I’m not surprised that Amazon has already ordered a limited TV series based on the events of FTX. The script basically writes itself. It is a true villain story almost made for TV. You sometimes wonder if art imitates life and stories like the FTX can make you doubt the order of inspiration.
If you haven’t been following the FTX story, here’s the tl;dr. FTX was a cryptocurrency exchange who was seen as the “savior” of crypto. They were pushing for regulation, had big names like Tom Brady and Matt Damon promoting them and its founder, SBF, was a media darling. In short, FTX was supposed to be the real deal. In an industry full of scams, they were fighting against evil.
Fast forward to today and FTX has collapsed. It did so in spectacular fashion and nearly overnight. The company is now going through bankruptcy court and it owes billions of dollars to lots of people. The person in charge of the bankruptcy said that he had never seen such a high level of incompetence. This is the same guy that sorted through Enron’s books!
SBF is hanging out in the Bahamas, hoping that he doesn’t get extradited to the US. If Elizabeth Holmes from Theranos got 11 years for defrauding investors, SBF should get some prison time. Only time will tell.
However, my essay today isn’t about the legal issues of FTX. It is about the lessons all companies and individuals can learn from such as public failure. There was a string of bad decisions by seemingly smart people that defies logic. I’m here to help you make sense of them.
You Can’t Outsource Decision-Making
The first lesson is that you can’t outsource your decisions to someone else. Yes, you, the reader. Everyone assumed that someone else had done the due diligence.
Consumers saw Tom Brady and Matt Damon on FTX commercials and thought: “they probably understand FTX and wouldn’t promote something shady”. Investors saw that Sequoia invested in FTX and thought: “Sequoia must have seen the books, FTX must be legit”. Politicians met with SBF and thought: “This guy seems like he knows what is going on, FTX must be the real deal”.
Turns out no one knew what was going on. It was a great game of confidence where everyone outsourced their decisions to someone else but no one actually did the due diligence. Imagine everyone is a dot in the image below. You can’t expect the previous dots to do all the work for you. You have to take responsibility for your dot (or decisions).
Social proof is powerful. FTX should be on the Webster definition page as one of the best examples of social proof. However, it doesn’t excuse the bad decisions. If you’re making a major decision, personal or professional, you need to do the work.
Reasonable Obstacles Shouldn’t Be Surprises
In my second book, I introduced a simple framework for making decisions called the 3 Os. It stands for Outcomes, Options and Obstacles. You can rank different ideas to come up with the best one for each step. It’s really not that complicated.
I want to focus on the last step, obstacles. Every major decision requires thinking through the things that could get in your way. A company thinking of 2023, should have spend some time brainstorming how to handle the following potential obstacles:
- Higher interest rates
- Possible recession
- Continual tight job market
- Possible drop in consumer demand
- Higher consumer sensitivity to prices
- Pushback to in-person office plans
- New supply chain issues
You could come up with other obstacles based on your industry and experience. I don’t expect companies to have answers for all obstacles but they are reasonable and within the margin of possibility. Being surprised by these obstacles is unacceptable. That’s like learning of an earthquake miles from the coast and then being surprised when you see the tsunami wave hours later.
FTX did not think of reasonable obstacles. What would higher interest rates do for crypto prices? What would be the effect of failing coins? Can contagion spread from other companies? These are reasonable obstacles that any team should have seen coming.
Decision Making Cannot Be Ad Hoc
The days of having one person make all the decisions are long gone, despite what Elon Musk might say. You need a process where others can chime in and that outputs good results consistently.
Good times prevent companies from seeing the value of a good process but a good crisis will highlight the lack of one. FTX didn’t have a good decision making process and that was fine as long as interest rates were low and crypto prices stayed high. They were making money hand over first and able to afford big Super Bowl ads. It’s the tough times that require good decisions.
You Don’t Want to be in a TV Show
I love watching TV but I don’t want to be in one. Business executives who find themselves portrayed in TV shows have made the wrong decision somewhere along the way. Their bad decisions are so unbelievable that a TV show had to be made.
FTX had potential but it was brought down by poor decisions. Consumers cannot blame FTX because it was their responsibility to understand the risks. Just because Tom Brady tells you to do something, doesn’t mean you should do it, unless he’s giving you tips on how to throw a football.
FTX won’t be the last crypto meltdown. The industry is full of irrational decision-making, fueled by hype. Consumers beware. As they say, your mileage may vary.