How the token economy can transform business. Companies that go public strike a devil’s bargain. In return for a heavy dose of liquidity, the company is driven by an unrelenting push to increase revenue in order to appease its investors. A perfectly sound business that is executing well and delivering profits can still fall victim to the demands of an investor base that demands growth at all costs. This can lead to tragic mistakes — expanding into unfamiliar markets or spreading into new verticals far too soon — that can distract from its core business and ultimately cause the overall business to suffer. A business that sells its share to the public is ultimately infected with a kind of cancer- a malignant disease that can drain the lifeblood of the company over time with its incessant demand for growth at any cost. The shareholder mentality of business, in which stock price becomes the ultimate measure of success, incentivizes expansive revenues/profits over all else. But not every business should expand into new products or niches. There’s nothing wrong with being stable and profitable, even if you are not growing by 40% per year. The basic problem with is that investor priorities tend to trump customer priorities. Why continue to hone and improve a successful product when you can launch a whole new product lineup that can spawn growth in an entirely new area? And even when you know you are spreading yourself too thin or diverting resources from winning solutions, the allure of more revenue streams usually prevails. After all, you are measured by financial stats, not customer satisfaction. Everyone knows your PE ratio; no one tracks your product quality or customer satisfaction. shareholder capitalism The infamous motto, “ ”, is used to emphasize that corporate motive should be focused on the bottom line, and while it is true that a corporation requires profit to succeed, companies that place a primary emphasis on shareholder return put product quality at risk and thus undermine customer satisfaction and long-term viability of the very products that created their success. Wall Street Greed Is Good What if, instead of focusing on corporate ownership, we could focus on product ownership? What if corporate goals were aligned with customer goals? What if the valuation of the company was less valuable than the success of the product or service? What if the company behind the product knew that satisfying its customers was far more valuable (and sustainable) than appeasing its shareholders? A New Way Those “what ifs” are already possible with the dawning of the token economy and what I call . evergreen capitalism The idea behind evergreen capitalism is that a company should focus on offering products/services that are constantly being improved, setting a fair margin to ensure financial stability of the organization, and reflecting the preeminent importance of the customers (the people who ultimately create the value of the products and services). The goal is to maintain an evergreen state, by focusing on the product(s) and customers first and foremost. An evergreen company seeks to set a consistent/fair profit margin that can sustain its operations, while supporting continuous enhancement of its proven products and support of its customers. It only adds new products and services if they truly compliment their existing ones, and only if they can be added without compromising the quality and continued customer-focused enhancement of the the successful products already in place. The system is “evergreen” because it seeks stability, consistency, and steady success, rather than the flamboyant excesses of acquisition or expansion into unfamiliar areas. The goal is to build long-lasting businesses that serve customers. It does not mean that profits are not sought; in fact, profits are required for success, but evergreen capitalism focuses priorities around product quality and deemphasizes corporate expansion. Token Economics We’re all very familiar with the concept of corporate stock. Corporate ownership is represented by the stock owned by its shareholders. And traditionally we think of stock ownership as the primary representation of the value of a company. In fact, we set the total value of a company based on the price of the shares of a company’s stock. The stock price is set by the market, and that price is reflective of a myriad of financial statistics about the financial health and track record for the company, and its prospects for increasing revenue and profits in the future. All of that is well and good. Token economics, however, allows value (and ownership) to be set at the product level. This does not replace corporate stock ownership, but it adds a new dimension to the way products and services can be valued. Tokens are digital, secure, immutable representations of an asset. Powered by the blockchain, nearly any kind of product, service, or asset can be correlated to or represented by a unique cryptocurrency token. The tokens associated with a product have a specific purpose and the owners of those tokens have certain rights — it could be to use the tokens as currency for the product/service, or it could be more expansive, like having voting rights to determine the direction of the product. No matter the scope of a token, though, the beautiful part is that they reflect the overall value of the product or service. If people increase their usage of the product, token value should naturally increase as well, via simple supply and demand dynamics. Even more importantly, the token value is always reflective of