Launching a DAO Inside Your Brand
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November 5th, 2021

As Web3 continues its unstoppable ascent and grabs more and more attention (sans China proper), we’re seeing brands dip their toes into NFTs and social tokens and even putting tokens on their balance sheets. Yet, it seems a ton of brands are sitting on the sidelines and aren’t really making bold moves.

While it’s fair to caveat that many brands are lining up strategies to launch in 2022 when their marketing budgets refresh, it’s equally fair to warn that reluctant brands will miss opportunities and deploy outdated strategies as Web3 is an industry that routinely reinvents and churns out new paradigms.

There are plenty of companies with the funds to outlay and the sway to win almost no matter what. Legacy brands like Nike, Disney, or Macy’s – and even fresher brands like Glossier, Allbirds, or VICE – could take a run at experimenting with a DAO and have enough brand and actual capital to avoid falling on their face. Clothing, media, and gaming are prime sectors for this kind of experimentation, but there’s no reason other consumer-facing sectors like hospitality, food, and CPG can’t jump in.

An innovative VP of marketing looking to burn some dry powder before 2021 closes out and the market races on without them ought to look into some easy ways to spin up a DAO inside the brand’s circus tent. Fortune favors the bold, as does the metaverse, so any brand looking to make a big first or next splash should consult this article as a roadmap for consideration.

Incubating Your Brand DAO

As Web3 rolls out new approaches to ownership and expression, brands are well-positioned to offer opportunities for their fans and loyal customers to own and express a piece of the pie, with a DAO serving as the ideal vehicle. As is known, DAOs are incredible for aligning value between stakeholders and having fun together, playgrounds rife for brands to experiment with.

To kick off, DAOs need a few things to get started: seed capital, membership, and a raison d'être. Thankfully, brands often have plenty of money and cohorts of loyal customers who want more. The last piece is the key differentiator that can elevate both the brand and the DAO above their competition.

Some DAOs collect NFTs, some run a members-only index fund, and others create public goods for their ecosystem. Brands have some interesting options at hand given their baked-in resources, so some suggestions:

  • Develop fresh IP within the DAO
  • Launching a product line in partnership with the DAO
  • Rolling out an event series for DAO members to co-host

Fresh Intellectual Property (IP)

Brands often have in-house creative teams or trusted agencies, but they often struggle to identify market trends ahead of time and to offer creativity that meets the moment. By leveraging the communal self-interest of the DAO’s membership, brands can work with the members to conduct ground-level market research from true fans who believe in the brand, whether through directly surveying them or lining them up as “citizen-investigators” to report on desired cohorts from the regular lives.

Media brands would slaver over the chance to predict the hot new movie or develop the next Spongebob or Peppa Pig, rather than responding to the trends as or after they happen. The members of the DAO would be powerfully incentivized to offer genuine insights and help to brainstorm the best applications for deploying and promoting the new intellectual property in circles the brand might never be able to access.

Whatever format the IP takes, the brand should take care to offer some share monetization for the co-creators in the DAO, whether ranked by effort of contribution or utilization of ideas, and offer unique access to the IP (or something tangential, like an awards night afterparty) to all DAO members.

Imagine how crowded it’ll be onstage when the DAO’s leading producer-members are jumping onstage to win the Academy Award for Best Picture.

New product lines

For brands that deal in more physical goods, building a DAO to design and promote new product lines would be hugely beneficial.

Bored Ape Yacht Club occasionally offers its members access to exclusive merchandise so they can celebrate their membership together. In August, the club collaborated with streetwear brand The Hundreds for a 3-hour drop available only to ape holders.

The Hundreds went on to launch its own avatar series, Adam Bomb Squad, which promised access to exclusive merchandise, drops, and fast lanes for certain sales. Further, it offers bomb holders the ability to profit from the sale of merchandise featuring their specific bomb avatar.

The ABS model is a paragon for how brands can experiment with Web3 communities and tie them up into their business operations.

Whether it’s a line of T-shirts, sustainable cookware, or a run on small batch rum, brands can work with a community on the strategy and execution for launching and selling products, then split the proceeds with the members according to the compact they strike.

Diageo’s next nine-figure acquisition? Watch out, George Clooney tequila.

Event series

Plenty of brands own and participate in events, either directly or through partnerships, and approaching a new event series with a DAO could identify a new market with a built-in marketing team predisposed to see it succeed.

The brand’s team and the DAO members can cooperatively brainstorm on the purpose, content, scope, and budgets for the event series, whether virtual or physical, and DAO members can take on responsibilities and leadership on execution in return for greater stakes in the DAO’s value pool.

Rather than hiring a team of short-sighted brand ambassadors who are simply counting the minutes until time to clock out, the brand can utilize DAO members as authentic hype personnel to ensure the event is running smoothly and participants are enjoying the experiences provided. Given their stake in the success of the event, DAO members’ enthusiasm will come across genuine to guests, rather than manufactured for a paycheck.

