Startup Cities on the CabinDAO Podcast

Building lean, barriers to great urbanism, startup metrics for cities, a Startup Cities tech stack, the Network State, DAOs buying Land Banks, and much more.

Photo by Kenny Timmer on Unsplash

You’re reading Startup Cities, a newsletter about startups that build neighborhoods and cities.

This week: yours truly on Campfire, the podcast of CabinDAO!

Skip around to find what interests you.

Themes

• Charter Cities vs. Startup Cities

• What were the early days of the Startup Cities movement like?

• What would you do with a trillion dollars and a billionaire dream team?

• NEOM and disciplined entrepreneurship

• What prevents Startup Cities from being built today?

• Building portable & playbooks for negotiating with cities

• Metrics & why cities should focus on growth and profitability

• Balaji Srinivasan & The Network State

• Platform vs. Product Cities

• Buying a Municipal Land Bank with a DAO

• The Comprehensive City Text Stack

• Disappointing and Exciting Startup City Projects

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Intro

Jackson Steger (JS): You've done a ton of interesting things, not just pertaining to Startup Cities. In addition to a software engineer, you've had a number of other hats that you've worn throughout your career. I'm curious, is there a single thread that ties your career and your writing?

Zach Caceres (ZC): There’s a common thread. I think of it as there's this concept of a social technology, which is thinking of things that are ephemeral in civilization, like law and governance and education and urban design and all these things, but as technological systems.

I think that has been an idea that I've been interested in since I was in university and that's animated a lot of where I've chosen to put my time and attention.

JS: So speaking of one of those social technologies being a place where maybe some people don't always think of it as being a technology — you're credited with coining the term “Startup Cities,” you write an amazing newsletter at StartupCities.com. I wanna spend just three to five minutes here at the beginning, talking about definitions.

What is a Startup City?

ZC: I appreciate that!

I frame Startup Cities as neighborhoods or cities literally built by startups.

I take it in the most literal way possible. There's a lot of really big ideas in the space and stuff about politics and morality and futuristic technologies and all kinds of stuff.

I'm not against any of those things. But for me, I'm talking about the straightforward entrepreneurial aspect which is that startups should build neighborhoods and they should build cities.

Charter vs. Startup Cities

JS: Is a charter city a startup city? Is a startup city a charter city? Can you help distinguish those two definitions for us? Are there any other varieties or sub genres of these cities that an audience interested in city building should be familiar with?

ZC: Yeah. There's a nomenclature explosion and jargon explosion in the space. I do think that can distract from what are a lot of the similarities.

Charter Cities are an an old idea if you consider that politically autonomous cities are an old idea. But, in its modern form, it traces back to a TED talk given by economist Paul Romer in 2009.

The core of a Charter City is legal, political, and institutional reform. The idea is the city has a charter with some other political entity. In negotiation with that entity, with that charter, they're able to have this scope of autonomy and maybe have their own police or provide a different way of incorporating a business or they can finance their infrastructure differently or have a different tax regime or whatever.

I think of Charter Cities as a very specific species of city that's focused on political reform and institutional change. Nothing about a Charter City suggests that it must be built by a startup.

Some things that look like a Charter City are being built by corporations that are an offshoot of the state [ZC: statutory corporations or public private partnerships] — the government itself. You also have privately owned and operated special economic zones that are maybe closer to something like a Startup City.

You have a lot of these unique sub-genres that I think often bring a particular ideological lens. For a long time people talked about “free cities” or “free private cities.” These kinds of things float around still today in the space.

I think a lot of that brings an ideological side where there's a particular conception of what political freedom is and what a free economic system is or what a free democratic or non-democratic system would be.

The idea is, “Hey, we're gonna build a city that will embody these pre-existing ideological ideas.” I don't have anything against these conceptions, but my focus is on the startup aspect: the entrepreneurial creation and the process of entrepreneurially creating living environments for people.

Examples of Charter and Startup Cities

JS: I love that context. In order to help us as an audience to understand the difference here, do you have any examples of Charter Cities or Startup Cities? Like you said, the language is so important here.

ZC: Yeah. For instance, in the charter cities conversation you'll often hear references to Hong Kong. Hong Kong is a “special administrative region.” So it enjoys significant and important differences in its institutions, its legal system, legal traditions, and how these processes work. Many things about it are different from the surrounding area of China.

Now it was also a colony. So there’s a somewhat… let's say, a mixed history associated with how it was that this charter came about. And people have very strong views about that because the world of colonies is a controversial world. But it does have a charter in there.

If you have Hong Kong on one side and then on the other side you take a project like a Culdesac — who I think was recently on this very podcast!