the quality and success of the specific product and not the overall growth of a corporation. By setting and deriving value at the product level, some amazing things happen. Customers are much more important and influential, since they are the ones driving the popularity of the product/service (and in many cases impacting the development of the product). And because there is a tangible value that is easily derived, the company is much more concerned about the success of each product, as opposed to accelerating growth at the top level. When most people think of cryptocurrency, they think of . They may think of it as digital money and they may be confused about how it works and whether it is real. technology is the bedrock that supports cryptocurrency in all forms, with Bitcoin being just one example. Bitcoin Blockchain Cryptocurrency is a digital asset (which we will refer to as “tokens”), but what makes it unique and powerful is that it has an immutable record (no one can dispute who owns it) and it gives users complete control. There is no need for a bank, stock exchange, or any other third party to maintain custody of your cryptocurrency tokens. In the past year, we’ve seen a huge spike in the number of products/services being developed that utilize cryptocurrency tokens. The way each product uses tokens can vary wildly, but the common purpose is that the tokens are intended to represent much of the value of the product. Some tokens have a pure utility (used to perform actions for the product) and some may be more like securities, but either way the tokens represent value. Many companies have actually raised funds by selling the tokens they have minted for their products to investors and/or the public. When they sell tokens, they are not selling ownership in the company, they are selling the tokens used to power/represent the product. And thus, those token-holders are not shareholders but are essentially “product-holders”. Since the company may still hold a number of tokens themselves and because the value of the tokens may be important for the operation of the product/service, making token holders happy is critical. For the token economy, everyone’s interests are aligned- those using the product (even if they don’t own tokens), token-holders, and the company. All parties are incentivized to create and maintain an excellent product that meets the demands of its users. Customer feedback is more important than ever and quality will almost always be reflected in the price of the tokens. And, to be sure, the token economy is becoming big business. In 2017, via token sale (sometime referred to as Initial Coin Offerings (ICOs)), which are token-generating events for new products. This is a far cry from the total of deals, but still a stunning total for a funding mechanism that is in its infancy. $5.6 billion was raised $213.6 billion raised via traditional venture capital Thanks to the numerous cryptocurrency exchanges that exist, tokens are usually just as liquid as company stock, so token holders can covert from tokens to fiat currency more easily even than someone can convert company shares to fiat. This is also an important factor for ensuring that token holders maintain significant influence on the success of the product/service. The Mechanics of Evergreen Capitalism We have established some of the benefits of evergreen capitalism and demonstrated that token economics can help us achieve the goal, but the final consideration is the actual mechanics of your business model. Simply emphasizing quality and customer satisfaction and tokening your product is not enough. You need to also develop a business model that forces you to reflect this approach. For instance, for our , we are mandating that 85% of all revenue is distributed to our network end users (since they are the ones creating value on the network) and our company is limited to 15% of all revenue. This forces us to live within our means, while still participating in the success of the network as it grows. Narrative Network While your particular product and service will likely require a different approach, the idea that you determine a specific profit margin or revenue percentage helps align all interests. You serve your customers and achieve success through the excellence of your product/service. Creating strong ties with your customers helps ensure the evergreen effect, firmly establishing that they are the reason for your success. Communicating such policies (e.g., “we have mandated a profit margin of no more than 30%”) in a transparent manner instills trust with your customers, as well. In designing such limitations, it’s not a race to the bottom to be the cheapest. Rather, it’s about reserving a clear, fair share for your company that you never violate. Customers expect you to make a profit. Being transparent and fair is the most important thing. With evergreen capitalism, it’s okay to stick to your bread and butter. It’s preferable to iterate on what you have and constantly improve your customer experience. The mandate is not accelerating growth but steady improvement. And most importantly, shareholders are not as important as product-holders. It’s a beautiful thing. Ted O’Neill is the Founder and Chief Product Officer for Narrative Company. He leads strategy and oversight of two innovative new blockchain projects- Narrative , a social network that is developing the first true content economy, and Native , a blockchain-based rewards system. Both services will be coming online later in 2018.

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