Zuck, Musk and SBF: What do these entrepreneurs have in common? A large dose of hubris, ultimately soaring to failure. And they are not alone. However, they are arguably the best well-known, anti-hero poster children of the moment, largely due to their dizzying ability to shed billions of dollars in value and thousands of shareholders and employees literally overnight. By the way SBF is the moniker for Sam Bankma-Fried, headline making founder of FTX, a crypto exchange he started in 2019 that soared to a value of $32 billion by January of 2022, and recently collapsed into bankruptcy. How ironic that his middle name is Bankman.
Hubris is not always easy to detect. But in the case of these three fully transparent, intrinsically arrogant, and seemingly entitled entrepreneurs, hubris is front and center in each of them. I suppose there is some justification for these characteristics, given their history for breathtaking speed to scale and their personal rise to the upper tier of the global billionaire echelon. Note to self, Elon Musk is the world’s richest human being.
The other thing they have in common is that regardless of their obvious IQ superiority, tech savvy, and entrepreneurial spirit — proven through Mark Zuckerberg’s Facebook, Elon Musk’s Tesla, and space initiatives, and SBF’s crypto dominance — all three became inoculated with super-hubris: The “hey watch me jump higher and closer to the sun” ascents. Reminds me of mythic Icarus who in a massive fit of hubris attempted to escape from Crete with wings of wax and feathers. Ignoring his father Daedalus’ reasonable advice, he flew so high the wax holding his wings together melted from the heat of the sun. And we all know that he plunged to his death …fast.
Hubris is not always easy to detect. But in the case of these three fully transparent, intrinsically arrogant, and seemingly entitled entrepreneurs, hubris is front and center in each of them.
What else do these three men have in common? They are young (technically Musk is 51 but acts like a kid with no guardrails). And being young with more money than they know what to do with just reinforces their already outsized egos. So, then what happens? A lot.
I would argue that Zuck, as he’s called by those close enough to do so, got bored with Facebook even with its incredible global growth. Maybe he realized that Facebook was drifting to older consumers, losing its younger users to TikTok and other novel, emerging platforms. Or perhaps he became fatigued by FTC’s scrutiny of Facebook as a social gathering place, instead of defining it as a media channel. So, it could be he didn’t want to deal with oncoming regulations.
Whatever the reasons, Zuckerberg pivoted to what he believed would be the next and biggest thing: the metaverse. After all, isn’t this just a virtual extension of the Facebook gathering place for everybody in the world? Not quite. It’s a simulation of our world enhanced by imagination and personal narrative facilitated by a high-tech headset. The metaverse is a second chance where you can customize your world, down to the creation of your avatar that will be the you that you always wanted to be.
Zuck is betting on his better-version-of-ourselves vision, transforming Facebook to Meta to connect people and experiences virtually. Whether you believe in the metaverse or not, he is intensely passionate and arguably obsessed with committing himself and every employee in the organization to the idea. Zuckerberg has spent $15 billion so far on the project and has said that one day the metaverse will be the way that people “interact with the world.”
I can’t really go any further as to its status and potential fulfillment of the vision. But in general, it’s safe to say that Zuck’s alternate universe seems to be going nowhere fast. Although, I will defer to the opinions of two icons who are a quantum leap smarter than me. Apple CEO, Tim Cook, sidestepped the concept by saying “the tech company avoids using the word metaverse because the average person doesn’t know what it means.” And another swipe at Zuck’s metaverse came from Snap CEO, Evan Spiegel who said, “The last thing I want to do when I get home from work during a long day is live inside of a computer.” All things considered, Zuckerberg’s obsession with the metaverse may be the future, or not. Certainly, gamers need no convincing.
But here is the issue: He is not giving his employees a choice. That may be the prerogative of a narcissistic entrepreneur, but there are many of the best and brightest young tech Meta employees who are puzzled by the stubborn insistence of their leader. Zuck is slow rolling his metaverse creation at the expense of his workforce. Many are leaving because they simply don’t believe it’s the next big thing. More (11,000) are leaving because they’ve been asked to. We’ve read the news of major layoffs to compensate for the billions of dollars invested in the project. Accordingly, Meta’s stock plunge has far outpaced the overall sector over the past year, with its shares down 67 percent from 2021. Meta’s plunge translates into an eye-popping loss of about $700 billion in market value to $268 billion, down from about a whopping $1 trillion in September of 2021.