And having the DAO spread around the world geographically, it’ll be much easier for the brand to leverage local expertise in choosing where to site physical events and which vendors and partners to bring onboard, much preferable to carting larger teams around the world and starting from scratch for any new locale.

Hatching the DAO From Inside Your Brand

There a number of ways to start a DAO and the brand should carefully consider the best process for launching it, including and beyond the legal and compliance concerns.

There are some good models to examine from the social token space that can aid brand teams in building and executing the right strategy for their needs. The lowest-risk model would be to simply give away tokens to customers based on their past interactions with the brand, from purchases and email signups to friendly tweets and customer survey completions. This approach was pioneered by musician RAC, who gave out his branded social token to his existing fanbase and created exclusive benefits for token holders.

Another approach is to create an application process where prospective DAO members offer their qualifications, talents, and interest level for scrutiny and approval. This method could be really valuable for growing the membership down the road and tasking a recruitment committee of DAO members to oversee this process, truly decentralizing the control.

Brands could simply offer a free signup form where anyone who signs up can receive an allotment of tokens and membership in the DAO. This would be great for generating a large membership, however it’s likely to attract free riders who simply want to immediately flip the tokens for profit and more passive fans of the brand who don’t have the capacity or skillset to meaningfully contribute to the DAO’s success. As any organizational expert will proffer, starting smaller is often better for outcomes.

As observed in recent NFT avatar sales, brands could similarly employ a whitelisting lottery in which potential members must validate themselves (usually by connecting a wallet) and enter for a chance to receive tokens and participate. This can be great for building hype and controlling the size of the DAO, but doesn’t perfectly eliminate the free rider or passive participant problems.

However, some avatar communities broke up their initial sales into a presale and open sale, where interested buyers needed to enter a whitelisting lottery to participate in the presales, significantly driving the hype upward before the open sale. Brands could employ a pre-offering on a whitelisted lottery system to drive similar hype and then open the process up to a different selection mechanism later.

If the brand believes the DAO will create significant value for participants and/or also wants to raise some capital, it could try selling a branded token for access to the DAO or ask members to contribute capital to a pool for a reciprocal stake in the voting processes. This would be incredibly risky for any brand to try and would open up a ton of liability since this is offering a security and asking fans to pay up first before they see the goods. Lawsuits and reputation damage are definitely on the table with this approach.

Brands typically have plenty of capital, so they should be comfortable with the necessary outlays to launch and kickstart this kind of project.

However, there’s endless room for creatively seeding the DAO with awesome people and brands know their audiences better than most, so the approach need not be cookie-cutter. Web3 often rewards creative risk-taking and brands should be comfortable taking a chance on wowing their fans, the wider Web3 community, and – of course – their competitors.

Raising Your Brand DAO Correctly

No matter the purpose or launching method, any brand interested in a DAO needs to seriously self-reflect before diving in, as Web3 is a messy, complicated, risky, and incredibly fun space to play in.

On the legal front, the brand needs to understand the degree of risk it’s taking on and how that could affect the rest of the rest of the business. Carefully assessing the compliance risk upfront can be a bit annoying and costly, but it’s much cheaper and less painful than ending up in a courtroom like Telegram or duking it out with the SEC like Ripple.

The ground around DAOs is still largely untested legally, so the brands should prepare a rainy day plan in case of litigation.

Community management is a big deal, particularly when the community members have real stakes in the outcomes. Managing Instagram comments will no longer suffice; the community management team will need to preemptively familiarize itself with Discord and DAO tools like Snapshot and Gnosis Safe. It will need to be well-versed in multisig wallets, best practices on DAO voting, and wallet FAQs and be prepared to onboard some Web3 first-timers who want a new way to interact with the brand and be rewarded.

Further, the community management team needs to be trained in mobilizing membership, in getting out the vote political campaign-style because low voting turnout is often the bane of any DAO-based endeavor.

The brand should also understand it is putting its reputation on the line. Pulling this off incorrectly could not only alienate Web3 folks, but it could also damage its relationship with the established fanbase. Nonetheless, if the brand is successful in this DAO experiment, it could usher in an entirely new golden era for the brand and help pioneer the future of exchanging value.

And what about the financial outcomes? Is the brand comfortable sharing revenue with an outside group? How will tokens factor into GAAP accounting and affect taxes and the balance sheet? Tricky questions most CFOs will not be prepared to answer, but there is a growing class of Web3 compliance, legal, and accounting teams that have been serving Web3 startups well and would love to help shepherd a brand into the metaverse.

Fundamentally, the brand needs to grapple with a few core quandaries. It has capital and reach, but does it want the greater depth that Web3 mechanics can offer? And is it comfortable with trading off some control in exchange for the loyalty upside? Decentralization is a big step for any organization and the brand must establish a long-term plan for how and what it wants to decentralize, then make it public in any DAO proceedings.

Launching a DAO carries some risk and a good deal of uncertainty, but it’s a fun idea with tremendous financial and reputational upside – it’s going to happen eventually. So why not take a chance and be the brave pioneer who sets the standard for everyone else?

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