Right now Culdesac has 17 acres in Tempe, Arizona. They’re really a startup neighborhood right now, but their ambitions are to reach city scale. And in this case, you don't have any major autonomy or anything like that. Although they did have to seek [zoning] variances in city planning for the purposes of executing their design. So there’s a lite version of this charter thing happening.

But ultimately they trying to build positive places for people to live — walkable places where the car is not central to the user's experience of the lived environment.

Culdesac is a startup building a neighborhood. They're trying to own a user experience. They're venture funded. Then on the other hand you have something like a Hong Kong, which has unique political and administrative and legal autonomy and all of this, but it doesn't have this startup dimension.

There are examples that are somewhat in the middle. For instance, in Honduras, there are some projects based on a set of laws called the ZEDE laws. This is a kind of charter city law, but the people that are actually building these cities — well they’re more like town scale right now — are private companies and they are startups. You can see that as a sort of startup city with charter city elements.

Early Days of Startup Cities

JS: That’s really helpful context. And I appreciate you elaborating on those examples. I wanna talk a little bit about your more recent Startup Cities career.

In 2012, you led the Startup Cities Institute, a group of researchers based at a university in Guatemala. There were economists and law professors, a few architects, you raised some money from Silicon Valley… what was the purpose of your fundraise and of the Institute more broadly?

ZC: I think it's hard for people to believe because there’s a lot of interest in the space now, but 10 years ago, in 2012, all this stuff was just totally crazy town. It was very fringe.

There were no venture funds. There were no big events. It was a small number of people. I would describe this space as still quite small and still needing to grow a lot more. But it's massive compared to what it was 10 years ago! The Startup Cities Institute was something that was built in partnership with the president of Universidad Francisco Marroquín in Guatemala.

The former president of that university had been involved in some of the Latin American reforms, such as the one that I mentioned related to Honduras. He had a longstanding interest in whether or not these concepts of startups building neighborhoods and cities could improve urban life in Latin America.

The point is that we ended up collaborating to say, “Hey, can we make this idea a bit less crazy and a bit more mainstream?” We did typical think tank stuff like we published blog posts. I did interviews in magazines. We had some early events which connected some of the main players that are in the space now whose names you might know. It was trying to put some fuel on the fire.

One thing that we did realize, which I think is what everyone sees, is that if you can crack open an opportunity to build one of these things it's potentially a very valuable business opportunity. Very difficult and complicated, but also valuable.

We did raise some money. I took the idea to YCombinator, where we were rejected in the final round as being a bit too weird for their approach.

I get it! Honestly, we had no idea we were doing at that time, so I don't blame them at all. The focus at that time was to go to an existing American city to a land bank — land banks accumulate blighted properties in a city — and try to buy the largest contiguous piece of land possible, assembled from many small pieces in the land bank's portfolio. We’d offer them above market or even equity in the final outcome in the development.

There were land banks quite interested in this. But the layers of permissions that a person has to go through to make this kind of thing work… it’s very challenging if you don't have an in with the city. At that time I was a random 23 year old living in Guatemala and showing up and being like, “Hey, can I get all this stuff and do this super weird thing under a different zoning regime?”

So you might imagine the skepticism that you’d encounter. We ended up not pursuing it. I couldn't make it happen. It was disappointing. But I've always viewed this as a very long term thing.

What would you do with a trillion dollars and a Billionaire Dream Team?

JS: I appreciate you sharing this. I can relate to that 23 year old facing zoning barriers. You've written how the more time you've spent living and working in poor countries like Guatemala, the more conflicted you became and how near total focus on governance was perhaps too one dimensional and you shut down the Institute 2016 to work with startups full time.

You wrote that the Startup Cities space is full of “overhang technologies,” ideas, and concepts where theory outstrips practice. We need way more founders and technologists building neighborhoods and cities, or we’ll drown in white papers, but never know what works.

And so imagine 10 years later, you have all this credibility that you've built through your newsletter and a bunch of other avenues. Imagine that Jeff Bezos and Bill Gates and Elon Musk, Oprah Winfrey and a few dozen other extremely wealthy people were listening to this pod and they go, “Hey Zach, we heard you on Campfire and we thought you were awesome. Here is a trillion dollars and all of our connections.” You, as the steward of this project, what would you do?

What would your first tangible steps be as like someone carrying a Startup City’s idea forward?

ZC: Wow, well I suppose you've outlined everybody's fantasy in this space. The “convert the billionaire” thesis. You’ve got a lot of people out there trying to do that. And some projects like the city of Telosa are maybe this version made real. We'll see.

Honestly, I would turn down the majority of that money and raise a very modest seed round. I would take the social capital connections though!

