The collapse of the FTX cryptocurrency exchange is a case study in what goes wrong when a startup grows quickly without any checks or balances. Although we rightly associate a startup’s success with the vision of its founder, there’s a reason we don’t typically let founders operate without any oversight. When founders are allowed to act like monarchs, their startups are more likely to fail — often with dire consequences for customers, employees, investors, and society.
FTX and the Problem of Unchecked Founder Power
Growing quickly requires giving up some control. It’s investors’ responsibility to make sure that happens.
December 01, 2022
Samuel Bankman-Fried, founder and CEO of FTX
HBR Staff/Saul Loeb/Jackyenjoyphotography/Getty Images
Summary.
Startup founders typically face a fundamental tradeoff: They can grow the company, increasing its value and the value of their shares, but to do so they must give up some control. Or, they can keep control, at the expense of growth. That tradeoff exists for good reason: Investors who supply the capital necessary to grow want to make sure their money will be well spent. Co-founders and employees who join the startup want to know that it is well managed. To grow their startup to its full potential, a founder needs to relinquish control. But in cases like the collapse of FTX, this tradeoff breaks down — with predictable but disastrous results. It’s time to retire the founder-as-monarch model.