What managers can learn from the FTX Crypto Exchange disaster

Failure can provide great learning experiences, depending on how you handle it. When a business collapses, it can be due to several factors. Understanding these factors and learning how to avoid them in the future is an excellent way to drive a business forward. Lessons learned from mistakes can have a profound impact on a person’s leadership skills.

The recent FTX encryption disaster has brought several lessons that many managers can use to avoid future mistakes. FTX, once a $32 billion company, collapsed, leaving many investors devastated and disappointed. But despite the many management lessons that the collapse has brought with it, managers can also understand what caused FTX to rise.

Read on and learn what FTX managers did well, what they failed to do that brought disaster, and what investors and clients should look for before making an investment decision.

Related: FTX Meltdown Tanks Crypto Ecosystem and Customers Wallets

What FTX leaders did well

FXT was established in 2019 by professional traders, including CEO Sam Bankman-Fried. Within a few years, the crypto exchange had become a worldwide behemoth offering various crypto services. Its success can be credited to the company’s executives, who used their expertise to drive the exchange. Here’s what the leaders did well:

Managed a disruptive platform for a new market:

FTX leaders were able to build solutions that enable anyone to move, store and manage their assets and wealth peer to peer. Before the collapse, FTX was one of the largest crypto exchanges in the world. Through the company’s management, FTX offered competitive trading fees and an amazing selection of NFTs and stocks.

Although crypto is a new market that has faced many controversies, FTX executives managed to attract the average investor to their platform. FTX CEO Sam Bankman-Fried stopped other crypto companies from collapsing and invested in more traditional stock markets. The company was known for its highly leveraged products, innovative derivative contracts and token listings.

Convinced investors that they were experts:

One of the most remarkable skills leaders possess is persuading and encouraging others to take a specific action. Persuasion requires leadership credibility, which comes from built relationships and expertise. In order for a manager to establish competence, they must be informed about what they are persuading others about.

FTX executives convinced the investors and traders that they were experts and pioneers in the industry. They understood their audience and built a disruptive platform that fit their needs. The FTX boss supported the crypto industry by bailing out struggling cryptocurrency companies and became known for his donations, which helped the company build relationships.

Had charismatic leaders with compelling marketing messages:

Charismatic leaders are known for their persuasiveness, interpersonal connection, charm and ability to motivate others. They are more focused on building relationships and connecting with others on a deeper level, especially advanced organizations and other value investors.

FTX had charismatic leaders who used their creativity to develop compelling marketing messages. Their marketing strategies skyrocketed the company into billions in just three years. Their marketing messages were convincing enough to convince regular traders to consider FTX as their crypto exchange. The marketing campaign included:

Related: After FTX crash, Kevin O’Leary says your assets are safest here

What the leaders in FTX did NOT do well

In just three years after its launch, FTX became one of the largest crypto exchanges following its leader’s aggressive marketing, buying naming rights, Super Bowl campaigns, political donations and lobbying. As other crypto companies struggled with falling token prices, FTX executives facilitated over a billion dollar bailouts.

But when the company began to experience a liquidity crisis and drop in value, the managers tried to reassure investors of its stability, but the collapse occurred within ten days.

The management of the crypto company would have averted the disaster by moderating basic business principles and building on existing research and market outlook.

After the crisis, FTX managers panicked and made poor decisions due to a combination of several factors including:

Over courage:

In the face of a looming disaster, leaders must be vigilant and consider how the prevailing adverse elements may go against their core goals. Confidence makes you a strong leader and provides the critical perspective for a more extraordinary view.

But when leaders become overconfident, it’s a risky bias in the face of disaster. Many crypto leaders are often labeled as overconfident, mainly due to the sudden rise in price and market capitalization of the instruments. FTX managers’ overconfidence led them to reassure investors of recovery without analyzing their risk appetite and exposure to failure.

Lack of experience:

An important requirement for business leadership is experience. The FTX managers needed to implement the necessary systems to manage a business and investments of this magnitude. The management consisted of inexperienced people with no previous business or management skills. Their inexperience with the management protocols of the investor funds brought forward managers who needed more financial control and oversight.

Lack of use of effective technological systems:

In a world of rapid technological advancements, businesses must adopt the latest software development systems and products, such as cloud services, to run core business and hold client data.

FTX managers should have incorporated technological systems that help manage and protect investors’ data and funds. For example, it was unfortunate that executives relied on QuickBooks to manage a multi-billion dollar company.

Related: How to become a better leader through a crisis

What customers and investors should look at

Learning in any entrepreneurial setup is important. Analyzing key lessons from failures is particularly important to improving the experience. When investing, clients, investors and other stakeholders should focus on understanding the management and risk exposure, including:

CEO:

In every investment company, the managing director is a critical and core player in business development. While the FTX disaster can be traced back to management experience, a risk manager should have the ability to bounce back and be resilient. It ensures they learn quickly from mistakes, put the pieces together and develop a recovery plan.

Corporate governance:

Years of extensive research and learning from failure build experienced leaders with shrewd business acumen. It helps corporate governance and shows that managers have learned from setbacks and understand the principles of building a recovery plan in a crisis.

The skills learned over the years help such managers develop the necessary oversight to protect investors and clients.

Experience:

Top academic performance can add to the basic skills needed to run a business, but experience makes a leader stand out and excel even in a crisis. Customers and investors should focus more on the expertise of business leaders to better measure return on investment (ROI).

Focusing on this helps stakeholders understand what good and bad business challenges the executives worked through before entrusting them with their investments.

In the fast-moving business world, what the future holds for investors is still being decided. As technology evolves, it brings new ventures such as blockchain and cryptocurrency. All stakeholders must have a constantly renewed awareness of the benefits, risks, governance and recovery framework established in such setups. It should also include resilience, oversight, core management principles such as experience and use of the latest financial technology, particularly in software development, and an eagerness to learn and grow under expert guidance.