There’s a lot of challenges. But one of the big challenges in having this unlimited budget constraint is that it invites way too many indulgent ideas and decisions.

If you have a trillion dollars, you're gonna try to build this thing that’s trending so hard right now: NEOM, “the line.” It's supposed to be this city that’s a line rather than square or a circle like a traditional city. It’s built in the middle of the desert in Saudi Arabia. And there's giant mirrors on the side and autonomous drones that deliver everything and all this.

My worry is that when you have a trillion dollars in the bank you think in this extremely grandiose, top-down way. And there's nothing wrong with the dream. But I would say that a lot of problems in cities and also, honestly, in the Startup Cities space come from this kind of really grandiose thinking.

Concretely, the kinds of problems that you're trying to solve are: where can I find a large enough parcel that’s either already permissioned with the kinds of rules that I need to build or that's just far enough outside city limits that I don't have to deal with those permissions, but also close enough to city limits that I benefit from the growth of a municipality rather than being in the middle of the desert and trying to bootstrap the demand for that place from zero?

It's crafting a value proposition for the environment. I don't really think it's “if you build, they will come.” There needs to be a reason for people to live there. You have to understand who that customer is and why it is that they would live there. If you're building outside an existing metro, you need to understand what it is that you're gonna build that’s gonna make people’s commute times worth it.

There's a lot of operational questions. Who takes out the trash? What is the upfront cost of infrastructure? Can you piggyback on an existing municipality's infrastructure? Do you have to build it all your own?

You want a modest amount of capital that allows you to proceed to the next rational stage of taking on something that’s this complex and ambitious. You don't want all the capital upfront because you want to do this in a disciplined way.

You do want to use the social capital that the billionaire dream team brings to the table. And you wanna use that to kick open the doors of permissions that you need from cities and other kinds of partners who are between you and being able to build.

There’s a lot that you could do with that kind of social capital, which would be fantastic. The main things are to craft that compelling value proposition, given the constraints of the physical environment that you're building.

It’s really quite challenging to understand all of the complexities associated with the capital expenditure around infrastructure, whether you can piggyback on an existing municipality or whether you can’t. There's all sorts of very basic operational things. How do you make it so that if something catches on fire, the whole thing doesn't burn down?

There's a lot of this basic stuff that’s unsexy, but deeply important. And to me that's the meat and potatoes of startup entrepreneurship. You can do that with a relatively modest seed round. Then you can go big later as you figure out what the heck you're doing.

What Prevents Startup Cities from Being Built Today?

JS: I appreciate you, like any startup expert, would keep us lean and not try to be overly bloated from the beginning.

I have a bunch of follow ups. You mentioned you might turn down the bulk of the money, but you would retain the connections such that you might be able to obtain some of the zoning permissions that you might need. What specifically are you looking for in these kinds of zoning permissions? What are the rules that would be favorable to a project like this?

ZC: Yeah, some of it is contextual. It depends where you build. But there's a general class of things that really stand in the way of high quality community building. In America, one of those things, which for instance Culdesac has spoken a lot about, are parking minimums.

This is the idea that every single bedroom or every single person in a development needs to have at least one parking space per person or per bedroom. And this changes the economics of a development in a crazy way.

Zoning is obviously a big culprit here too. It’s often called use-based zoning or single-use zoning. It means that things like mixed uses, meaning, say a cafe or a bar or something cannot coexist next to where a person lives or where a factory is.

This is not how traditionally cities are built. Even traditional American cities don't really do this. We do this now. It really stands in the way of realizing the value of the asset. I'm not just talking about aesthetic preferences here.

Generally speaking, a lot of people want to live in places where the grocery store is not 30 minutes away from where they live. It's just basic consumer preferences, but they’re illegal to build in our current world.

So those layers of permissions don't just change the aesthetics and experiences that you can provide as an entrepreneur, but they fundamentally change the economics of what is possible and profitable to build. To really go big and maximize the value of this new place you want to get beyond a lot of these permissions. Otherwise you just can't do anything.

Building Portable; Playbooks for Municipal Negotiation

JS: When Phil [co-founder of Culdesac] was on the show, we talked a little bit about obtaining the permissions that they needed in Arizona. Have you seen any successful playbooks for pushing for this kind of reform on a project basis? What is helpful in getting those sorts of permissions?

ZC: Depending on the city, I think this is an area where there's actually a huge amount of discretion by a city council or a planning board or whatever. Unfortunately to some extent the playbook that you see is that influential and wealthy developers are sometimes able to get through that process through all sorts of means, such as having a friend in city hall.