And what’s the most egregious hubris? As Zuckerberg forges his way forward to the metaverse, he had the insensitivity to announce to his workforce that
“Realistically, there are probably a bunch of people at the company who shouldn’t be here.” What a morale kicker.
Where does one even start with the craziness of this guy? But maybe his crazy, out-of-this-universe brain is really a latter-day Einstein-type entrepreneurial genius reincarnated. (Albert also seemed to be a little nutty to the average Joe.) We know Einstein gave us the theory of relativity and defined the universe in many ways, and now Elon wants to take us to Mars. Do you get the symbolism? Well, he’s not going to get us there through Twitter.
Talk about super-hubris. Along with his wealth (thanks to founding PayPal, Tesla, and SpaceX), Musk led his over-the-moon (pun-intended) bid to acquire Twitter ($44 billion) to run a business he knows little about. His dreams of an all-encompassing super-app X modeled after WeChat are not convincing. Are we are witnessing another Icarus event in real time?
Musk is a tricky one. At first, he gave us a head fake by pulling back on his original offer. Then following a bunch of legal and financial machinations, threats of lawsuits, etc., Musk came back to the table and finally did the deal. What followed as he barreled into his new asset on October 26th has been nothing short of mayhem. He fired Twitter’s CEO and CFO. And just last week fired 50 percent of the 7000 workforce.
A telling sign of hubris is the helter-skelter firing of people with essential skills required for this social media platform. During the agonizing acquisition process, Musk brought a coterie of executives from Tesla and some of his other businesses to participate in various meetings with Twitter executives. It’s not hard to understand that Musk would have greater trust in those that have helped him to succeed in his other businesses. However, like Musk, these loyal executives have the skills required to run EVs, rockets and hyperloops but do not have even close to the skills required of a social media platform.
However, the outcome of Musk’s housecleaning (and doing so quite brutally –empathy is not in his DNA) was the loss of some 80 percent of its engineers. In Bluebird, Twitter’s consumer division, dozens of product managers were laid off, leaving just over a dozen of them. The new ratio of engineers to managers was 70 to 1, according to one estimate. More hubris: Musk has a lot of ideas, but no cohesive plan. And on that note, realizing his folly, he had to rehire essential workers.
Does all this raise concerns about keeping Twitter alive? I would think so. And read this sobering statement from Musk as reported in The New York Times: “Mr. Musk, who did not respond to a request for comment, told employees in a meeting that Twitter’s situation was grim. There’s a massive negative cash flow, and bankruptcy is not out of the question. Those who are able to go hardcore and play to win, Twitter is a good place,” he said. “And those who are not, I totally understand, but then Twitter is not for you.” Hubris? I think so.
Another tidbit on hubris. One employee said, “Elon has shown that his only priority with Twitter users is how to monetize them.” And added that Mr. Spiro, Mr. Musk’s lawyer, said the billionaire was willing to take risks. “Elon puts rockets into space — he’s not afraid of the FTC.” That may be debatable with recent departures of Twitter privacy and security teams.
Think about this: Musk is a big Twitter user. So, why not own it. He could afford it. Well, owning it is one thing, running it is another. I like Tito’s vodka. However, in a million years I could not afford to acquire the brand (a lifetime of free martinis would be tempting). But you get my point. Back to Musk’s super-hubris, and his belief that he can out-WeChat WeChat. Musk is flying into an Icarus flameout.
SBF And FTX
Now regarding Sam Bankman-Fried’s world of cryptos. Business Insider wrote, “If you’ve been paying attention to the finance world this week, you’ve likely been sifting through alphabet soup: SBF. FTX. FTT. Maybe even SEC.” The wry reference to the acronyms including SEC pointed to the Securities Exchange Commission, along with the Department of Justice, investigating potential wrongdoings in the spectacular bankruptcy collapse of Sam Bankman-Fried’s (SBF) crypto exchange firm, FTX. I will add my wry opinion that this event may trigger the largest regulatory migraine for the crypto industry, if it doesn’t already collapse under its own Ponzi-type bubble.
