ICO toxic culture: How Tony Hsieh can help ICO-investors with DueDil

Vladislav Solodkiy, managing partner at Life.SREDA, Singapore-based fintech VC, and author of The First Fintech Bank’s Arrival book.

To my great embarrassment, I read “Delivering Happiness” by Tony Hsieh (CEO and ex-owner of Zappos, which was sold for $1,2B to Amazon) only at the beginning of 2013, although it was published in 2010. Filled with its very special “chemistry” and energy, the book describes a journey of this entrepreneur from its very beginning. Basically, the book is about corporate culture and values that unite employees. It illustrates that meeting not only functional needs, but also intellectual, spiritual and aesthetic needs of customers is more important than the chase for money. Money comes as the result of this approach. In June of 2013 my team and I visited Tony Hsieh at Zappos’ headquarters. Later some of our portfolio companies also visited Zappos.

In 2013, Zappos began its transition to “Holacracy,” an alternative management system that replaces a pyramidal hierarchy with a network of circles dedicated to specific functions like marketing or HR, and ditches traditional management. Job titles are replaced with “roles” that employees can accumulate. Zappos is known for its commitment to company culture — one of its core values is to “create fun and a little weirdness” — and Hsieh hoped the move to self-management would help the company maintain a startup feel even as it grew.

In this regard, the crypto\ICO world would do well to have another kind of due diligence – verification of human values. The companies like Zappos (I consider myself to be Tony Hsieh’s follower to some extend) are good at building a successful business based on the right values ​​and culture (instead of right technologies and functional knowledge and skills). Moreover, Holacracy as a way to organize and manage, professed in this company, is a perfect fit to the nature of blockchain world.


Conceptually, an ICO is an excellent method for Blockchain companies to crowdfund in a decentralized manner, without the involvement of a mediator or a third party service provider. Conventionally, startups depend on crowdfunding platforms such as AngelList, CrowdCube, Seedrs, Kickstarter or Indiegogo to raise funds. For various reasons, an ICO is a great method for Blockchain projects and companies to raise funds with cryptocurrencies like Ether or Bitcoin for absolute transparency and financial independence. Good for companies but what about investors? New investors coming into the cryptocurrency or the digital currency market often fail to distinguish between legitimate Initial Coin Offerings of Blockchain projects and those designed to be exit scams for their founders.
The issue with ICOs is that companies or Blockchain projects often prevent from demonstrating their potential based on empirical evidence or market data. Instead, an ICO is more of a gamble for investors who are essentially gambling on the future price trend of its token. With ICOs, investors are merely guessing or assuming the value of the tokens of Blockchain projects purely based on their potential. As seen in the majority of ICOs, most Blockchain projects and companies leading ICOs often do not provide long-term roadmaps, strategies and development platforms. The best way to learn which ICOs are worth it is to lose money. Waiting for the wash-out. When these people promise great riches, they usually mean for themselves. If you have a viable product build it first and they will come. I do not treat these technologies as investments but learning opportunities.

As investors, we’ve been used to a private fundraising framework that is being completely turned upside down by the public token sale mechanism. As a venture investor, evaluating investment opportunities is often your full-time job and decisions impact your career as well as your wallet. As a venture investor you’re also always given access to a lot of detailed confidential material and the access to the team, in order for you to ask questions. Often, as a venture investor you’re also given information rights and sometimes board seats. In the ICO world, that’s not the case.

Companies, teams or organizations that launch public token sales, most often never interact with the final token buyer, and the average token buyer has no way to contact the team other than Twitter or their community tool of choice. On top of that, ICOs are often on extremely tight deadlines, and are surrounded by a lot of hype. It’s also usually more technically complicated to due diligence such efforts as code is law, and to fully appreciate what’s going on you need to read and understand the smart contracts behind an offering or the code behind a new protocol. In a public fundraising deal, even if reserved for accredited investors in the first phase (the token will reach exchanges sometime), investors aren’t usually full-time professional token investors. Not everyone has time to dig into whitepapers (let alone understand them) and token sale economics to make a very informed judgment.


