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Six months ago I stumbled on an article about a crypto billionaire who doesn’t wear shoes, cohabits with his colleagues, and is saving the world through mega-philanthropy. My immediate reaction was to call a friend and tell him that the founder, Sam Bankman-Fried, would fail.
I know, I should have written this article then — or better yet put my money where my mouth is and shorted his company, FTX — but the article struck a nerve in me because I’ve seen this movie before.
After spending the years post-2008 investigating the cultures of the world’s largest finance companies, I founded my own crypto company in 2017 — around the same time Bankman-Fried (who goes by SBF) founded his.
Having early access to the industry put me in close contact with many crypto billionaires and OGs. I saw the same trends in them that I did in the banks in 2009. By 2018 my own crypto company was floundering and I wrote this frustrated and clumsy year-in-review on CoinDesk where I called out the blockchain industry for being “culturally broken” and heading for disaster if it didn’t change.
When I heard SBF had exploded his $32 billion company so spectacularly the shockwaves will be felt through all of crypto for years, my only surprise was that anyone else was surprised.
While most of the narrative will continue to be on who SBF was and what he did, and secondarily how crypto is of the devil, I’m much more interested in what happened around him to cause this.
Contrary to the narrative, SBF didn’t act on his own on the way up, so why do we all pretend he did? Why did none of his employees see it coming? What prompted a partner at Sequoia, one of the world’s oldest and most venerable VCs, to not only let this guy through the gate, but to proclaim “I love this founder!” (They have since taken their puff-piece about him off their website).
How did the human race get to a world in 2022 where the biggest companies still hire people that can’t read a room — which could be said about SBF and, apparently, the Sequoia team that wired him $210m along with others who ponied up a total of $2b — or perhaps worse, just don’t want to?
What happened?
The rise and fall of the acronyms (SBF and FTX) has been well documented and will be picked over for a long time. I’m sure a Netflix series is already in the works. In a nutshell:
SBF graduated from MIT in physics and became a “typical” quant trader at Jane Street, a quantitative trading firm
He founded Alameda Research, a crypto trading company, in 2017 and FTX, a digital exchange, in 2019 (Wall Street would not allow one entity to do both without a serious wall between the two, but crypto is unregulated)
By 2019 SBF was being widely hailed as the biggest thing in crypto, a rare genius who was saving the industry. FTX was valued at $32b, with investors including Sequoia and Binance. SBF was personally worth $16b and became the richest human under 30 since Zuckerberg
The founder of Binance, the world’s largest exchange, triggered a liquidity run on FTX by tweeting concerns and withdrawing hundreds of millions of dollars from a FTX crypto token described as “worthless”
The ensuing run exposed the fact that SBF has been using hundreds of millions of dollars of FTX customer money without their knowledge to cover bets at Alameda Capital, his other company, run by his sometimes girlfriend, Caroline Ellison
Our emotions crave heroes
The simple narrative is that crypto is to blame, but crypto has endured bigger villains and worse downturns. It’s not as if crypto was a paragon of virtue before this. Wall Street villains have also done much the same in the past.
I see the main issue here is the cult of the CEO: the same cult that has given us leaders like Elizabeth Holmes of Theranos (who was just sentenced to 11 years in prison for fraud), Adam and Rebekah Neumann of WeWork, and others. This is not the first time it has happened it sure as hell won’t be the last.
Our brains are wired to look for heroes, to look for meaning and belonging, and to simplify the complexity of the world around us. We love heroes because they show us a pathway and inspire us. If a nerdy kid can make $16b, maybe I can too.
(We love villains perhaps even more because they prove we were right all along and it’s not really worth trying. Which is why SBF is more famous as a villain than he ever would have been as a hero. Your brain can tell you that you were right to give up on your dream and watch more Netflix. Good for you! May I suggest Inventing Anna or The Dropout for your next binge.)
Modern media exacerbates this problem by focusing on point-in-time events over trends. Not because modern media is evil (although it might be), but because that’s what their customer’s brains crave.
Savvy entrepreneurs, adept at hacking the human brain’s emotional responses at scale, have become quite good at playing this confidence game. Hacking into pattern recognition and romanticism. Oh look, it’s another curly-haired awkward genius from an Ivy League school, must be another Zuckerberg. Let’s pile in. It makes sense that some would be successful.
