming that the founders are willing to give up ownership, the next issue is one of control. This is actually much harder.
A business needs a clear vision and goals to grow and succeed, and without committed and energetic leadership will struggle to achieve them.
A fully decentralised business (whether formally a DAO or not) won't have leaders; instead, every decision is voted on by the owners. Whether this is one vote per owner, or votes in proportion to stake holding is irrelevant.
The sad truth is that most people in this situation lack the time or expertise to make a rational decision and will vote for whatever they think serves their short term interest, or even at random. That's no way to run a business in a competitive world.
The temptation at this point would be for the founders to just keep control of operational decisions. They might pay lip service to the wider ownership (in the way Algorand does, for example - a good example of how an organisation can pretend to be decentralised while actually being nothing of the sort). Or they might involve the ownership, but still manipulate things so that they get the final say when things are time sensitive.
Is There A Solution ?
I'm not convinced there's a complete solution to this conundrum, and that some compromise will always be required.
Perhaps there should be a recognition of the work and commitment put in by the founders. They keep operational control so that the business can be driven forward, but create mechanisms where any of their decisions can be challenged or reversed by the ownership, even if only retrospectively.
Or perhaps there should be some kind of handover process, where the founders still keep a good sized stake, but gradually back away from operational control and hand it to the ownership, probably with some kind of democratically elected board so the business doesn't end up in a situation of ten thousand non-expert owners all pulling in opposite directions.
I feel strongly that a real key to it is to have an educational process, so that the level of decision-making any one owner has would be a balance of the size of stake and the demonstrated level of understanding of the business.
How Does Hive Fit Into This ?
Hive is some way down this road, and I feel is on the right path even if it's not perfect.
The witnesses all have at least the level of knowledge to be able to set up and run a node. But I would also like to see more information about witnesses other skills - for example, how many of them are accountants, marketers, independent owners of other businesses, have useful contacts outside Hive, etc ? Maybe we could find ways to use those other skills to drive Hive forward, rewarding those witnesses for more than just running a node.
Just as important is finding ways to educate the broader Hive membership. Most (and I include myself in this number !) don't have the technical knowledge to be able to understand the cost/benefit analysis of proposals voted on that draw funds from the DHF.
While there are many fabulous proposals put forward, there's a lack of cost control and no post-project analysis to work out which proposals gave awesome value for money and which didn't. I'd love to see proposals explained in ways that non-technical Hivers can understand, and in ways that enable us to assess their merits relative to one another.
Improving this would improve cost control, ensure that proposals with low benefit wouldn't drain resources, make us a more mature organisation, and hopefully make Hive more interesting to outsiders wanting to put money in (ideally becoming Hivers themselves, not just external investors !)
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