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A final note: while FTX US is this edition’s sponsor, the interview below is not sponsored. I just really wanted to ask Sam these questions.
If you only have a few minutes to spare, here's what investors, operators, and founders should know about building, according to FTX CEO and founder Sam Bankman-Fried.
- Recognize your responsibility. A CEO’s job is simple: to make sure good things happen for their business. To do that, you may have to step in to handle a particularly challenging task and drive it toward the desired outcome. Simply delegating a project to someone is not enough – your responsibility only ends when the job is done.
- Beware of hiring the “right” people. You may feel pressured to hire candidates with the “right” CV. Doing so often backfires. This can be particularly costly when it comes to senior positions. You may think it’s the smart move to bring aboard a CRO with decades of experience, but they may not have the hunger to grind at a growing company. Prioritize the ability to learn over experience when picking new teammates.
- Understand your competition. Maintaining competitive awareness is important. Rather than taking a zero-sum perspective, try and understand why your rivals make the choices they do – and track the results over time. You’ll learn how your decision-making stacks up and whether you need to update your mental models for the space in which you operate.
- Scale with purpose. Adding headcount for the sake of it is a dangerous game. Companies that grow too quickly may lose their ability to execute and innovate. FTX scales intentionally, only adding staff it believes it can support and that will help achieve a particular mission.
Few companies have grown as quickly as FTX. In a little over three years, Sam Bankman-Fried’s business has expanded from a promising derivatives platform into one of the largest exchanges on the planet spanning stocks, tokens, NFTs, and other financial services.
Navigating that speedrun would be difficult for any founder, but the volatility and regulatory complexity of crypto create an especially fierce concoction. That makes CEO and founder Sam Bankman-Fried a fitting subject for this edition of the Wisdom List, a series that asks epic founders to share their most impactful operational advice. Not only has Sam built what may prove to be one of this generation’s most consequential companies, he’s done so by contravening accepted wisdom. I consider him one of tech’s truest first principles thinkers; this is his hard-earned wisdom.
What was the first thing FTX did 100x better than anyone else?
Manage risk. In mid-2019, when we started building FTX, the state of crypto derivative trading was really bad. Roughly a million dollars of customer funds were lost every day.
That happened because the different exchanges' risk engines were pretty terrible. Some of them wouldn’t operate for 12 hours at a time. When the market moved during those hours, customers that should have been margin-called weren’t, and accounts went negative. When the engine restarted, you only had bad options left. To make up for the shortfall, exchanges took money from profitable traders.
We thought we could build something much better. We designed a risk engine from first principles that operated 24 hours a day and proactively mitigated bad outcomes. It knows how much collateral is needed and when to make margin calls. It wasn’t trivial to build this – it was a little bit of dance to get it right – but it’s worked. We have basically no drawdowns and we fund them whenever they are incurred.
Getting risk right was our calling card when we first launched, and the thing people knew us for, for a long time.
How do you scale yourself?
There’s no perfect answer to this. The unfortunate truth is that it’s messy.
What I try to do is not let myself make excuses. My job as a CEO is to make sure the right things happen. It’s not something correlated with that; it is that. When you realize this, you start to understand what you need to do and the distances you need to go.
For example, I might tell a team member to do something I think will be beneficial for FTX. But my responsibility doesn’t end there. It only ends when the thing itself gets done. And if it doesn’t get done, it's not on my teammate – it’s on me. I need to do whatever it takes to get to where we want to go, even if it’s something I don’t know how to do. As a result, many of my days are spent learning something unfamiliar – diving into a new subject, talking to experts, and trying to figure out what’s happening.
The best way I’ve found to scale myself is to recognize that it’s my responsibility; I need to be constantly learning in order to make good things happen for our business.
What do you look for in potential teammates?
There are a few roles where specialized knowledge is super important. But by and large, we select much less for knowledge and more for learning ability. That’s almost a cliché at this point – I think many companies realize the latter is more valuable.
Beyond that, we look to find people that can enter a busy, complex, messy environment and work hard. We like people who grind, who want to work. And who are willing to do the work themselves. We really try not to have managers managing managers. Everyone at the company should be involved in object-level functions, whether writing code or designing product.
Often, the people that fit those criteria aren’t the “right” hires on paper. They might not have the fanciest resumes or longest track record. In our experience, the people you’re told to hire because they tick certain boxes mostly don’t work out. For example, it's common for us to hear something like: “you should hire this CFO of a big public company and make them your CRO.” This is never a good idea, in our view. It never works. That’s down to a bunch of reasons: you don’t know if their previous company vetted them properly, you don’t really know how they did in that function, and there’s some adverse selection – why do they want to leave their job if they’re such a high performer? A lot of the time, that kind of person is looking for a retirement job. They want to use their resume to coast, and instead of providing a “steadying hand,” they gum things up.
I try and judge someone’s abilities by asking them about a topic they know extremely well. I purposefully don’t ask them detailed questions about FTX – candidates don’t have enough context to give a response that’s predictive for me as an interviewer. Instead, I ask them to concisely explain a project they worked on and outline their primary goals in a way that survives a sanity check. We’re looking to be impressed by the clarity of their thinking. That’s a bar that is not met with surprising frequency. There have been times we’ve talked with a candidate about their own business that they spent years on, and come away with the feeling that they didn’t fully understand it.