Critics claim that ICOs have created a lawless marketplace of high margins and speculative bubbles. Others fear that this is a digital Ponzi scheme, constantly pushing investors to buy new cryptocurrencies of little real value with other cryptocurrencies. While the ICO boom has attracted talented entrepreneurs who are capable of delivering truly innovative ideas, it has also attracted a number of unsavoury characters looking to make a fast buck (check the latest one with AriseBank). For startups, issuing digital money is an easy way to raise capital, unshackled from obligations accompanying traditional fundraising methods.

Dogecoin founder and Adobe senior manager Jackson Palmer has announced he is taking an “extended leave of absence” from the cryptocurrency community. Calling the ecosystem “toxic”, Palmer used the occasion to blast aspects of the industry, while encouraging users of dogecoin not to lose sight of its fun and playful roots. Palmer suggested that the industry is in the midst of a period of stagnation due to the ideologies of the individuals it is attracting, as well as what he characterized as the poor quality of startups founded by new participants in the space. Palmer told: “All in all, the cryptocurrency space increasingly feels like a bunch of white libertarian bros sitting around hoping to get rich and coming up with half-baked, buzzword-filled business ideas which often fail in an effort to try and do so.” He went on to present his opinion that digital currency participants have done little to create a community that is inclusive to all. “I’ve yet to see a bitcoin business receive VC funding that has a provable business model (ie: one that generates profit) outside of exchanges and merchant services who simply take a slice of their customers’ business,” he said. Calling it a “hotbed for scams”, Palmer also expressed an overall fatigue at stories indicating that people have lost money.

The ecosystem has deteriorated to the sloppy solutions of the hundreds of projects in the ICO parade. On its third year of existence, the ICO space has already become extremely contaminated. It started to threaten the entire decentralization movement. We are walking not very far from the cliff of compromising everything including the great achievements of early Bitcoin. To prevent throwing out the child along with the water, the ultimate goal of a serious ICO investor should be to invest efforts and support into valuable “mutations”, letting them to break out from piles of genetic trash. There are hundreds of “blockchain” scams promoting themselves at any given moment, you are not likely to be bothered — they mostly exist outside of the crypto ‘echo-chamber’, targeting get-rich-quick and binary-option type of people.

Here is an incomplete list of red flags: too many ads, voting bots (you should feel some bias in comments), multilingual websites, more than four social channels, expensive explanatory videos, many advisors (involvement of irrelevant celebrities and “important people”), “replacement” or “disruption” promises in slogans. Many Ethereum tokens are just some kind of placeholders, they don’t really utilize Ethereum and can easily be ported through some burn-and-birth procedure. However, you are sure to see a lot of quasi-scams — projects where founders are not planning to disappear with the money but are not really committed to bringing the product to the market either. Instead, they will collect the money and keep pretending to develop the product for years, simultaneously cooking their next ICOs. Overfunded projects is a fresh phenomenon, so we don’t know how bad it is. Common sense tells us it’s a pretty limiting factor in the long run — relaxed people never deliver. The evolution of cryptosystems, in its very beginning, has found all the necessary technology, human motives, and even the right public language.


The hierarchical organization dates back to the industrial revolution, when companies wanted to preserve accountability while employing large numbers of people. The industrial age operating system is no longer compatible. As the American workforce moved away from the assembly line and into the cubicle, work no longer required people to repeatedly complete specific tasks. The information economy prizes ideas, creativity, and collaboration – all of which gets stifled by hierarchy.

What’s interesting, is that while all companies run slightly differently, they effectively all use the same operating model invented over 100 years ago. For example, almost all companies use the same hierarchy that places managers under directors under executives, where decisions come down from the top and action lives at the bottom. Command & Control (or C&C) is the widely recognized term for this type of organization.

For the first time in over a century, we’re beginning to see credible alternatives, and most of them point to this idea of responsiveness – that an organization should be built to learn and respond rapidly by optimizing for the open flow of information; encouraging experimentation and learning in rapid cycles; and organizing a network of employees, customers and partners motivated by a shared purpose.

Software developers know that the term Agile describes a set of principles that are supposed to help you build better products. Scrum is a development methodology that embodies these principles of building as you learn and adjust accordingly. It’s meant to be an improvement on Waterfall development–otherwise known as the way people used to build software when they planned first and built later.

One of these Responsive methodologies is Holacracy, defined as “a comprehensive practice for structuring, governing and running an organization. It replaces today’s top-down, predict-and-control paradigm with a new way of achieving control by distributing power.” Right now, this system is being used to the advantage of companies like Zappos, Medium and more.

