DAOs and decentralized decision making

With all the hype around DAOs – here is a good read on the power of centralized decision making and risk taking, especially in the context of for-profit business.

Don’t get me wrong, DAOs are great for projects that genuinely need community governance with all the checks & balances thereof. But for any business venture that requires super-fast decision making (as with all startups), the DAO model can impose a severe overhead that handicaps your business before it even gets off the ground.

Credit to my friend Byron at Blockworks for sending this over..

Nike Inc. has been one of the best investments in the history of investments: The stock is up 73,000% from its 1981 IPO.

Returns are, of course, even bigger for those that were somehow lucky enough to get in pre-IPO.

And yet, when Phil Knight presented Nike’s annual report to the company’s first cohort of outside investors, they were all clamoring to have their money returned: Nike had posted a loss of $50,000 for the year.

Knight did not understand their concern.

The disconnect was that the first Nike shareholders thought they were investing in a predictably profitable importer of running shoes, while Knight had much bigger ambitions. 

Fortunately, it was the founder making the decisions at Nike and not his shareholders. 

Phil Knight’s grow-or-die philosophy is what made Nike great: At every crossroads, he chose risk over safety.

If those choices were put to a community vote, they’d have chosen safety every time. 

And Nike would be a long-forgotten importer of Japanese running shoes.

That dynamic is not unique to Nike: Early investors rarely know exactly what they are buying into. Especially with pre-IPO investments, which are essentially just bets on founders.

Most of those bets do not work out. But some of them work out huge: Nike, Amazon, Apple, Facebook, etc. 

When they do, it’s because a founder has taken numerous risks that would never have gotten past a majority vote of shareholders.

Decentralized decision-making will never build the next Nike, Facebook or Amazon.

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