Have you ever heard that the human body is capable of putting a lightbulb or billiard ball in its mouth, but can’t remove it? Have you ever seen a wet paint sign on a bench? Have you ever been told specifically and repeatedly not to press a button whilst on a submarine on a school trip to Chatham Dockyard that you were only allowed on if you super pinky promised to be on your best behaviour?
And what was your first thought when this happened? Well, like the malfunctioning robot made of electricity and meat that you are, you instantly wanted to do that thing.
We are sometimes really really bad as a species at knowing what is good or bad for us, and, according to my local A&E who have successfully removed 25 billiard balls from my mouth, incredibly likely to repeat our own mistakes.
I’ll start getting to my main point now because billiard balls are moreish and I’ve got a hankering I need to indulge, I was listening to a old podcast yesterday on the downfall of Sam Bankman-Fried and FTX, and it got me thinking about trust heuristics and certain archetypes of person that we are drawn to.
Why is it that we drop our guard for a charismatic CEO, regardless of the 9000 times we have been duped before, and lack of clarity over exactly what, if anything, they are selling? Well let’s zoom in on the SBF debacle to get a clearer picture.
If you don’t know or have forgotten the absolute calamity that was SBF’s FTX, I can give you a quick rundown of exactly what went down, because it would be quite mean to leave you behind, especially as you made it this far without having a scooby what was happening, you absolute trooper.
Sam Bankman-Fried was a highly educated, effective altruist, vegan who founded a cryptocurrency derivatives exchange called FTX. FTX quickly grew to become the third largest exchange of its kind in the world, with over a million users. He also founded a hedge fund called Alameda Research, which is very important as it is alleged that SBF allowed this hedge fund to access FTX customer funds to trade with, resulting in a lack of liquidity for FTX, or to put it into layman's terms, they lost all our cash and were only pretending to have it by painting a $ on a sack like in the cartoons.
Another big problem was that a large part of Alameda’s holdings were in a crypto token called FTT, which was the official token of FTX, meaning that if FTX struggled and it’s token lost value, so did large swathes of Alameda’s holdings, which would force them to sell it off, resulting in more decreased value, and so on and so on until a death spiral emerged, which I shouldn’t have to tell you is a bad thing.
This alleged fraud came to an end when the CEO of Binance, the largest crypto exchange in the world, Changpeng Zhao, publicly announced their decision to sell all their FTT token, triggering what would amount to a bank run on FTX, if FTX were a bank and you could physically run to it. This led to everyone trying to take their money out from FTX, realising the sacks with the $ were filled with sawdust and the whole deck of cards collapsed and SBF ended up in a Bahamian jail, which sounds like a cocktail but in reality is much much less fun.
There you go, you’re pretty much caught up and you didn’t even have to read any crypto guy tweets! But why was this case so interesting? It seems like your run of the mill, corporate white dude does an Enron situation, but that’s not all of it, because before the entire thing fell apart like a candy floss urinal, people loved SBF…
In fact, they loved him so much that they wrote puff piece after puff piece about him, lauding him with compliments like “the next Warren Buffett” and “not bad for a vegan”. Forbes put him on the cover of their magazine and he was considered to be a crypto genius, like if Plato and Steve Jobs had a baby that looked nothing like either of them and was really into flip flops and securities fraud.
And this adulation meant that his $32 billion downfall came as such a systemic shock. But why?
He didn’t have a tonne of experience, he moved his company to the Bahamas at the first sniff of regulatory investigation and the person he appointed to run his trading firm was A) his girlfriend and B) openly not that jazzed about the concept of using maths when it came to handling billions of dollars.
The warning signs were there.
The reason we loved SBF was that we love a confident, brash, preferably young CEO taking on an old, stuffy, usually faceless establishment. We love them so much that collectively, receivers of the Forbes 30-under-30 recognition have raised $5.3 billion dollars in funding.
If you’re struggling to picture what I mean when I reference this archetype, just think of the film The Social Network, which I am doing about 12% of my waking hours. In that, Jesse Eisenberg does an expert job at capturing the counterculture, arrogant CEO archetype perfectly, and at points makes you root for a guy who made an app designed to rank women on their hotness.
The archetype of the roguish CEO is just so compelling because sometimes, just sometimes, these people change the world.
Everything that we liked about SBF and Holmes and Javice were qualities also shared with Jobs, Wozniak, Zuckerberg and Musk.
To do the big and disruptive things that these founders claim to be doing or have done, you need to be a little bit different from the general populace. These people are by very definition, charismatic outsiders. And that leaves a hell of a lot of wiggle room for fraudsters to manoeuvre.
We are conditioned to accept that founders, inventors and disruptors are these counter-culture heroes who don’t let things like doubters stop them, be it short sellers, the incumbent establishment or government bodies dedicated to preventing consumers from receiving faulty blood tests.
So what’s the harm in our worshipping of these modern day Hercules?
Did you know that mere months after crashing out of WeWork spectacularly and very publicly, Adam Neumann managed to raise over $350 million in funding for his new venture, Flow?
Do you want to know why?
Because certain people know how to play archetypes, not business.
Adam Neumann is a genius fundraiser, because he knows exactly how to market himself to investors and play the correct role to garner attention and funding. I mean, listen to him trying to explain Flow and you tell me if you’d sign over enough money to build a swimming pool full of money like Scrooge McDuck?
We fall for this constantly. Rest assured, there is another Holmes, Bankman-Fried or Javice around the corner, because we will take the L if it means the chance to get the W of backing the next Jobs, even if it means pouring the GDP of a developing nation down the drain.
And the fact we fall for this allows for monumental levels of scamming. Remember the Forbes 30-under-30 I mentioned earlier? Well, they have actually collectively been involved in more than $18.5B in scams and frauds.
Trusting the CEO archetype too much means that we put our better judgement to one side and forget basic business fundamentals like “does the product work?” and “can we prove the product works without having the CEO present in the room suspiciously fiddling with some dials that surely has nothing to do with us testing the product”.
In the tech industry we need to overcome the allure of the charismatic founder, and instead focus on the product they are peddling. When FTX was dismantled all that was found was heaps on heaps of fraud and deceit. When you dismantle an iPhone, you find quality craftsmanship throughout. That’s the difference. Not the flashy conferences, but the thing that goes into the hands of the user.
Focus on what people make, not what they say they’ve made or are going to make, and as an industry, we’ll be way better off.