The end of 2022 has been an incredibly chaotic time in the world of tech. The total collapse of FTX, a hot crypto exchange company worth $32 billion, and Elon Musk’s tumultuous Twitter takeover have been dominating the headlines. It seems that FTX and Twitter are everywhere.
At Chop Dawg, we like to look at events like these and ask what new entrepreneurs and young startups can learn from the trials and mistakes of larger companies.
After all, while many people enjoy drama, it is true that any company at any level can succeed or fail and there is always something valuable to learn in any situation.
Let’s take a look!
The Shocking FTX Crash
To many, it seems that FTX went from being a crypto powerhouse to a bankrupt company overnight. We still do not know all of the details of what exactly went wrong, and we won’t until there is further federal investigation.
Here is what we know so far of what exactly went wrong with the Bahamas-based FTX, according to the New York Times.
FTX let people and companies buy and sell digital currencies, holding billions of dollars’ worth of customer deposits. FTX’s founder, Sam Bankman-Fried, also created an investment fund that trades cryptocurrencies called Alameda Research. The businesses were supposed to be separate, but this year, Alameda needed cash and apparently dipped into FTX’s customer deposits. Then, this month, FTX customers became worried about their deposits and rushed to withdraw them, setting off a bank run and pushing FTX into bankruptcy.
It’s no secret that actions like these are highly illegal. Even if one person owns two separate businesses, they cannot legally comingle their funds. This could lead to criminal fraud charges and lawsuits for Sam Bankman-Fried.
This entire situation is important to take note of for several reasons. It is attached to broader Tech industy trends as fears of recession loom.
Will Regulation Finally Catch Up To Crypto?
Many crypto evangelists say that one of the main pros of crypto is that it’s not regulated by governments or tied to any kind of central bank. They say this gives users more freedom and autonomy outside of deeply flawed government agencies.
While this is true, the complete lack of regulation can also lead to significant problems for investors. Crypto is an incredibly high-risk speculative investment with absolutely no fail safes.
This can prove disastrous for the majority of people on earth, who do not have any extra capital to risk in the first place. Hacks can’t be reversed and if your money is stolen or lost it’s gone for good.
While traditional investing comes with legal protections for investors, crypto does not. For example, if a bank fails, the government can step in and bail it out. In the case of FTX, there is no bailout.
In the case of FTX, founder Sam Bankman-Fried made a point of trying to garner the trust of the public and legitimize crypto. He appeared in magazines, invested in philanthropy, rubbed shoulders with politicians, and even sponsored a sports arena in Miami.
Because of how high profile the FTX founder was, all while possibly doing illegal things behind the scenes, many are wondering if this will finally be what leads to the government regulating crypto.
Chaos at Twitter Under Elon Musk
We have already covered Musk’s first few days at Twitter on the blog! You can find that here if you want to catch up. However, it has to be said that it seems that almost every hour new dramatic news comes out.
In fact, so much has happened so fast, and there has been so much controversy, that it would be difficult to keep up with it all.
In the last day or so, it seems that almost everyone is leaving Twitter. Large numbers of employees have left the platform and Musk himself reportedly wants to step down as CEO.
There has recently been a mass exodus of employees from Twitter after Elon Musk sent out an ultimatum. The remaining employees need to be ‘hardcore’ or get out. In an email obtained by CNN he told employees:
“Going forward, to build a breakthrough Twitter 2.0 and succeed in an increasingly competitive world, we will need to be extremely hardcore,” Musk wrote in the memo. “This will mean working long hours at high intensity. Only exceptional performance will constitute a passing grade.”
In the email, he included an online form. He told employees to click yes if they want to stay. Hundreds have chosen to leave.
This is not surprising, as Musk has clashed with employees after firing thousands of people and trying to change the entire work culture of the company in less than a month.
Also, he has so far not been receptive to ideas from the Twitter team, with disastrous results. For example, he was cautioned by the team at Twitter to not launch Twitter Blue, which lets anyone buy verification for $8.
He ignored their warnings, and Twitter has become a wild west of impersonation and lost a lot of its revenue, which comes from corporate advertisers. These major companies no longer want to advertise there.
It has been speculated that most of the workers left at Twitter are foreign nationals on work visas, who cannot quit so easily.
Elon Musk Himself Wants to Leave Twitter as CEO?
Elon Musk is currently the CEO of 3 companies. This includes:
- SpaceX
- Tesla
He is also involved in several other companies he founded, like Neuralink, OpenAI, and the Boring Company.
However, he recently publicly stated that he “doesn’t want to be the CEO of any company.”
Musk said this in testimony at a trial this week. According to The Verge:
The trial, which kicked off Monday, is focused on whether Tesla’s board acted appropriately when it approved a pay package for Musk that is now worth about $52 billion at recent share prices and whether Musk had any undue influence over that decision.
At the trial, Musk said that over time he plans to reduce his time at Twitter and then find someone to replace him as CEO entirely. He eventually may even appoint a successor as the CEO of Tesla.
At present, the future of Twitter is uncertain. Thousands of employees have either been fired or quit, and the CEO himself is already planning his exit.
Financial Fears Have Rocked Tech, including FTX and Twitter
In general, right now, downturn fears have had large impacts across the entire tech industry. This includes everyone from crypto startups to established giants like Amazon. FTX and Twitter are not immune.
Many are comparing Bankman-Fried to Bernie Madoff, whose infamous Ponzi scheme collapsed during the 08 financial crash. FTX has collapsed during a time of uncertainty for the entire tech industry.
According to The New York Times:
Tech stocks have crashed. Venture capital funding is drying up. Nearly 800 tech companies have laid off more than 120,000 workers this year, with cuts hitting Meta, Amazon and Twitter.
While Twitter undoubtedly had the most chaotic and highly publicized layoffs of all the tech companies, the company is not alone. Major players and silicon valley darlings alike have all downsized and possibly even closed their doors for good.
What has led to this? Well, for many years, interest rates were low. This forced investors looking to make gains into more speculative avenues like venture capital and crypto. Now that interest rates are rising again, there is less need to take such risks.
At present, FTX’s bankruptcy filings list more than a million creditors. This will have wide implications and likely also make more people and institutions less likely to trust in crypto as well.
Marcia Wagner, founder of the Wagner Law Group, a firm focused on employee benefits, told the New York Times:
“Investment managers that dabbled in crypto should really be considering whether they should have relatively new, relatively unproven, relatively unregulated assets in their retirement plans.”
Final Thoughts on What Startups Can Learn from FTX and Twitter
In these situations, we really see that no company is ever too big to fail or have problems. All are influenced by the market conditions, as well as the general economy. All of these things are outside of the control of individuals.
In general, it is good to take a measured and humble approach. At this time at least, it appears that Elon Musk has bitten off far more than he can chew with Twitter. As a result, thousands of people have lost their livelihoods.
His Twitter takeover has also resulted in chaos for companies, many of which use it for advertising and promotion, and users in general.
In the case of FTX, in which crimes may have been committed, it is important not to be swept away in the hype surrounding new technologies. Maintaining healthy skepticism at times may save your startup from failure.
What do you think of all of this? Comment below.
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