In case you missed it, let me spell out the alphabet soup and sequence of events leading up to Sam Bankman-Fried’s bankruptcy filing of his firm FTX. SBF, a 30-something, launched Alameda Research in 2017. Two years later he launched FTX, a crypto exchange platform with perks like low trading fees and advanced options for traders. According to Bloomberg, the two companies netted $350 million and $1 billion in profit, respectively, in 2020 alone. A soaring Icarus indeed, until the equally rapid, spectacular flameout. During the five-year rocket ride to its almost overnight implosion, at its peak, SBF was worth $26 billion. It dropped to $16 billion before the final collapse.
If the surreal rise of FTX and Alameda along with SBF’s take-home pay, wasn’t enough to satisfy him, his hubris led him to inventing a coin named FTT. And even though Alameda and FTX are two separate companies, FTX’s assets were mostly tied up in Alameda, which Business Insider referred to in a bombshell report released by publication CoinDesk which questioned the stability of FTX’s liquidity.
The report motivated Binance, FTX’s major competitor, to liquidate about $530 million worth of FTT. And over the period of 72 hours an estimated $6 billion in withdrawals were submitted, and FTX struggled to fulfill them. The value of FTT plunged 32 percent, but rallied once again with SBF’s surprise announcement that Binance would buy FTX, effectively bailing it out.
But an even bigger surprise occurred when Binance bailed on the deal, after reports of mishandling customer funds and a possible federal investigation. Was this a case of borrowing from Peter to pay Paul (transferring customer funds from FTX to Alameda)? Something like that, but enough so that SBF watched 94 percent of his net worth wiped out in a single day. His hubris must have been severely humbled, and he scrambled to get help from some of his other rivals including Coinbase CEO Brian Armstrong. No takers, which finally led to Chapter 11 bankruptcy.
Now, as Quartz reported, FTX could have over 1 million creditors. “The crypto platform’s founder Sam Bankman-Fried is reportedly still looking for cash to cover $8 billion in withdrawal requests, even after the company filed for bankruptcy last Friday.” So, where was a CFO to oversee risk, tracking customer withdrawals and estimating the levels of debt being taken on? If he had one, they were likely lounging around in the Bahamas where SBF and staff ran the business.
This is an astounding story of the tech world’s version of a modern-day Bernie Madoff Ponzi-scheme. Here too, even major financial investors have piled on: SoftBank, Vision Fund, Tiger Global, and Sequoia, (who marked down its investment in FTX, down to $0. They had invested $213.5 million).
A Brief Crypto Catch-Up
A word about context to put all this in perspective. According to Wikipedia, the first decentralized cryptocurrency was Bitcoin, which first released as open-source software in 2009. As of March 2022, there were more than 9,000 other cryptocurrencies in the marketplace, of which more than 70 had a market capitalization exceeding $1 billion.
It suffered a $2 trillion crash back in May according to the BI article, and the FTX event is creating a ripple effect throughout the crypto industry. According to CoinMarket the value of the sector down 12 percent over the course of a day, and stoked fears that crypto is about to have its own Lehman Brothers moment.
Is this a bubble built on thin air? JPMorgan analysts wrote that it looks likely a crypto reckoning is coming, and experts warned that investors should be prepared.
Bankrate.com analyst James Royal said, “As an investor, you should be seriously questioning what you’re investing in if it can evaporate over a weekend. The prices are entirely based on sentiment and belief in the future of crypto … If that belief goes away, you’ve got nothing.”
A Final Note
A healthy dose of hubris is needed to stoke the entrepreneurs’ spirits as they launch their brilliant and often breakthrough concepts. Zuck, Musk and SBF clearly qualify as game changers in this pantheon. However, even the most rigorous entrepreneurs – if they are fully functioning — eventually replace themselves with a professional business manager. Jeff Bezos has turned his super creation over to such a business manager, even though it appears that he should have replaced himself a bit earlier.
So, what is the prognosis for our three hubris-laden entrepreneurs? I predict Twitter will implode; Meta will lose all its standing with next-gens and the metaverse will soak up a large percentage of Zuckerberg’s fortune, and SBF will be lucky to stay out of jail.