March 27, 2023 • 32min
Untold lessons from the SVB bank run
Pattern Breakers
Key Takeaways
- Scenario planning is crucial during a crisis - identify potential outcomes, map out options within your control, and plan responses for each scenario
- Financial agility is key - have multiple bank accounts, pre-wire connections between accounts, and be ready to move quickly
- Effective crisis communication involves:
- Over-communicating and not hiding information
- Being radically transparent about what you know and don't know
- Focusing on facts without spin
- Being radically human and addressing people personally
- Keeping the team focused on moving forward
- Great founders turn crises into advantages by learning and improving for next time
- Having a crisis communication plan in place beforehand allows for more confident and precise action
- Founders should focus on product-market fit while creating conditions for financial resilience
Introduction
In this episode of the Pattern Breakers podcast, host Mike Maples Jr. and Floodgate partner Ann Miura-Ko discuss key learnings from the recent Silicon Valley Bank (SVB) crisis. They explore how founders demonstrated remarkable courage, focus and competence behind the scenes, despite the chaos and finger-pointing happening publicly. The episode aims to extract valuable lessons on crisis management, financial planning, and communication that can help founders be better prepared for future challenges.
Topics Discussed
The SVB Crisis and Founder Reactions (00:00)
Ann Miura-Ko reflects on the stark contrast between the public discourse on social media and the reality she witnessed working directly with founders during the crisis:
- While there was chaos and blame on Twitter, founders were demonstrating "courageous decision making" and "incredible competence"
- The crisis revealed the true character of founders and reinforced Ann's excitement about working with them
- It highlighted how "greatness is a decision" as founders rose to the occasion
"There's sort of the whole world you could see on Twitter and WhatsApp groups. And then there was this separate reality I was living with my founders, and the founders that I got to work with were demonstrating such courageous decision making, such incredible competence." - Ann Miura-Ko
Case Study: Michael Gao of SmarterDx (05:59)
Ann discusses how Michael Gao, CEO of SmarterDx, exemplified great contingency planning:
- Reached out early Saturday morning to assess the situation
- Quickly developed day-by-day cash forecasts and impact analyses
- Created emergency scenarios for different timelines of cash access
- Analyzed impact on growth vs. investment decisions
"He came back to us not with questions, but with scenarios and specifics about what the situation was. And so there was a proper level of paranoia, but not a lot of hand wringing." - Ann Miura-Ko
Michael Gao's Perspective on Crisis Management (07:25)
Michael Gao shares his approach to handling the SVB crisis:
- Evaluated what was known vs. unknown about the situation
- Created scenarios for different levels of deposit recovery (e.g. 30% in 2 weeks, 70% held up longer)
- Analyzed company fundamentals to determine bare minimum needs
- Broke down criticality of different business functions
"I think boiling down the numbers to those different layers of criticality was actually a really good way to understand the business more broadly." - Michael Gao
Key Learnings on Financial Agility (18:36)
Mike and Ann discuss important takeaways on financial preparedness:
- Have multiple bank accounts - 2-3 accounts including one major bank
- Separate operational and excess cash to diversify risk
- Pre-wire connections between banks to enable rapid money movement
- Test transfers periodically to ensure smooth processes
- Balance risk mitigation with reasonable expectations for founders
"You want to be in a position where you can just instantly react. If you want to move money from point A to point B, the wiring instructions are available. You've tested it in the past, but you just spring into action." - Mike Maples Jr.
Crisis Communication Strategies (22:29)
The hosts bring on crisis communication expert Christopher Lochhead to discuss effective strategies:
- Over-communicate, don't hide - silence breeds assumptions
- Be radically transparent about what you know and don't know
- Focus on facts without spin - "no whipped cream on the dogshit"
- Be radically human - remember business is personal
- Keep going - maintain forward momentum
"We're going to be radically transparent, and we're going to communicate radically, because if you don't communicate, people assume bad things, and it is far more powerful to say, this is exactly what we know." - Christopher Lochhead
Challenges of Crisis Leadership (26:31)
Christopher Lochhead discusses the difficulties leaders face in crisis situations:
- Crisis reveals and builds character - leaders must decide what kind of leader they'll be
- Consider how actions will be perceived in hindsight (30-50 years later)
- Put yourself in the shoes of information receivers
- Expect some team members to "melt" under pressure
- There may be moments where success seems impossible - keep going anyway
"Expect that certain people, often people that you'd never expect will melt. I've seen some of the most high powered, big names in Silicon Valley, big, tough executives in the room. When it happens, you look at them and they just kind of collapse and they're done." - Christopher Lochhead
Being "Radically Human" in Crisis Communication (29:09)
Christopher Lochhead expands on the concept of being "radically human":
- Recognize that business is deeply personal for many people
- Understand the impact on livelihoods and families
- Practice servant leadership - focus on others' needs
- Avoid any spin when discussing difficult situations
- Remember you're dealing with people's lives, not just business metrics
"Business is personal. We spend an inordinate amount of our time doing what we do. We have deep relationships that we form, and it's a huge part of our identity." - Christopher Lochhead
Conclusion
The SVB crisis provided valuable lessons for founders on crisis management, financial planning, and communication. Key takeaways include:
- Scenario Planning: Identify potential outcomes, map options within your control, and plan responses.
- Financial Agility: Have multiple accounts, pre-wire connections, and be ready to move quickly.
- Crisis Communication: Over-communicate, be transparent, focus on facts, be human, and keep moving forward.
By implementing these strategies, founders can turn crises into opportunities for growth and improvement. The episode emphasizes that while founders should focus primarily on achieving product-market fit, having systems in place for financial resilience and effective communication is crucial for navigating unexpected challenges.
Ultimately, the SVB crisis demonstrated that great founders don't waste energy on blame or finger-pointing. Instead, they take decisive action, communicate clearly, and use the experience to become better prepared for future obstacles. By learning from these lessons, founders can build more resilient companies capable of weathering any storm.