Sometimes boards almost extort developers. They'll say: “yeah, we'll give you permission, but you need to go and pony up money for X, Y, and Z cause and build a park over here and make a charitable contribution to this 501c3.”

To some extent, this “playbook” is a weird, totally above-board, almost institutionalized bribery or extortion. That’s sometimes what developers do now. This is the dark view.

The optimistic view is that there are sane cities in the United States. They probably tend to be smaller, maybe up and coming… places that are on the verge of “am I a large town, or am I a city?”

There are sensible people in city governments. The hard thing though is that the places that are in the highest demand — say just outside San Francisco — you're gonna have to run the gauntlet if you want to do something there.

Culdesac has spoken highly of their experience with Tempe. There's an example of a city council that was somewhat rational. This is a reason why I think you almost want to design in a portable way.

So you don't want to make this perfect design for outside San Francisco, because who knows whether you're ever gonna be able to run the gauntlet.

You want to make something that’s portable and you can shop it. “Hey, some town in Texas. Do you want this?” “Hey, Boise, Idaho. Hey, Lakewood, Colorado.” There's lot of places that people aren't thinking about. Ideally, you want to bring something that’s well crafted and strong and has a good value proposition, some sensible solutions to problems and shop it around.

It's never gonna be truly portable. It's the Java approach: “Write once run anywhere.” It never exactly works that way, but that's one strategy for dealing with the permissions.

Cities should just focus on growth and profitability

JS: Love that. I've worked now for three different startups over the years. And one thing that’s consistent in all of them is you have to measure what matters. You have to be careful in your metrics, selection, and have to grow the metrics that are important to actually achieving the mission that you're pursuing.

Andrew Yang, for example, talked about this during his presidential run. If he was giving a state of the union address, he would use PowerPoint.

Instead of GDP, we should have a happiness metric that’s some combination of air quality and all these other things. With all that as context, what metrics should Startup Cities use to measure success? How are those similar or different from metrics that legacy cities use?

ZC: I would say I'm somewhat old fashioned on this point.

I think a lot of these other measures are much less important than straight up vanilla economic measures such as GDP growth.

If we're imagining a Startup City operated by a private entity, it would just be the market cap of the company, the valuation of the assets, or just profit and loss within the firm — very basic nuts and bolts things.

I'm not suggesting that air quality doesn't matter, or that happiness doesn't matter! Obviously, those things are important.

But in the world of development economics people are constantly trying to find a way to avoid saying that economic growth is ridiculously important and that economic growth is the thing that's gonna deliver happiness and better air quality. People are hesitant to say that because there’s a bias against the idea of growth, in my opinion.

I think something similar happens in the context of cities. If you were to build a company [that built a city] and that company was ridiculously profitable because thousands or hundreds of thousands or millions of people wanted to come and live there… and you were able to continuously build and continuously densify and have such wonderful amenities that everyone was willing to be a premium to live there… well, what you’re doing is you’re capturing a huge amount of human happiness and human potential and the agglomeration effects of talent! You’re connecting people with opportunities and all of this stuff inside the metric of profit and loss.

I think people have this idea that in the pursuit of ruthless monetization a startup is going to pave over every single green space and never plant a tree. And every street is gonna be optimized for the maximum number of tractor trailers to blast through at 85 miles per hour. And it's just like, no!

Because no one wants to live in a place like that. None of the incentives that are rational for the developer of an environment would even remotely incentivize this very destructive behavior on the part of the management. Does it mean that it's gonna be a perfect utopia with no mistakes in every problem will be solved? Of course not.

The underlying incentives of profit and loss align the management of a city and with the happiness and health and even the environmental performance of the area much more than traditional city management.

Putting a horrible polluted lake in the center of your real estate development does not increase the value of your land or drive people to want to rent your apartments or visit your community or shop in the town.

The State of Metrics in Cities Today

We should talk about the state of metrics in cities today! I did some research on it for a long form piece that I've been working on, which I call “The Missing NPS.”

An NPS is a net promoter score, which is a common metric collected by startups. It's these little surveys that you get in an app that says, would you recommend app XYZ to your friends from 0 to 10?

This is a tried and true metric for understanding customer satisfaction. I did a deep dive to understand where do cities collect these things? Where is the data and all of this?

Generally speaking, government agencies and most cities do not collect a lot of this data. I even interviewed someone whose identity I can’t share (you’ll see why), who worked on a consulting project that was doing customer satisfaction surveys for a very large American Metro whose name you would recognize.

They found that people were extremely dissatisfied. The conclusion of their consulting contract was the city sweeping it all under the rug and saying, “no one will ever hear about this data ever again, because we don't want anyone to know what the truth is. We don't want our legacy damaged by evidence that we are underperforming our customers.”