Most observers who have written about Holacracy and other types of self-managed organizations—the latest trend in self-managed teams—take an extreme position, either celebrating these “bossless,” “flat” environments for fostering flexibility and engagement or denouncing them as naive social experiments that ignore how things really get done. To gain a more accurate, balanced perspective, it is important to look beyond the buzzwords that describe these structures—“postbureaucratic,” “poststructuralist,” “information-based,” “organic,” and so on—and examine why the forms have evolved and how they operate, both in the trenches and at the level of enterprise strategy and policy. “It’s interesting, because there actually is more structure in some cases and more explicit documentation on what people’s different roles are, what their accountabilities are,” Hsieh said. “It’s easy, though, to just read the headline of ‘No managers’ and assume that that means no hierarchy. It’s actually a hierarchy of purpose.” He added that both critics and fans alike need to remember one thing: It’s still very new.

Ultimately, and somewhat ironically, the next generation of self-managing teams is demanding a new generation of leaders—senior individuals with the vision to see where it is best to set aside hierarchy for another way of operating, but also with the courage to defend hierarchy where it serves the institution’s fundamental goals. The majority doesn’t rule—and not everyone has to agree with every idea that moves forward. In a Holacracy, for example, any circle member can propose changes, and they are adopted unless another member objects on the grounds that they would harm the circle. Despite the criticism, Hsieh isn’t backing down from his decision to continue the “self-management” system known as Holacracy, in which employees don’t report to a direct manager and are empowered to have more input in decision making.
The most effective way to solve any problem is to put together all of the people with the skills required to solve it. We call this a cross-functional or multi-disciplinary team. Sounds obvious, but as anyone who’s worked at a large company will tell you, it’s rarely done in practice. To address this, Holacracy makes it easy and relatively friction free to create new circles, rearrange people within them, tear it all down and start again. As we saw before, these teams are unconstrained by a long outdated org chart.
When you adopt Holacracy, however, you move to a much more networked chart where people often take on more than one role and move teams/circles when it makes sense without worrying about breaking some pre-established hierarchy.

Zappos has been using Holacracy for quite some time now. “Research shows that every time the size of a city doubles, innovation or productivity per resident increases by 15 percent. But when companies get bigger, innovation or productivity per employee generally goes down. So we’re trying to figure out how to structure Zappos more like a city, and less like a bureaucratic corporation. In a city, people and businesses are self-organizing. We’re trying to do the same thing by switching from a normal hierarchical structure to a system called Holacracy, which enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do.” – Tony Hsieh added.
Unlike some of its contemporaries, Holacracy doesn’t advocate for a flat organization. Holacracy organizes work (and people) around circles within circles within circles. People within those circles have “roles” that give certain team members complete control over their domains. That’s why people don’t have titles, they have roles that often do change. The main objective is to distribute authority throughout an organization. Fewer decisions bottleneck through a boss, meaning faster decision making and in theory faster innovation. All of that makes Holacracy particularly appealing to companies that want to retain the benefits of fast-moving startups as they grow. To create circles and roles requires a very regimented process, called a governance meeting. Then, there’s a separate, also very systematic meeting for assigning particular people to particular jobs. Holacracy doesn’t have any rules for firing or compensation.  In most organizations, work and communication is done in private. For a distributed org to function, much more needs to be done in public, where it can be easily discovered by others.

When Zappos CEO Tony Hsieh made the announcement in late 2013 that his online shoe retailer would be getting rid of traditional manager roles, he wasn’t anticipating the media firestorm that would follow.

The criticism only got worse when, in 2015, Hsieh felt the management transition was going too slowly and asked the staff to get on board or take a severance package. Ultimately, 18 percent of his employees chose to leave. Media outlets derided the “radical management experiment” as overly complicated and confusing, and to Hsieh’s chagrin, they did not focus on the fact that 82 percent of Zappos’ workers remained. “The ironic thing is that we didn’t actually have to make an offer. The reason we did was because it’s always been a part of our culture to treat our employees well and is consistent with our ongoing practice of making every single new employee an offer of several thousand dollars to quit the company during our 5-week new hire training. The headline really should be “82% of employees choose NOT to take the offer.” I think the media is used to stories about radical restructuring only when there’s some serious issue.” – Tony Hsieh added.

