DAOs as E3Os
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December 22nd, 2021

In recent years, a unique organizational pattern started to emerge on the progressive end of the corporate sector, reflected in companies like Haier, Zappos, and Buurtzorg. The companies applying this pattern operate in different industries (electronics, retail, healthcare) and originated in different geographies and cultures (China, US, Netherlands). Simone Cicero at Boundaryless, alongside peers from other organizations, gave it the mouthful of a name “Entrepreneurial Ecosystem Enabling Organizations” or E3O for short.

E3Os aim to operate in a highly decentralized way. Rather than viewing themselves as centralized, monolithic organizations providing a set of products and services, they view themselves as ecosystems or platforms that support that emergence, funding, and on-going operation of entrepreneurial initiatives that are aligned with the overarching competitive advantage of the ecosystem. It can be deep expertise in a domain (electronics) or a particular strategy (delivering exceptional customer service).

While they may show in different E3Os under different names, E3Os utilize a consistent set of organizational building blocks:

  • Micro-Enterprise (ME) - small unit (<20 people) with unique identity and reputation, providing a self-managed product or service and operated according to a standard set of health indicators defined by the E3O such as a profit & loss statement, a set of input and outcome metrics, or a utilization target.
  • Shared-Services Platform (SSP) - a central entity providing services such IT, HR, Legal, and Finance to the MEs in the ecosystem and is funded by a mix of periodic tax-like payment and a-la-carte services fees. The centralization of those functions is often driven by economies of scale or regulatory compliance requirements. Different E3Os give MEs different leeway in using external vendors for services provided by SSP. If this leeway is limited, SSPs are held to explicit SLAs that they must meet.
  • Ecosystem Micro-Community (EMC) contract - a multi-party, transient contract between MEs, SSPs, and investors defining what each of them will deliver in support of achieving a collective outcome together. Often, the creation/delivery of a new product or service. The contract also defines how future revenue from the new outcome will be distributed among all the parties that contributed to making it a reality. The initiating ME will define the aim and numeric goal of the EMC and list of “orders” - the technical requirements needed by other MEs and SSPs. MEs and SSPs in the ecosystem then bid on the various orders, specifying the conditions they are ready to meet and their expected return for providing their services (fixed lump sum, % of profits from the outcome, etc.)
  • Value Adjustment Mechanism (VAM) - VAM is the mechanism used by E3Os to incubate new MEs. It’s a mix between a term sheet, a contract, and a corporate budgeting statement. They are signed between the members of a new ME and the broader E3O capture the new ME’s aim and leading goals, its plan to accomplish those goals, the needed resources (including capital) required, the inflection point that will define when the ME is self-funding/sustainable, and the upside for ME members.

Cicero et al. also identified a set of processes that support to effective operations of E3Os:

Source: Cicero et al.
Source: Cicero et al.

Bridging from E3Os to DAOs

Organizationally, DAOs share a lot in common with E3Os. Perhaps most importantly, the decentralized ethos and the aspiration to act as a container for emergent entrepreneurial initiatives that support the DAOs broader mission.

Operationally, DAOs are still in their early days. The influx of talent into DAOs means that many of them are working hard to catch up to their new scale of operations and the nascent/lightweight practices of the DAO’s early days no longer meet their needs. The E3O pattern/playbook can be one source of inspiration to both avoid making “old mistakes”/reinventing the wheel, and identifying organizational challenges where web3 technology can provide unique leverage in removing friction from large-scale collaboration/coordination challenges and reduce transaction costs even further.

Questions to move us forward:

  • How do existing/future guilds and projects of the DAO map to MEs and SSPs?
  • What is our DAO-wide measure for assessing the health of MEs?
  • Can VAM-like objects be used to spin-up new initiatives?
  • Which E3O processes best benefit from web3-based solutions? and how can existing web3 solutions be adapted to better support E3O processes?
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