Digging a Moat
Gather round the stream Otters,
Over the last eighteen months, a heightened interest in the DAO model of governance has re-emerged within the crypto community. With this interest, comparisons between DAOs and more traditional business models have also resurfaced. Generally, the comparisons end where the outsized role of community in the DAO model begins.
Today, I’d like to explore that comparison by focusing on the concept of an economic moat and how OtterClam is excavating our own moat around the Otter Kingdom by nurturing a strong sense of community among those who have invested in our project.
Technological developments tend to challenge our ideas about what is possible in terms of the way we go about our lives. Crypto specifically has, in many ways, redefined the way we think of ownership, value creation, human organization, privacy, agency, and autonomy. The DAO model of governance is no exception.
This article is not intended to outline the various advantages the DAO model has over traditional corporate structures, though there are several. Nor is it intended to suggest that the DAO is the best way to organize a financially incentivized, decentralized community around a specific theme or brand identity, though it seems to be promising in this area as well.
Rather, I’d like to briefly discuss what a competitive moat is, how it pertains to analyzing investment opportunities, and how I believe OtterClam is utilizing the OtterDAO to dig a competitive moat deep enough and wide enough to ensure success for years to come.
Buffet’s Competitive Moat
What is a moat, exactly? A moat is a glorified ditch with a specific purpose. Namely, it acts as a preliminary defense structure that surrounds and protects a building (typically royalty-owned), or even an entire town, from attackers. It is usually filled with water, preventing enemies from simply encircling the structure(s) and organizing a direct attack. Any military official (or any professional sports coach, for that matter) will tell you, a great offense is predicated by an outstanding defense.
Investor-mogul Warren Buffett first shared his idea of a competitive moat with investors at Berkshire Hathaway’s annual meeting of shareholders in 1995. In his speech, he described a competitive moat as a protected advantage that a business can maintain over the course of 5, 10, or even 20 years. It could be location, access to specific resources, technological advantages, or a persistent brand identity that has been established in the consumer’s mind.
In the years since, hundreds of papers have been written condensing Buffett’s economic moat idea into a practical investment analysis model. Today, the economic moat analysis model is a professional investment strategy standard. As organizational structures continue to evolve, the way the competitive moat analysis is applied is also changing.
Today’s organizations often intentionally blur the line between business and social networking as a fundamental piece of their growth strategy. If value can be derived from social interaction itself, what are the implications for DAOs as modern organizational structures? More importantly, how can our DAO create and preserve value to our investor community by utilizing the OtterDAO as the engine for moat excavation?
OtterDAO as an Excavator
Moats aren’t created by luck. Hard work and dedication to a core set of organizational values are necessary to create a moat wide enough and deep enough to protect a business from competition. In the OtterDAO, we have identified innovation, decentralization, education, and transparency as core values for our project.
Using this set of values as a catalyst for action, we fuel the excavation process by offering incentives for contribution while fostering community involvement at every turn. That seems simple enough, but how exactly do we prevent digging our moat haphazardly, making it narrow at some points, or too shallow at others, creating weaknesses in the defense? For this, vision and competent leadership are imperative.
Excavators need competent operators. An operator capable of directing the excavator’s bucket, knowing how deep into the ground it can go, where to place the dirt once it’s been excavated, what other pipes and roots may be lurking just below the ground — this knowledge requires skillful maneuvers that occur in real time. Especially when a project is just getting on its feet, the founder’s leadership, alongside a core team of trustworthy individuals, is indispensable to the success of the project.
If the founder and a core team function more or less as an indivisible unit (the operator in our metaphor), the excavator itself then, is the DAO. The proper function of an excavator also relies on the design and quality of its parts. A well-designed excavator, or well-organized DAO, has the capacity to complete tasks efficiently and effectively. The various wires and hoses that carry the signals from the levers to the hardware of the excavator itself, must be free of frays and leaks. For the DAO, this translates to open lines of communication that remain free of clunky hierarchies and misinformation.
Processes for handling tasks, complaints, and new ideas or proposals must also be established. For a DAO, decentralization is a journey, not a destination, nor is it synonymous with disorganization. A decentralized organization depends on reliable, process-driven systems as much as a centralized organization does. OtterDAO uses discord’s organizational platform, together with Trello to ensure consistent, synergetic workflow.
The ultimate success or failure of a project can often be determined in the very early stages of development. The importance of establishing a brand identity, creating a culture derived from the core values set forth by the team early on, cannot be overstated. Put simply, a founder who knows how to harness the power of community is an excavator operator who is capable of creating an effective competitive moat.
The Otter Kingdom Moat
We’ve talked about the importance of having a moat to fortify your project against attackers, but is the metaphor’s framing necessarily combative? In short, no. An economic moat can emerge gently and gradually from a DAO’s community just as a traditional business can create a moat over time by developing brand recognition. Time and persistent innovation alongside community development is key. Many in the DAO space have argued that community is the moat. I couldn’t agree more.
