Smart CTOs and CEOs are constantly looking to identify and mitigate existential risks. But Black Swan events make even the best-laid plans look naive in hindsight. Witness the ensuing chaos after the rapid failure of Silicon Valley Bank, an august institution and the bank of choice for a significant percentage of startups and venture capitalists the world over. By most accounts, the bank was not obscenely leveraged and did not take massive risks. Yet, like any bank, its mere existence relies on the good faith of its customers that their money will be there tomorrow.
Today, many startups are scrambling to figure out how much cash they can access and whether the Federal Deposit Insurance Corporation (FDIC) takeover will involve any sort of haircut for account holders with balances over $250,000. Ironically, it turns out that perhaps the biggest single point of failure and source of existential risk for the startup economy is an old-school bank that held a concentrated amount of startup and VC cash and liquidity.
There are some key technology lessons from this bank that we can learn from for early-stage and even middle-stage companies.
- Managing your technology burn rate should be important from Day 1: Many early-stage companies, flush with fresh capital, focus on growth over efficiency. This has been moderated by the ongoing startup winter but the SVB bank run underscores the criticality of thoughtfully building systems and engineering processes to minimize technology burn
- Make sure you have locked down the metrics that matter most: Managing and monitoring ongoing activity becomes far more important. This is true across all fronts — advertising spend, engineering productivity, and cloud server utilization. Because in a crisis, you may need to monitor spend on a daily basis. Without proper metrics and instrumentation, that’s challenging.
- A well-designed system can better withstand external shocks and disruptions, whether they are technological or financial in nature: Small system design decisions can multiply in impact over time. For example, choosing to leverage a cloud storage service that charges high egress costs can influence many other downstream decisions that might make it more challenging to design for efficiency. Electing to build infrastructure on top of one type of load balancer might mean you hit a balloon threshold where charges go up geometrically after you implement more than 50 rules. These are the small gotchas that might not seem important in early system design but can come back to be super painful while also being difficult to undo.
- BODs must understand (and ask about) all of the above: In today’s technology-driven world, Boards of Directors must be educated about and equipped with mitigation strategies for technology risk management, not just the CTO/SVP of Engineering, as it affects everything. In times of crisis, Boards become a critical backstop and resource for struggling companies. Having them in the dark about the technology systems and processes limits their ability to help and can slow down any efforts to involve board members in remediation and rescue efforts. Everyone who has a fiduciary role at a technology company (or a company reliant on technology) must understand key technology levers and systems in times like these.
To be clear, these four pieces of advice are also general common sense for CEOs and CTOs alike, at any stage. An event like the SVB failure, however, crystalizes the urgency of good technology governance and management as early as possible in the life of a startup. In good times, you can skate by. In bad times, it might be the difference between surviving or shuttering.