There’s more luck in success than we would like
After working with hundreds of startups I believe entrepreneurship lies somewhere on a continuum between might and luck.
The might model says that founders succeed where others fail because they are just the best humans around. In this model entrepreneurs are akin to pro golfers. The result is totally in their own hands. Adherents of the might model study founders’ every move—from what they ate for breakfast to what they wear in the office and everything in between. It’s a loud cult, vocal on LinkedIn and Reddit where impressionable young executives are blooded.
At the other extreme is the luck model where the best founder is just the luckiest —the last one standing, or the one in the right place at the right time. In this model, entrepreneurs are more like B-52 bombers. One by one they will all get shot down and the last one standing wins. But there was no heroic skill from individual pilots above the rote technical tasks of taking off and flying to coordinates. The best anyone could do was fly in a straight line. The media, founders, and influencers don’t like to talk about this type of entrepreneurship because it’s not very interesting. It doesn’t arouse our business passion.
Of course, reality lies somewhere between these two extremes, but the longer I have been in this industry, the more I lean towards luck being a much stronger force than we give it credit for. Don’t believe me? VCs do. VCs have built their entire industry around the fact that most startups fail no matter how savvy the founders, and yet somehow the hero model persists in our romantic minds as the most dominant force.
We can see this in the crypto community by the fact that over 300 exchanges have gone out of business since the first, MtGox, was famously hacked in 2014.
You have toxic people who rode their luck straight into your organization
At the start of this article I hinted that we’d find applicable lessons. Something more useful than “don’t be a conceited billionaire,” which is a lesson that unfortunately applies to all too few of us. Of course, the only thing better than being a billionaire is seeing actual billionaires fail, but there’s still so much more we can apply here to our own careers and companies.
One important lesson is that because we 1) love heroes and set people up all the time to be one even if they don’t deserve it, and 2) underestimate the role of luck in breakout success, we end up with 29-year-olds who’ve barely ever had one job managing a team of 300 people and billions of dollars of other people’s money.
If that’s true, it’s also safe to assume that they can be found all around us, if just on a smaller scale.
While the billion-dollar heroes live in telltale hubris bubbles that should be a complete giveaway by now to anyone paying attention, more mundane disasters-in-the-making can still be spotted. It was these same signs that scared the hell out of me when I first read about SBF earlier this year. These self-perpetuating tells live on a continuum from insane ambition and huge blindspots to outright delusion, like modern-day mad kings.
Such individuals are given stealth shields by our shared fallacy that the richest person in a free market is also the smartest and has their act together in every realm of life. They should never be questioned.
Perhaps this used to be true in the days when it took 20 or 30 years to become a self-made man. But it’s different in a world where you can make billions overnight if you show a flicker of talent in the exact right place at the exact right time.
I’ve seen the same telltale signs of delusion and brashness in CEOs of tech and finance companies all over the world, as well as trading floors, marketing departments, and leading product and sales teams.
These individuals congregate near power — almost always revenue — I think partly because they want to be there, but mostly because they’re safe there. Remember, it’s often a string of luck despite their own capabilities that causes them to rise in the first place. Once you have a salesperson, for instance, that’s responsible for 30% of the company’s growth, there are a lot of unsavory behaviors you might be willing to overlook. See the sad story of Travis Kalanick, the toxic founder of Uber, for a textbook example.
It gets worse: your company likely promotes this behavior
Of course toxic coworkers are all around us. If you asked a room full of workers from any company who the a-hole is, they’d all point in the same direction. All too often they’d be pointing at someone in the executive suite.
If I haven’t said enough to keep you up tonight, here’s one last thought: your organization is set up to promote these people. Why? Because most reviews are based on results, not likeability. The modern workplace is generally a meritocracy, which means we promote those who get the job done, no matter if we like them or not.
Is it any wonder that the senior ranks fill with those assured of their own greatness?
Luckily, the solution is very simple
They say knowledge is power, and in this case it’s true. The best solution to this is to be aware of our own in-born biases. These are not merely social, they’re physiological — they come from our very brain chemistry. We love heroes. We love people who are brash and certain in an uncertain world.
We all know about survivorship bias and the Dunning-Kruger effect by now.
We just need to remember that if someone is certain where everyone else is cautious, one reason could be that they are a singularly gifted genius, but it’s much, much more likely they are a complete fucking moron.
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