I'm simple. Given the current state of this industry, even just building a place that regularly solicits customer feedback and giving it the old college try to respond to that feedback would be significantly better than a lot of what is.

I don't see the need to invent lots of new metrics. I think we could use existing metrics. Make them operational. Care about them. Have a business and management team that actually follows them. That would go a long way.

JS: I love that. For context for the audience, two products that are notorious for having extremely high NPS scores are puppies and ice cream. Hopefully we all aspire to build cities with NPS scores on that level!

The Network State

JS: I wanna transition a little bit because Cabin is a DAO and we do wanna talk about some more DAO native things.

I wanna talk actually about Balaji for a second. So for the audience Balaji Srinivasan is a former CTO of Coinbase and a partner at Andreessen Horowitz.

I'm bringing he him up because he recently wrote a book called The Network State. The book opens with this one sentence definition of a network state. It's a mouthful. And, Zach, I'd love your thoughts after I read this definition on the network state approach more broadly, as well as the individual components of Balaji’s definition that you think matter or don't matter to the Network State.

A network state is a social network with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that provides a large enough population, income, and real estate footprint to attain a measure of diplomatic recognition.

So there's a lot there. I want your reaction to the question in any direction you wanna go.

ZC: I've followed and corresponded with Balaji on and off over the years. He was very early in the space and in perceiving all of these things. I really enjoyed The Network State and enjoy his work overall.

I will say that when I read the book I realized that we're actually talking about things that are much more different than I had thought. Not in a bad way. But I guess I had this sort of conception based on his earlier work that we were really pulling on very similar threads.

And when I read that definition, I would say that was the moment where I thought, “Oh, I think we're talking about two different species of things in this space.” Similar to when we were talking about sort of charter cities being its own animal in this space.

Platform vs. Product Cities

JS: You have this framework on platform cities versus product cities. I wanna give you the opportunity to talk about that.

I think that when you bring up product cities, then Balaji’s concept of a moral innovation or a one commandment is similar to what you might find in a “Fitopia.”

What’s the difference between a traditional platform and a traditional product? And, in our city analogy, what is a product city and what is a platform city?

ZC: Yeah. Platform City versus Product City is an article I wrote not too long ago and people really liked it.

Platform City vs. Product City

Honestly, I think that the distinction is not totally clear and rigorous, but I think there's something here. The distinction is you can think of a traditional city and you can think also some projects in the startup city space as fundamentally focused on building platforms.

What that means in practice is their idea is: “We do not prescribe the particular details of the lifestyle or career or values that you're going to pursue in this place. We're focused on specific nuts and bolts of the urban experience.” So for instance, the project on Roatán, Honduras, Próspera calls themselves a “platform for economic development.”

Próspera’s “platform” strategy from prospera.hn

They're saying, “Hey, incorporate any company you want here. We make it really easy. We make it fast. It's easy to pay your taxes. We don't bother you a lot. You can select the regulatory jurisdiction that you're under.” That's very much just having a neutral view.

And again, nothing about what I'm saying is trying to minimize this. It’s a totally legitimate strategy and possibly also a strategy with the highest upside.

But there’s an alternative, which is to say, “hey, what if instead of saying my customer is ‘everybody’ and I'm making a neutral platform for ‘everybody’ — like Facebook might think of themselves — you say no, I'm gonna make a very specific experience for a very specific kind of person.”

I think this is more like crafting a traditional product, like a vertical software as a service company in startup parlance.

I use a fake example called “Fitopia.” When you come to my neighborhood or city there's no unhealthy eating options whatsoever. There's a ban on fast food and there's every kind of keto, paleo, vegan mashup thing you could imagine. And the sidewalks all have chin up bars installed every block so you can do chin ups while you're waiting to cross the street.

And there's an amazing bike share. And there's citywide sunrise yoga in central park every day. You can take it as crazy as you want.

You could even imagine some things that many people would find somewhat objectionable. For instance, you can't be a resident if you're not at a certain level of physical fitness, which I think many people would have an issue with. But you can see how this framework defined more narrowly could tend in that direction — a kind of exclusivity to the experience.

I think this is a bit more in line with Balaji’s definition of a Network State. I think it's a narrower, more focused definition of what it is that we would want or expect from the Network State.

It would also revolve around a values-constructed experience meant for a particular kind of person with a particular values, maybe particular income level, particular location.

Scaling Product and Platform Cities

JS: Yeah. Thanks for connecting those separate threads.

I'm curious, how do these different approaches such as Próspera in Honduras vs. Fitopia — how do they scale?

