Summer of Protocols // The Antipatterns of Growth // In Search of the Unbundling Trilemma
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Another two weeks of dense work and research at Boundaryless.
First of all, we’re happy to say that Simone has been just accepted as a guest researcher at the Summer of Protocol Program. Summer of Protocol is a research program sponsored by the Ethereum Foundation that has the objective of investigating the role of protocols and their potential evolution and adoption in today’s world.
The first key idea around the contribution that Simone will give to the project is that of exploring the relationship between protocols and platforms. Platforms that have often been touted as the “bad guys” in the last few years are often recognized as extractive, scarcely democratic, and centralized in governance and the necessity to envision different ways to build systems and grow networks has been prominent in the debate in the last 5 years at least. But if we investigate the question: “What’s the difference between building a platform versus building a protocol” what do we come up with?
There are intrinsic tradeoffs connected with going the protocol route: platforms are faster to execute, and easily adaptive because of the intrinsic complexity of more democratically managed governance processes normally involved in protocol evolution versus centralized decision-making. Protocols have to make multiple parties happy and gain their trust: to become legitimate enough they have to adopt more collective decision-making processes (collective governance), and possibly open and permissionless contribution models. Often they adopt systems that reward real reputations of contribution, that have to track in some ways.
Generally, protocols are harder to manage and execute, and harder to be brought to market adoption (versus platforms) but provide relevant advantages to the users (instead of the platform creator) in the long term, such as lower lock-in, and wider compatibility (a protocol can be used across different platforms). Clearly, though, making more complex incentives for builders. Protocols can be seen a bit like cooperatives: privileging collective actualization vs the possibility of the protocol “creators” accruing and extracting most of the advantages. This property is exactly what made protocols a hard catch in the business and tech context so far.
In the early 2000s protocols struggled to keep pace with platforms: platforms have mastered network effects, and successfully deployed massive capital to achieve liquidity (often by subsidizing growth massively). Everybody cheered up the birth of networks that made new behaviors possible (FAANGs above all), until when we figured out that these massively centralized players leave us often locked in and within siloed systems, that are resistant to change and evolution.
Indeed, there’s something essential with protocols that platforms can’t provide: protocols as well can accrue network effects but - differently from platforms - they leave their interfaces open. In this way, it’s always possible to either build complements and additions, favoring a much bigger evolutive potential, or even alternatives (if the governance of the protocol is no more in line with our expectations). Ecosystems created around protocols can create evolutionary pressure on the protocol that needs to keep the need of the ecosystem in check to avoid losing legitimacy.
The Web3 moment has brought a renewed interest in protocols - as a potential alternative to platforms - thanks to the new capacities introduced around integrating financial processes into designs. These capabilities can help liquefy protocol ownership making new financing patterns possible. Token sales (who doesn’t remember the ICO frenzy) and - more recently - automated market makers such as liquidity curves or liquidity pools can be used to finance the often gargantuan challenges needed to create the infrastructure and help aggregate stakes (in the form of investments) so that users commit to using the newly developed protocol and help bootstrap it out of illiquidity, contributing to form the initial user base and kickstarting network effects. We wrote a playbook about answering these questions months ago that may be worth checking.
Above is a picture from Chris Dixon’s seminal “Why Decentralization Matters"
But Web3 protocols and the DAOs that often manage them, are intrinsically more complex to steer and execute versus traditional organizations. Furthermore, DAOs have tended to overcharge the focus they’ve put on governance and often underestimated the need to get their hands dirty with the hurdles of traditional go-to-market, as the piece titled Product vs Network-Driven GTM from Variant’s Mason Nystrom.
Our research questions at Boundaryless at the moment, mainly revolve around how protocols can be used strategically by organizations (or collective ecosystems) and what impacts their renewed affordability exerts on the market landscape: can brands use protocols to penetrate new markets? What does it mean for markets and brands themselves? What new types of brands can emerge around this opportunity?
From platform organizations to protocol organizations
This research on protocols definitely overlaps with the work we’re doing on the topic of organizational unbundling and on the development of complex product portfolios with some of our customers.
This piece “The Cost of Craft” by George Kedenburg III made us think a lot in relation to this, as it resonated at so many levels. He makes long praise of small teams (particularly referring to organizations that ship software) and highlights the risks and antipatterns that play out as software organizations grow:
“A small, talented team can make it feel almost effortless to design and ship incredible software. The trap here is when you start to take this for granted and assume that craft and quality are “just a part of your corporate DNA.” In reality, there are a number of subtle, “free” perks to being small that can create a false sense of security”
Kedenburg notes how, as organizations grow, teams often tend to optimize for numbers (KPIs) that easily become wrong drivers, also stressing that the problem of choosing the right ones can be extremely hard to tackle at scale when the organization grows:
Sadly, keeping things balanced can be very challenging when metrics and career incentives are too tightly intertwined. Instead of focusing on what is good for the product, people start focusing more on easy ways to move the numbers.
Rather, we argue, organizations should stay “unbundled” i.e grow by multiplying products and keep the space of autonomy given to teams in check by making teams enjoy skin in the game in what they do.
Counterintuitively enough, we discovered that this is easier in organizations that keep their product portfolio ampler, and obsess less about creating coherent product structures, like with complex software platform offerings or heavily coordinated product portfolios.
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Indeed, if you imagine an organization that ships products that need to be all compatible and coherent, with the aim of maximizing upselling and modularity (something we discussed with Scott Brinker recently) what you end up needing is more of a “protocol” like structure than a “platform” one. The latter would impose too many constraints on your teams (on UX, pricing, go to market, and other similar dimensions), obliging you to go for complex and often top-down metrics architectures that are difficult to master. Just giving teams enabling services and basic “protocols”, being ok with them creating creative entropy and a plethora of different products - each with its go-to-market strategy - might be massively easier organization-wise.
This is not to say that product coherence is not possible in large organizations, but it must be understood that such coherence comes at a cost: most likely, optimizing for coherence means unoptimizing for other elements.
We’re now exploring these trade-offs and we’re in search of what could - intuitively - be a trilemma. Trilemmas are complex decision-making scenarios in which a person or organization faces three competing options or constraints, and optimizing one or two of them often comes at the expense of the third. Examples of trilemmas include the Iron Triangle of Planning, where project managers must balance scope, resources, and time; the blockchain scalability trilemma, which involves trade-offs between security, scalability, and decentralization.
At the moment, we feel that coherence in organizations can’t be optimized if not at the expense of other dimensions such as adaptability, or autonomy - but our work is still ongoing. One thing is certain though: small is beautiful (and ever more powerful as AI increases leverage for small teams). In this landscape, organizations should strive to keep small teams in charge and avoid as much as possible the imposition of top-down directions that are always at risk of optimizing the system for metrics that are not necessarily meaningful in the last mile.
Check out the whole article about the Trilemma of Organizational Unbundling on the Boundaryless blog, together with tons of other reads on product strategy, and organizational design and development
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