Humans love nothing more than to attribute the success or failure of any venture to a single individual. Minimising team effort to focus on the vision of a founder is equally common in the games industry and the wider business world - just ask Warren Spector, "creator of Thief and Deus Ex". Sequoia's Roelof Boetha, a PayPal alumnus, is keen on the concept of "founder / problem fit" - startup culture abounds with tales of unconventional individuals who upset the status quo.
A critical problem here is that for every Steve Jobs there's an Elizabeth Holmes, or a Sam Bankman-Fried…or a Steve Jobs come to think of it). People who are driven to outsized success and ostensibly obsessed with grand goals frequently come with a lot of baggage and, often, they don't care where they dump it.
Is there anything worth learning from disasters like these other than "bad actors exist"?
Billy McFarland, the founder of the infamously catastrophic Fyre Festival, said this of friends and investors he conned in a recent interview (emphasis mine):
"I always knew in the back of my mind they were going to find out but I convinced myself that if I gave them what they want - which I thought was happiness and success - it wouldn't have mattered. That's where I went wrong....They're going to know that our revenue wasn't this, but I'm going to make the money, and they're going to have fun so they're going to love me still."
While out on bail for wire fraud, he famously immediately jumped into another scam, which yet again had an incredibly short half-life in terms of obvious consequences. He described this behaviour - which most people would find bizarre and inexplicable - as stemming from a desire to "solve" his situation rather than accept the consequences: "It was all about this desire: 'Now it's about the money - let me pay people back.'"
Whether or not we believe that the real motivation was making amends, or simply trying to maintain the integrity of the reality distortion field, it's clear that there's a specific (and somewhat circular) direction of travel here. Let's call it the "Fraud Foldback Loop" because that sounds clever:
Awareness
I'm aware that problematic things are currently happening.
Minimisation / Justification
It's ok that these things are happening because they exist in the service of some greater good, and this grand success will justify them. Besides, everybody cuts corners.
Rationalisation
When other people find out about the problems, that's fine because I'll eventually succeed and they'll be grateful / respect my abilities.
Compounding
Yes, the problematic things happened - maybe people even found out about them - but if I'm just allowed to repeat the process, I'll press on to my inevitable victory.
The Same Cycle?
This pattern is strikingly similar to that of Sam Bankman-Fried, the disgraced founder of crypto exchange FTX. He has now admitted to knowing that client funds from both margin and deposit accounts were commingled (a key legal - not to mention trust - issue in terms of FTX's relationship with customers). Elsewhere, he's insisted that - even if client money was inappropriately used to trade - there was enough capital in the system to "cover it" - it would all come out in the wash:
Besides, everybody does it:
People would "love him still" once everything was successful:
Subsequently, he's lamented doing "the one thing everybody told him to do" in filing for bankruptcy. If he'd just been allowed to continue, to re-enter the Loop, everything would be fine. In any case, he's now on a mission to pay everyone back.
Due Process
One problem with the pattern I've described above is that, while clearly pathological, it is similar to the loop of behaviour that is often expected of legitimate founders and CEO's. These individuals are expected to be talismanic visionaries who challenge preconceptions and change the world, pressing on in the face of absurd odds. It's impossible to do this without a surfeit of self confidence and - to some extent - the ability to minimise obstacles.
Yet somehow we also expect good leaders to also be the ones to resolve these issues, to be pragmatic realists who are masters of microscopic detail. This has always seemed fallacious to me - an irreconcilable paradox that expects two distinct personalities to cohabit in the same individual.
Instead of this, we need to short-circuit the Loop. Full awareness of problems needs to extend beyond the leader; problematic minimisation needs to be identified and counteracted immediately. If things are allowed to progress beyond that, charismatic rogue founders are fully capable of sweeping everyone up into their dangerous trajectory.
This can only be accomplished by a combination of active monitoring and shared responsibility that extends beyond the traditional c-suite job descriptions. It is extremely challenging for junior employees to flag issues without a wider culture of accountability: there were many examples of this at Theranos particularly, where anyone raising a query or objection was viewed as a threat. Compliance and governance should never be punted or dumped on a single individual - it should be everyone’s responsibility.
So if organisations aren't creating the right environment for this themselves, what can external stakeholders do?
On the investment side, a return to first principles is clearly needed, particularly if tech as a whole experiences a contraction. Are startups really doing what they say they are, do the products work and are the structures in place?
The FT has asked why, in the case of FTX, there was apparently no reasonable due diligence. The relatively common practises of taking board seats, monitoring governance processes and even helping to implement basic financial controls and accounting procedures seemingly didn't take place.
Investors were so enamoured with the vision, and so taken with the quirky and disruptive founder who was espousing it, that they threw caution to the wind - essentially, they were swept up into the process of minimisation. It's incumbent upon notable individuals and institutional stakeholders who are getting involved with ambitious organisations to check that the basics are solid, and that core claims align with reality. External scrutiny is another powerful means to prevent minimisation or rationalisation of issues. There is also the risk of endorsements being used as social proof to build credibility around malicious enterprises - Wirecard was a particularly powerful example of this.
Smokescreens will occur - FTX was heavily involved in regulation conversations, made political donations and loudly proclaimed its adherence to effective altruism in order to bolster its public image. Theranos repeatedly faked test reports and validation documents from external organisations. You can't block every scam with basic checks, so in the case of endeavours with larger incentives and greater upside, even more questions should be repeatedly asked and answered with objective evidence, be it financial, technical or scientific.
Cut Out the Shortcut
At the conclusion of his interview, Billy MacFarland was asked "what scares you the most today?", with the condition that he was not allowed to discuss his fear of violating probation.
Tellingly, he talked about himself and replied "Taking a shortcut. I have a propensity to go fast - it's good in tech ways but it's bad in life ways."
I'd urge ambitious founders - particularly those who set out with good intentions but may fall prey to the temptation to "go fast" - to take heed. Seek business partners and board members who will ground you and prevent you from cutting corners. Similarly, investors need to be on high alert for these traits - look for teams that include careful, methodical people with a genuine desire to address problems as they arise - best to activate monitoring early and often than suffer the consequences later on.
It's obviously not possible to shut down every malicious or rogue actor intent on committing fraud. But that also doesn't mean we should continue on autopilot: when the latest trendy founder is espousing their vision, we should be asking them real questions about the integrity of their core team.