A CareerBuilder survey from 2014 looked into the cost of hiring bad employees. Companies surveyed admitted that just one bad hire cost them more than $50,000. Indeed, Hsieh was quoted saying that his poor hiring choices cost Zappos “well over $100 million.” Thus, he sees these buyouts as a way to ensure productivity and maintain good hires.

Holacracy was created and trademarked by software developer Brian Robertson, who grew disillusioned by the traditional hierarchy of top-down management before launching his management-consultancy firm HolacracyOne. By Hsieh’s standards, Zappos hasn’t reached its potential. The journey takes about five years and chaos at the beginning is expected, says Robertson. “When I see everything that’s going on at Zappos, it’s all part of the shift.”


In my opinion, Tony Hsieh (Zappos) and Blake Mycoskie (TOMS) have much more in common than simply shoes. I love TOMS shoes – they are nice and comfortable, simple and cheap. But most importantly, they are produced by a company, which is more about making an ethical choice rather than just making profit. TOMS offers shoes for casual wear following its “One for One” business model – you buy one pair for yourself and another pair of shoes goes to those in need in poor African countries. “Start something that matters” tells the story of TOMS, as well as around ten other companies which have inspired Blake (like Tony Hsieh’s Zappos). Interestingly, TOMS and other similar companies are now called story-doing companies as opposed to the story-telling ones. By the way, TOMS already has its followers: the fintech-startup CommonBond focusing on student loans, as well as the BOGO company with its one-for-one housing model. Maybe this value-based business model could be useful for all of these ICO-backed startups too.

It should be added that the financial sector is one of the most “masculine”, and the technological one is the most masculine too: in this context, crypto\ICO world is in double trouble. IMF Managing Director Christine Lagarde told she expects the IMF will play a role in regulating the fintech industry going forward. She pointed to distributed ledger technology like blockchain that can help make the banking system more inclusive. “I think of women in some of the developing countries that have to carry cash around who are at risk of violence and all the rest of it,” she said. “If they can use their cell phone and operate in a much more discreet and efficient way, it would be terrific.” Since it’s a nascent new economy, it’s important that it has a sufficient number of diversity advocates and it is right from the very beginning. Values ​​should be higher than profits.

Cryptocurrencies don’t exactly have the best reputation thanks to their penchant for attracting unscrupulous people. But what if there was a currency that encouraged people to cooperate? What if people were incentivized by a spirit of growth, rather than of greed? Under the ideal model, a network of cooperative businesses and services would coordinate with each other as a single unit. The coin would be shaped democratically by this co-op (shaped not controlled). Instead of rampant online speculation, every user would have incentives to help the network grow as a whole, and the use of a blockchain would help make the process be fair. Cryptocurrencies are still in their infancy, and it’s hard to tell where the path for most of the major currencies is headed.

If you have a large community and a co-op on top of an immutable blockchain, then the coin can be worth more than its market price. In fact, that is somewhat the point – a community is created and value begins to accrue to the participants in that community. The hope is that the early stage investors select companies that have a business model that takes advantage of the growth in the community and the ecosystem around it. The ICO generates excitement and valuable incentives to contribute to the ecosystem which accelerates its growth. A currency needs to grow with the people, not past them.

ICO market gives a lot of opportunities for speculations and quick profits, especially due to early-stage “pre-sale” discounts and premiums, and only few players are ready to play in a long-run. It is the reason why our BB Fund’s investment philosophy is based specifically on long-term strategy: development of financial technologies on the emerging unbanked markets (Asia, Africa, LatAm), infrastructural implementations to enabler and/or disrupt the traditional banking systems (including bank-as-a-service models and open banking principles), convergence of crypo and traditional financial worlds (including Blockchain implementation by financial institutions and government bodies), coming era of M&A activities in the fintech space and appearance of closed-loop fintech ecosystems (also known as Fintech Banks). While Blockchain, ICOs, tokenized economy bring completely new technologies and business models to the world, investment principles and basics remain the same: long-term play, serving the real market demand, addressing pains and wishes of people. BB Fund uses corporate culture analysis approach and classical fundamental investment analysis and due diligence techniques to reveal the most promising investment targets, based on their economical, commercial and investment potential.