The best products on earth are nothing without buyers. DAOs provide an additional way for investors to “buy in.” The OtterClam team strives to make everyone who invests financially, also feel invested in the community, which directly affects the success of the project. In a very real way, the decision to purchase a CLAM token is a function of the investor’s conviction that the OtterClam project will succeed. The DAO provides an additional, alternative way to express this conviction more directly, namely, by participating in the work of the DAO.
The more ways a project can provide investors a means to contribute, the more likely they will become part of the community — and stay. In other words, an investor who spends both time and money and has fun doing so, is more likely to stick around than an investor who only invests money. Remember, the community is the moat.
Yes, moat maintenance is a thing. There are rainy seasons that cause the moat to overflow. There are droughts that cause it to dry up almost entirely. There is erosion, invasive species of plants and animals, and frequent attacks by adversaries. All of these affect the health and well-being of our community — our moat.
So how do we maintain our moat? Whatever it is that got you this far in the article; whatever it is that made you check in on the OtterClam or OtterDAO discord servers more than 5 times today; that is what we must work to preserve. In a word, it’s connection. We want to feel connected to individuals, groups, and our investments. We also want to connect through shared interests and ideas.
Maintaining a community without connection is impossible. We must be supportive, open to other perspectives, excited to learn, eager to innovate and share ideas, and optimistic about our project’s future. The tools we use to maintain our community are not different from the ones we used to create it in the first place.
Engagement, acknowledgement, respect, and support are akin to smoothing out eroded moat edges, removing invasive plants from the muddy moat bottom, and building bridges that connect the outside world to the Otter Kingdom. The balance we want to strike is where the appeal of what’s happening inside the Otter Kingdom transcends the need to defend it.
Imagining a moat as a purely defensive mechanism misses the point. If the moat is our competitive edge, the ability to successfully bring others across the drawbridge into the kingdom, is the way we measure its effectiveness. If that sounds counterintuitive, consider the difference between being open and being vulnerable.
Being Open vs. Being Vulnerable
I learned early in life that being open is not the same as being vulnerable. In personal relationships, being open is often synonymous with being vulnerable, and can often be considered a positive development. In business, the distinction between openness and vulnerability is an important one, and one our community-as-moat analogy brings into sharp focus.
What does vulnerability in a DAO look like? Mods that have become disinterested or distracted. Founders who have taken on too much to be effective or too little to keep the project moving ahead. A team who believes they’ve got all the answers and fails to listen to the community and consider new ideas. This list doesn’t even take into account the myriad concerns around other potential vulnerabilities such as market conditions, resource constraints, or technological challenges.
Vulnerabilities vary from industry to industry, but no matter the market, vulnerability is seen as a weakness that can be exploited by competitors. While vulnerability is part and parcel of getting a start-up off the ground, it should be acknowledged early and handled quickly to avoid any repercussions. Having a process for identifying vulnerabilities and handling them is key to long-term success. The relationship between openness and vulnerability is a delicate one. Limiting your project’s vulnerabilities while embracing openness is key.
“You can’t shake hands with a closed fist.” This quote succinctly captures the importance of openness in networking and establishing healthy business relationships. While being vulnerable is understandably seen as something to avoid in business, being open is essential. Without it, you sacrifice growth.
If your project isn’t growing, it isn’t succeeding. It doesn’t have to be continuous financial growth. Growth in the community, in the talent base of your team, growth in user engagement, all of these are useful metrics for gauging the health of a community-driven project . There are many ways to grow, and they all depend on being open to things you’re not currently doing. In other words, openness begets growth.
The DAO model hinges on a project’s ability to create a strong community. Soft skills that are often appreciated, but under-utilized in traditional corporate settings, are essential to the success of a DAO. The team has to manage the demands and expectations of investors, and in the case of the DAO, it is necessary to acknowledge and utilize the amplified role the community plays in the success of the model. In doing so, a protective, competitive moat is installed around the project.
The OtterClam team, along with its OtterDAO, has already begun the process of moat-building. With a capable team, inspiring community, and hard-working, visionary founder, we have all of the tools necessary to continue the moat installation process and protect ourselves from outsiders who wish us harm.
Furthermore, we have a strong sense of identity which deepens our sense of community and allows us to be open to new ideas because we understand that openness is a vital part of a project’s growth. Knowing that others are with you in the trenches, making the moat as effective as possible, is what makes the moat effective, and that is profound.
Employing the DAO as an excavator, and under the operation and guidance of OttoKing and the core team, we are slowly, steadily building a community of Otters who identify with our values, enjoy each other’s company, and feel welcome in our servers. As we move forward, I am excited to continue the digging process with you all. Remember, we’re not just creating a vital, first line of defense to protect the Otter Kingdom, we’re also creating a friendly, cool pool of water we can all enjoy at the end of a hot day spent gathering CLAMs.
See you downstream, Otter fam.