ZC: The classic argument by proponents of the platform city is that the neutral platform play will always have bigger upside. If you can actually pull off the “urban platform that everyone wants to be a part of,” hey, ‘everybody’ is a much bigger customer base than fitness fanatics are!

That's the classic argument. On the other hand, you could also imagine a version of the product city approach that's almost a private equity fund that buys up a lot of companies in different verticals and then manages them all and tries to manage them all competently.

People have strong opinions about private equity management, but you get the idea. It's not about having Fitopia have a billion people in it. It's about having a Fitopia and then there’s Cartopia, which is just all about people that are obsessed with classic cars or whatever. And then there's Nerdtopia, which just one giant history of computing museum with blazing fast internet and coworking spaces.

You can think of a million ridiculous and maybe some not so ridiculous versions of what the product city would look like. So maybe it's more about replication and a kind of a franchise model or a multiple franchise model rather than making the megacity that everyone wants to live in.

Buying Municipal Land Banks with a DAO

JS: We were discussing earlier there being this blueprint for pitching your own product city and being able to go to places like Boise or Lakewood with that approach.

You mentioned that you had this YCombinator pitch that you made to buy municipal land banks. You recently wrote that maybe a DAO is the right kind of organization to buy such a thing. Cabin and others in this space are DAOs. Many in the audience and Cabin members are well aware of my personal skepticism towards the efficacy of many different kinds of crypto projects.

But I've been keeping an open mind, especially as it pertains to crowdfunding assets. So I'd love to hear your thoughts on just like why is a DAO potentially suited to buy a land bank. What can the DAO do with that land bank to rejuvenate?

ZC: I would be keen to understand your skepticism. I think one of the things that has been a real boon to Startup Cities as a meme and putting the idea into the Overton window and out of crazy town is the rise of Web3 and DAOs. It has been fantastic for this space.

So I'm grateful to CityDAO and Cabin and all these people that are doing this stuff, because you all are really carrying an idea that matters a lot to me out into the mainstream.

My own view of DAOs is pretty aligned with yours. I'm very bullish on it as a way of connecting people around a particular niche. Just finding those people and being able to get in touch with those people, I think of as mining the long tail of the internet.

On the internet there's every kind of person with every kind of weird interest you could imagine. Finding those people is not that trivial. A DAO getting those people all together, that's great and really valuable.

Another aspect is as an aggregator of capital around these very niche and sometimes eccentric interests like ConstitutionDAO buying a copy of the constitution. It's a very particular kind of person who wants to be partial owner of a constitution.

It's fantastic that the Dow was able to get those people together and to have them try to make this purchase and stuff.

JS: I’ll interrupt real quick to share that ConstitutionDAO in its heyday, one of its core team members was doing all of that from the cabins at CabinDAO. So just plus one-ing on that moment as this lightning bolt. There's a plaque currently at Cabin commemorating that moment in time.

ZC: How cool! I had no idea.

I think a lot of people are falling into a trap that many technologists and technology entrepreneurs fall into, which is the view that the problem with collective decision making is:

1. That people don't have enough information to make the decision. So we just need to give them more data and then they'll be sensible in their decisions.

2. That decision making power is not broadly distributed enough. If only we had more people with more votes and more committees and stuff, then we would have good and equitable outcomes and everyone would feel engaged.

I would love to live in that world. I just don't think it's true.

I think there's enormous, overwhelming evidence from public choice economics from the study of political ignorance, voter participation rates, even just the existence of the corporation versus co-ops — there's just overwhelming evidence in reality that actually that’s [voting and collective decision making] is probably not where the value of the DAO is. Unfortunately, in the DAO space, you see a huge amount of attention and resources being put into that aspect.

All the resources of the DAO space should just go to finding the people, figuring out how to have a sensible, normal management team, and aggregating capital to purchase the assets.

This is my biased view of DAOs.

The land bank conversation is possibly this tailor made use-case for a DAO. You have about 250 land banks around the United States and these banks collectively hold thousands and thousands of properties all around America.

Many are in reasonably nice cities. And these properties, generally speaking are some of the worst properties in the city. There’s just no gentle way to describe it.

We Should Buy a Municipal Land Bank with a DAO

They're blighted. They're abandoned. The bank had to reclaim them and then they have tons of back taxes, this kind of stuff. What land banks do? They get these properties, they then try to clear away back taxes and other like barriers and legal issues to getting them on the market.

Often they practically give these things away or sell them at a loss, which is one of the most depressing things possible. You do all this work and then you lose money every single time one of these things gets back on the market. It's crazy.

The challenge with land banks is that you can buy a parcel in Omaha, Nebraska for $200. Now, why haven't you done that? The answer is that owning a single parcel in Omaha, Nebraska that's totally blighted and surrounded by other blighted property is actually not that great of a deal!