There’s one space I see this in a lot: performance marketing. I have talked with many people about it, and, nearly always, I get the sense they’ve never considered it deeply.
What is FTX's most important cultural trait?
I’ve thought a lot about this. And my opinion has evolved. If you had asked me when I first started FTX, I would have said something like “being smart.” But that’s not really a cultural trait. It’s not sufficiently interesting. You’ll never find a company that says its goal is to be dumb.
Over time, I’ve come to feel that what sets us apart is our ability to really, really focus on getting the right things done. We will go through pain to try and figure out what we believe gets us to the right outcome. That is our highest level trait.
There are specific places this has taken us that differ from other companies. For one thing, I think it’s encouraged us to build an extremely lean and coherent team. We don’t scale headcount for the sake of it. We only add when we believe it will help us achieve our desired outcomes.
Today, we have 350 employees, which is a huge number to us. Every single person is here for a discrete reason, and we have the bandwidth to ensure they’re mentored and trained to succeed in this environment. Our deliberateness here has helped us create a culture focused on taking responsibility rather than fighting for credit.
Where do your new ideas come from?
One way is by using a lot of products – both ours and those from other companies. I’ll frequently register a new account on FTX or try out a new feature. If I get frustrated by something, you can bet other people will. After all, I should understand this product better than anyone else.
Another way I come up with new ideas is by asking myself what would be useful in my life and other people’s lives. I’ll often spend time talking to companies exploring these spaces. Recently, I decided I wanted to learn more about how companies get started trading equities. So I asked a bunch of them to talk through that process, hearing what works and what doesn’t. I ended up learning a lot about market structure through those conversations.
How do you decide what to focus on?
Frankly, this is something I wish I were better at. I do have a rough framework, though.
First, I check to see if anything is on fire. What is happening right now that could put the company at risk? If there’s no immediate danger, I think about what is most important in the medium term. In deciding what to work on, I try to ensure I’m not selecting based on what I’m good at. I think a CEO isn’t allowed to say, “I’m not good at X, so I won’t do it.” If something needs to be done, I will do it.
How much do you think about competition?
I think about it a lot. But I try not to think about it from a zero-sum perspective. I don’t spend time thinking about how we can hurt our competitors. That’s not a healthy atmosphere or good for the industry.
I mostly try and understand what our competitors are doing, especially when they’re doing something different from us. What do they seem to be basing their decision on? What do I think of their strategy?
If history vindicates their approach, then that’s interesting to me. It tells me that maybe we should be doing more of what they are. It also helps me have clarity on our strategy. Sometimes people ask us why we aren’t doing something one of our competitors is. And if I’ve spent the time thinking it through, I don’t have to have an existential crisis when that question comes up. I can be confident in what we’re doing.
What has been your best branding decision?
Our best branding initiatives have been pretty top-heavy. If you stop to think about it, I think almost everyone will agree on what has worked best for us. Ask a thousand people how they heard of FTX, and it’s usually one of four ways: our Super Bowl commercial, the FTX Arena, our sponsorship of Major League Baseball’s umpire uniforms, and Tom Brady. Those have moved the needle, and I want to do more things like that.
To be honest, many of the other things we’ve done have had little impact. Very few have succeeded at driving direct adoption of the platform.
What has been your greatest managerial challenge?
Early on, the answer was I didn’t know how to manage. Maybe I knew how to manage when things were easy and no one had any problems. But that’s not so hard. The part I had to learn was what to do when things get bad. When I was an employee at Jane Street, there was always someone above me I could go to if I needed anything. Learning to handle conflict or disagreement when there is no boss to turn to took time.
Recently, my biggest managerial challenge has been figuring out how to scale a business without losing what makes it special. How can you hire hundreds of people without the diffusion of responsibility we’ve seen happen to our competitors? I’m spending a lot of time working on this right now.
What is FTX’s narrative?
If you’d asked me a couple of years ago, I would have said our story has something to do with “financial products stuff.” The part I wouldn’t have predicted is that we’d be so active in terms of regulation. To build the products the market needs, we’ve had to learn as much as we can about operating in a regulated context. This has ended up changing our business in a way that is both good and pretty revolutionary, I think. Instead of having a narrow strength, we have broad power.
When I think about our story, that’s what comes to mind. We’re a company that doesn’t just cover our weaknesses; we grow from them until they become strengths.
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What do you worry about?
There are hundreds of mini-things I think about, and all of them matter. As much as I can, though, I try and think about the big ticket items. The things that we have to stay on top of because if they fail, everything fails.
Regulation is one of them. But we’ve spent a ton of time ensuring we’re leaders in the space. We’ll inevitably fuck everything up a little bit, but everyone does.
What I worry about most is a coordinated failure. What might happen that would transform us from being a company that’s good and competent at a lot of things to good and competent at a narrow range? If your competence drops across the board, everything can get worse at once. Your ability to handle regulation would drop. Your ability to win customers would drop.
The way this can happen is if cultural rot sets in. If we allow ourselves to become big and diffuse, we risk becoming a company that can no longer execute. We’ve seen this happen with a lot of businesses. I worry about making sure it doesn’t happen to us.
How will FTX change our era?
If we have the impact I think we can, FTX could be remembered as a company that provided real, coherent market access to the general public.
There are a lot of sub-pieces to achieving that. We have to understand how finance works and then ask: how could or should it work? What’s holding it back? What is the distance between here and there? Figuring that out is what we’re here to do.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.