Let’s start with the obvious: FTX is the biggest business disaster of 2023, and it’s not even close. The crypto darling, worth $32 billion at its peak, has become a hotbed of fraud. The company went bankrupt within days after Binance founder and takeover candidate Chanpong “CZ” Zhao liquidated his holdings of FTX’s cryptocurrency, the FTT token, blowing a hole in FTX’s balance sheet. When FTT’s value plummeted, so did FTX, bringing multiple other businesses to bankruptcy, including BlockFi, which was #1 on the Inc. 5000 in 2022. FTX founder Sam Bankman Freed was convicted on seven counts of fraud and conspiracy and is currently awaiting sentencing.
Bankruptcies like FTX or WeWork, which filed for Chapter 11 bankruptcy in November, fit the purest form of failure, but business failure can include a lot more: PR blunders, management missteps, out-of-control self-driving cars, and, um, dead monkeys (yes, read on) also fit this list.
These are the lessons of the past year in business. Running a company is extremely difficult for anyone, but having a company go under can at least provide lessons on how not to handle those challenges.
Silicon Valley Bank
Silicon Valley Bank collapsed in the chaos of March, on the heels of a bank run in which customers withdrew $42 billion in deposits within 48 hours. A longtime home to venture capitalists and startups, SVB collapsed due to rising interest rates and its inability to manage duration risk in its bond portfolio.
As the venture capital market dried up this year, startups began siphoning money from SVB to fund their operations, and clients were spooked when the bank told investors it needed to raise $2.25 billion to address liquidity problems.
The FDIC eventually took control, bringing SVB's 40 years in business to a disastrous end. Fortunately, the government agency repaid all of its customers, including those who owed more than the previous deposit limit of $250,000. First Republic and Signature Bank also failed during the crisis. In a congressional hearing, First Republic's former CEO Mike Loeffler said the bank's failure was due to “contagion.”
JPMorgan Chase's fake startup acquisitions
Every entrepreneur loves a big startup success story, which is why Charlie Jarvis, founder of the now-shuttered college scholarship startup Frank, had the makings of a celebrity entrepreneur when he sold his company to JPMorgan Chase for $175 million in 2021.
Fast forward to January 2023, and the banking giant shut down Frank. According to CNBC, JP Morgan said Frank inflated its customer numbers by nearly 4 million after Jarvis hired data scientists to create millions of fake accounts. In an April indictment charging Jarvis with multiple counts of fraud and conspiracy, U.S. Attorney for the Southern District of New York Damien Williams said the affair was part of a scheme to get J.P. Morgan to pay huge amounts for Frank and to line his own pockets. While JP Morgan will likely survive the $175 million loss, questions have arisen about how a supposedly sophisticated international bank was so badly duped.
AMC's pricing fiasco
AMC wanted to make watching a movie like choosing a seat on an airplane, a bold plan for a struggling company that had only recently become a meme stock. Apparently, AMC was unaware of the fact that people hate airlines.
The company's Sightline plan, which aimed to charge different prices for different seats in a cinema based on distance from the screen and other factors, so annoyed customers that AMC canceled Sightline in July after pilot programs in a handful of cities revealed how badly the idea had failed.
Autonomous driving disaster
It's been a tough year for driverless taxis in San Francisco's hilly countryside. Cruise, a subsidiary of General Motors, has been testing self-driving cars in the city for years. In 2022, Cruise received regulatory approval to operate a limited driverless taxi service in the city, but in October, a Cruise vehicle was involved in an accident that dragged a pedestrian 20 feet. Making Cruise's woes even worse was when a DMV official said: The New York Times Cruise initially did not say the accident was caused by a pedestrian being crushed and dragged under the vehicle. It was also not the first accident involving one of the company's self-driving cars in San Francisco; the city's fire department had complained that the company's self-driving cars frequently blocked the path of emergency services vehicles. In October, the California DMV suspended the service indefinitely, and Cruise CEO Kyle Vogt resigned from the company a month later amid controversy following the accident.
Reddit Rebellion
In June, Reddit users rebelled against a new policy that would require third-party app developers to pay fees for access to the site's application programming interface (API). Given Reddit's user-driven culture and democratic ethos, the move was condemned by dedicated users, many of whom were using third-party apps that they said offered a better user experience than Reddit itself.
Moderators removed many of the site's most active subreddits in protest after the company's valuation was cut by 41 percent by Fidelity.
The plan was the product of growing pains. Reddit, which filed a confidential S-1 with the SEC in December 2021, needed to show investors and regulators that it could make money doing more than just hosting trending threads and discussions. CEO Steve Huffman said part of the directive was also to capitalize on the AI boom, noting that it would charge fees to companies like OpenAI, which regularly canvass Reddit to train chatbots for free.
Reddit users felt this went against what was special about the site, but the rebellion eventually died down and the fee was introduced on July 1st.
Elon Musk's Dead Monkey Problem
Given the chaotic management of X (formerly Twitter) and accusations that the self-driving technology developed by Tesla may not be all that innovative, some might argue that this has been a terrible, no-good, very bad year for Elon Musk.
Add killed monkeys to the list. Veterinary records show that 12 monkeys died during brain implant procedures performed by Musk's startup company, Neuralink, which is trying to develop computer brain implants for humans. The Physicians Committee for Responsible Medicine obtained the records through a lawsuit and wrote the SEC asking it to investigate Musk and Neuralink for securities fraud. The charge? For claiming in X that the monkeys' deaths had nothing to do with brain implants.
Sharing misleading statements about securities on social media can be fraudulent, as evidenced by Musk's past incidents. In 2019, he said he would take Tesla private at a staggering $420 a share when the company was trading at around $336. He was charged with securities fraud by the SEC for this tweet. Although the tweet was meant as a joke about marijuana smokers, it cost him his position as Tesla's chairman of the board and ultimately cost him $40 million.