It's not that great of an investment. What the land bank wants you to do often as a condition of the purchase is you can't just sit on it. You gotta put it back and build a house on it or open a business on it or whatever.

But, again, the reality is that very few people want to go live out in the middle of blight. No business is gonna be supported because there's no one nearby to go and be a patron of the business.

There's a certain sense in which a barrier to the realization of the value of the assets in the land bank is the ability to kick off a positive feedback loop [of development].

My proposal, which is admittedly a hare-brained idea here, but… I use the example of Omaha, Nebraska. I scraped the database of their parcels and saw that there was a couple million dollars worth of land. Much of it was concentrated in one particular part of Omaha.

Clusters of blighted land bank properties in Omaha.

My thought was, hey, you go to a DAO, you organize a DAO, you go to the Omaha land bank and you say:

“You have $2 million of essentially worthless land. We'll give you 2.3 million if you sell us everything, every single bit of land in your portfolio to this DAO. We'll pay above market to sweeten the deal for you all.”

“But what you [the Land Bank] have to do is you have to help us go to the city and remove zoning and land use restrictions from these parcels — because it's not possible to realize the value that's in these parcels in their current state, which is why they’re sitting blighted for decades in the land bank!”

You make a sweetheart deal. You buy up everything that you possibly can, and then you have the DAO spin off mini DAOS. Anyone in the DAO with an idea for the thing to do can go and lease that land from the DAO and undertake an entrepreneurial project on the parcel.

Even just with the land use restrictions removed, the value of all those assets would immediately increase if you just changed zoning and land use on them. If you got variances for the whole thing, it would immediately become significantly more valuable because of the potential future revenue of the land.

Then you're effectively trying to crowdsource with sensible incentives the owning and operation of the land through the DAO. So that's what you do. Get it all, kick off the positive feedback loop of development.

The actual capital number is not that big. We're talking a couple million dollars to get that land into circulation, assuming you could be persuasive enough with these land banks, which is a whole other thing.

JS: I’m certainly aligned that the best decentralized projects have a very clear plan and vision and then are aggregators of capital.

I do think that the land bank is an awesome example of something we could do. I shared the article that you wrote about that. I recommend users check it out as well. We'll put it in the show notes.

I shared it in the Cabin Discord and it got a lot of enthusiasm and attention. Kudos to you for writing that.

The Comprehensive City Tech Stack

JS: You talked about the common thread of your career being these different social technologies. And then more recently we've been talking about Startup Cities. So what is the comprehensive city tech stack?

We've talked about this at Cabin. In our neighborhood that we have outside of Austin we have 29 acres of land where there's both our hardware tech stack, which includes our prefab cabins and the internet towers and the septic system, but then also the software stack, which is Discord and all of the different ways that we create and retain the community

ZC: I'm a big fan of that article. It’s by John Hillis, right? I like it a lot.

It’s very difficult to define the tech stack for a Startup City simply because a lot of the tech stack is contextual. I would argue that it's almost perfectly analogous to software.

In software there is no universally perfect tech stack for a given company. The technology decisions have to be driven by the use-case.

You could go and build in Texas Hill country and try to be off grid because that's part of the value. The kind of customer that you all seem to be building for I would describe as probably above-average income, above average-education level, tech-oriented, maybe remote job, on the younger side (say, under 45), probably leans small family size, this kind of thing. I'm just guessing.

But based on that, the tech stack that you're going to build is cool modular cabins, beautiful views, that sort of thing. That makes total sense because you're crafting a particular kind of space. You have a lot of people doing knowledge work, deep work?

But how about a person that wants to come and build with a lathe or a carpenter or something? Maybe the carpenter would work. But there's a lot of professions who I think would not translate well to the current Cabin tech stack.

I'm not trying to knock it. I'm just trying to illustrate that the tech stack is reflective of the customer experience you're trying to make.

Building for Flexibility and The Big Dumb Box

ZC: All that said, there are probably some commonalities. For example, the kinds of buildings that you want to build, probably you want to build for flexibility.

For example, industrial space has a bad rap in a lot of cities, because everyone views it as ugly and awful. But an industrial facility is one zoning decision away from becoming luxury lofts or a hip brewery or a co-working space.

In some ways, the buildings that seem to have longevity in a lot of American and also European cities are what some people call “the big dumb box.”

The big dumb box is the traditional vernacular of European urbanism, which is you put the big dumb box and you set it right next to the road. And there's a door that transitions you from road to the big dumb box. And that big dumb box can be in history: a brothel, a textile factory, an apartment building, and now it holds a startup.

