Depending on how you handle failure, it can lead to wonderful learning opportunities. There may be a number of reasons why a company fails. A great strategy to advance a business is to comprehend such reasons and discover how to avoid them in the future. A person's leadership abilities can be greatly impacted by the lessons they learn from failure.
Many leaders can learn from the recent FTX crypto exchange disaster's lessons in order to prevent similar catastrophes in the future. The bankruptcy of FTX, a formerly $32 billion firm, upset and disappointed many investors. Leaders can comprehend what propelled FTX to thrive despite the numerous leadership lessons its demise has provided.
Read on and learn what FTX leaders did well, what they failed to do that brought the disaster and what investors and clients should look at before making an investment decision.
What FTX Executives Did Right
Professional traders, including CEO Sam Bankman-Fried, founded FXT in 2019. The cryptocurrency exchange had grown into a global behemoth offering a variety of crypto services over a short period of time. Its success can be attributed to the company's executives, who fueled the exchange with their knowledge. What the leaders accomplished well was as follows:
Managed a disruptive platform for a new market: Leaders of FTX were able to create solutions that let anyone transport, store, and manage their money on a peer-to-peer basis. One of the biggest cryptocurrency exchanges in the world prior to its bankruptcy was FTX. FTX provided a great assortment of stocks and NFTs, as well as competitive trading fees, under the direction of the company's management.
FTX leaders were able to draw the typical investor to their platform despite the fact that cryptocurrency is a young business that has encountered many difficulties. Sam Bankman-Fried, the CEO of FTX, invested in various conventional stock markets and supported other cryptocurrency businesses that were set to fail. The business was well-known for its heavily leveraged products, cutting-edge derivatives contracts, and token listings.
Convinced investors they were experts: Persuading and inspiring others to perform a particular action is one of the most impressive abilities leaders possess. Leadership credibility, which results from established connections and knowledge, is necessary for persuasion. A leader must be knowledgeable about the details of the issue they are persuading others about in order to establish competence.
Leaders of FTX persuaded traders and investors that they were industry pioneers and specialists. They developed a disruptive platform that met their needs because they were aware of their target audience. The FTX CEO helped the cryptocurrency sector by lending a hand to struggling cryptocurrency businesses. He also gained notoriety for his charitable contributions, which aided the business in developing its connections.
Had charismatic leaders with compelling marketing messages: Leaders who are charismatic are renowned for their charm, ability to connect with others, and persuasiveness. Particularly with high-end firms and other value investors, they are more concerned with developing deeper connections with others.
The dynamic leaders of FTX employed their imagination to craft potent marketing messaging. In just three years, their marketing tactics propelled the business to billions. Their marketing arguments persuaded average traders to think about using FTX as their crypto exchange. Its advertising campaign featured:
- A Super Bowl ad
- Buying naming rights to the Miami Heat basketball team home
- Getting involved in donations and political lobbying
What the FTX Executives Did Terribly
In only three years of operation, the leader's aggressive marketing, name rights purchases, Super Bowl commercials, political donations, and lobbying helped FTX grow to become one of the biggest cryptocurrency exchanges. Leaders of FTX helped to facilitate bail-out deals for over a billion dollars while other cryptocurrency startups were having trouble with falling token prices.
The company's officials attempted to reassure investors of its stability when it began to experience a liquidity issue and value decline, but it collapsed within ten days.
By modifying key business concepts and drawing on current research and market forecasts, the crypto company's leadership could have avoided the catastrophe.
During the crisis, FTX leaders acted irrationally and panicked as a result of a number of issues, including:
Overconfidence: Leaders must be vigilant in the face of impending calamity and take into account how the prevailing unfavorable factors may conflict with their primary goals. You become a strong leader when you are confident, and it gives you the necessary perspective for a more extraordinary outlook.
Overconfidence among leaders, however, is a dangerous tendency in the face of catastrophe. Because of the fast increase in prices and market capitalization of the instruments, many crypto leaders are sometimes accused of being overconfident. Due to their overconfidence, FTX officials assured investors of a rebound before considering their risk tolerance and exposure to failure.
Lack of experience: Experience is a prerequisite for business leadership. The FTX leaders had to put in place the required mechanisms to handle a company and investments of this size. The leadership team was made up of inexperienced people who lacked any managerial or business experience. They emerged as leaders who need greater financial controls and scrutiny due to their lack of knowledge with investor fund management norms.
Failure to use effective technological systems:Businesses must employ the newest software development tools and technologies, including cloud services, to run their core operations and store customer data in a world where technology is advancing quickly.
Leaders at FTX should have used technological methods to manage and protect investors' data and funds. For example, it was regrettable that the executives relied on QuickBooks to run a multi-billion dollar business.
What Customers and Investors Should Care About
Learning is essential in every entrepreneurial setting. Understanding the most important takeaways from failure is especially crucial for improving performance. Clients, investors, and other stakeholders should concentrate on comprehending management and risk exposure when investing, including:
The CEO: The CEO is an essential and key figure in the growth of every investment company. While the FTX accident may have been caused by inexperienced leadership, a risk manager should be able to recover quickly and be resilient. It guarantees that they pick themselves up after failure, fit the puzzle pieces together, and create a recovery strategy.
Corporate governance: Experienced executives with astute business acumen are created via years of intensive research and failure-based learning. It promotes good corporate governance and demonstrates that leaders have learned from failures and are aware of the fundamentals of developing a crisis recovery strategy.
Such executives can build the required oversight to safeguard clients and investors thanks to the talents they've acquired throughout the years.
Experience: High academic achievements may supplement the fundamental abilities required to run a firm, but experience sets a leader apart and helps them perform well even under pressure. Customers and investors should focus more on the business managers' competence to better measure their return on investments (ROI).
Before to entrusting the leaders with their investments, stakeholders can better comprehend the leaders' experiences by focusing on this.
What the future holds for investors in the quickly evolving corporate sector is still up for debate. As technology develops, new businesses like blockchain and bitcoin emerge. Each and every stakeholder must continually be reminded of the advantages, dangers, governance, and recovery frameworks present in such setups. Resilience, oversight, fundamental management concepts, such as experience and acceptance of the most recent financial technology, particularly in software development, and a desire to learn and improve while being guided by experts should also be included.