So part of the tech stack you could imagine is this vocabulary of physical forms that are built for change.

Another aspect is operational software. Which is again, very boring, but high quality ticketing systems so that you understand how to coordinate people to solve problems. Also RFID.

One of my biggest gripes in real estate, even in luxury apartment buildings… I live in a really nice building here in Denver. But no one that works in the building is ever where I need them! Why are the people not in the right spot?

This is a standard operational difficulty that I, as the customer need a particular person in a particular spot at a particular time. And it just never happens.

Your tech stack should be able to operationalize having people and things in the right place in the right time. And that is again, a very unsexy, basic problem but I think it’s absolutely unavoidable for operating a living environment.

Beyond those broad brush strokes, I think a lot is driven by the individual opportunity. With an individual opportunity, I would be much more opinionated about the details.

JS: Cabin’s industrial prefab brothels coming to you soon! You heard it here first, folks!

ZC: I'll take equity in that one.

*laughter*

Which Projects Have Disappointed? Which Projects are Most Exciting?

JS: I want to lean on your large experience here to ask you which city building project over the last 10 years were you really excited about that didn't quite live up to the expectations. And then conversely, what city building project are you most excited?

ZC: I would say one sad history of the city building space is that there's a massive megaproject graveyard that stretches for decades.

I was never that excited about those.

The thing is, if you are an engineer and you have a technology-oriented mindset, you have an inherent skepticism towards people who think they’re going to waterfall [the project management philosophy] to utopia.

Or that we're just one consulting document away from utopia or something!

I think that’s just crazy. It’s a sad part of the space and where a lot of hopes and dreams have washed ashore and crashed into the rocks of reality.

I would say one body of work that many people in this space don't know about, but should, is the “megaprojects and risk” world of scholarship. In particular, there's an Oxford professor named Bent Flyvbjerg whose last name I can’t pronounce or spell.

He has a wonderful book called Megaprojects and Risk and a paper called “What You Should Know About Megaprojects.” If you just look at the numbers on the performance of these grandiose schemes it's gonna disabuse you of the notion that the super grandiose visionary stuff is the way to go because the outcomes are insane.

It's something like 98% of mega projects underperform by their own standards. On every single metric that they state the numbers are just incontrovertibly crazy. So those things as a class have generally underperformed expectations.

As far as personal disappointment, I was fired up about the first round of reforms in Honduras — the RED reforms which was the predecessor to the current reforms.

I was living in Latin America at the time. I knew a lot of people in this space. We were all just like, this is gonna be huge! It's gonna be so innovative. The reality is that the reform was destroyed and repealed.

And then wave two finally happened. And it looks like this one is also now being destroyed — the jury's out. It's possible that things will survive, but it's certainly much less good than it was even six months ago because of political changes.

I would probably that some of the more ambitious stuff in the charter city space has been a sad disappointment. It's sad because we're not going to be able to see the full scope of innovation that could have been made if those things were given a stable footing for a long time to build the project.

The project that I'm personally the most interested in right now is Ciudad Morazán, which is a project outside of Choloma, Honduras.

It’s really a hybrid. It contains charter city aspects, but the entrepreneur behind it is the creator of one of Latin America's largest pharmacy chains. He’s very much a meatspace entrepreneur, a logistics [and retail] entrepreneur. I was fortunate enough to see some of the design documents and finances and some of the urban plan and to follow the construction closely.

I think he was not only visionary, but he really understood his customer to the point where they actually sent people out into the informal communities — the slums in Choloma — and asked people about their budgets, what they wanted and then built that. I think that’s the thing that's really missing in a lot of Startup Cities projects, it’s a problem of “solutions in search of problems.”

He did not do that. And I admire it. It showed a commitment to the customer. That's really fabulous.

The other company that other people should know more about — well there's really two.

One is Vail Resorts. I live in Colorado. They [Vail Resorts] own and operate Vail. There's a whole interesting history of towns that were essentially built by firms. Many of the firms were essentially startups of their day and they were built around the monetization of a particular natural resource.

No one can possibly call Vail an evil Dickensian company town. It's a ridiculously bougie place that people from all around the world go to.

The other company is Howard Hughes Corporation, which I've only started recently going deep into. They operate communities like The Woodlands in Houston, which has 120,000 people in it — essentially a small city.

Most people don't know about them. They fly under the radar, but they have a very interesting business model and they pursue unsexy platform-oriented urban development. It has worked really well for them. Those are the companies that I'm excited about.

Not so excited about dreamy, utopia-in-the-desert, grandiose things. I just can't get excited about it.

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Thanks for reading and don’t forget: Startups should build cities!