Wisdom List from SBF: How Did I Drive FTX to Become One of the Most Successful Cryptocurrency Exchanges?

Author: Mario Gabriele, Founder of The Generalist

Original Title: 《The Wisdom List: Sam Bankman-Fried》

Compiled by: Tia, Foresight News

What management and operational lessons can you learn from Sam Bankman-Fried (SBF), the CEO and founder of FTX? If you only have a few minutes to spare, here’s what investors, operators, and founders should know about "building."

• Recognize your responsibilities. The job of a CEO is simple: ensure their business performs well. To do this, you may need to step in to handle a particularly challenging task and drive it to the expected outcome. Simply delegating a project to someone is not enough—your responsibility only ends when the work is completed.
• Hire the "right" people cautiously. Hiring candidates with the "right" resumes can feel pressuring, but this often backfires. This becomes especially costly when it comes to senior positions. You might think hiring a CRO with decades of experience is wise, but they may not be eager to work at a growing company. When selecting new partners, prioritize learning ability over experience.
• Understand your competitors. Maintaining a competitive mindset is crucial. Instead of adopting a zero-sum perspective, try to understand why your competitors make the choices they do—and track the results over time. You will learn how your decisions stack up and whether you need to update your decision-making model for your space.
• Purposeful scaling. Increasing headcount is a dangerous game. Companies that grow too quickly may lose their ability to execute and innovate. FTX intentionally expanded, only adding employees it believed it could support, which helped achieve specific tasks.

Few companies have grown as rapidly as FTX. In just over three years, Sam Bankman-Fried's company has evolved from a promising derivatives platform into one of the largest exchanges in the world, covering stocks, tokens, NFTs, and other financial services.

No founder finds it easy to navigate such a pace of growth, especially with the volatility of cryptocurrency and regulatory complexities making it a particularly daunting challenge. This makes Sam Bankman-Fried an excellent candidate for this edition of the Wisdom List, a series that asks epic founders to share their most impactful operational advice. SBF has not only built what may prove to be one of the most important companies of this era, but he often does so by defying conventional wisdom. I consider him one of the true thinkers in tech who practice first principles.

What is the first thing FTX does 100 times better than others?

SBF: Risk management. In mid-2019, when we started building FTX, the state of crypto derivatives trading was terrible, with customers losing about a million dollars a day.

This happened because the exchange's risk engine was very poor, with some not running for 12 hours at a time. If the market changed while the risk engine was not running, customers who should have been margin-called did not get margin-called, leading to negative balances. When the engine restarted, only the bad choices were left. To cover this gap, the exchange would take money from profitable traders.

We believed we could build it better. We designed a risk engine based on first principles that runs 24/7 and actively mitigates adverse outcomes. It knows how much collateral is needed and when to margin-call. Building it was not easy—it took effort to get it to work correctly—but it did work.

Getting risk right was our primary feature when we first started, and it’s why people have recognized us for a long time.

How do you improve yourself?

SBF: There is no perfect answer to this question; the unfortunate truth is that it’s messy.

What I try to do is not make excuses for myself. As CEO, my job is to ensure the right things happen. When you realize this, you start to understand what you need to do and how far you need to go.

For example, I might tell team members to do something I believe is beneficial for FTX. But my responsibility doesn’t end there; it only ends when the task itself is completed. If it’s not completed, that’s not my teammates' responsibility—it’s my responsibility. I need to do everything I can to reach what we want to achieve, even if I don’t know how to do it. As a result, I spend most of my time learning unfamiliar things—digging into a new discipline, talking to experts, and trying to figure out what’s going on.

I find that the best way to improve myself is to recognize that it’s my responsibility, and I need to proactively learn and create great things for our business.

What do you care about in potential teammates?

SBF: There are some roles where expertise is very important. But overall, we rarely focus on the existing knowledge of potential teammates; we care more about their ability to learn. At this point, it’s almost a cliché—I think many companies realize the latter is more valuable.

Beyond that, we want to find people who can enter busy, complex, chaotic environments and work hard. We like diligent people, those who want to work, and those willing to take on work themselves. We try not to have managers manage employees. Everyone in the company should be involved in the actual operations, whether it’s writing code or designing products.

Typically, people who meet these standards are not literally the "right" employees. They may not have the most glamorous resumes or the richest experiences. In our experience, the people you are told to hire because they check certain boxes often don’t succeed. For example, we often hear things like, "You should hire a CFO from a large public company to be your CRO." In our view, this is not a good idea for many reasons: you don’t know if their previous company vetted them properly, you really don’t know how they performed in that function, and there’s some adverse selection—if they were so great, why did they leave? Often, these people are looking for retirement jobs. They want to coast on their resumes rather than provide a "steady hand," and they’ll mess things up.

I try to assess someone’s capabilities by asking them about topics they are very familiar with. I deliberately don’t ask them detailed questions about FTX—candidates don’t have enough background to give predictive answers for me as the interviewer. Instead, I do a sanity check by asking them to succinctly explain the projects they’ve worked on and outline their main goals. We are looking for people who can impress us with clear thinking. But such people are not common. Sometimes, we talk to candidates about businesses they’ve spent years on, but after the conversation, we feel they don’t fully understand it.

One area in particular is performance marketing. I’ve talked to many people about it, but I always feel they’ve never thought deeply about it.

What is the most important aspect of FTX's corporate culture?

SBF: I’ve thought a lot about this. My perspective has changed over time. If you had asked me when I first founded FTX, I would have said something like "smart." But that’s not a true cultural characteristic. It’s not interesting enough. You will never find a company whose goal is to be stupid.

Over time, I’ve come to feel that what sets us apart is our ability to truly focus on doing the right things. We will endure pain trying to figure out what we believe will yield the right results. This is our greatest trait.

This makes us different from other companies in certain ways. On one hand, I think it encourages us to build an extremely lean and coherent team. We don’t want to expand our headcount for the sake of it. We only add people when we believe it will help us achieve those results.

Today, we have 350 employees, which is a huge number for us. Everyone comes here for different reasons, and we have enough resources to ensure they receive guidance and training to succeed in this environment. This helps us create a culture focused on taking responsibility rather than fighting for glory.

Where do your new ideas come from?

SBF: One way is to extensively use products—our products and those of other companies. I often register a new account on FTX or try new features. If I’m frustrated by something, you can be sure others will be too. After all, I should know this product better than anyone.

Another way I generate new ideas is by asking myself what is useful for my life and the lives of others. I often spend time talking to companies exploring these areas. Recently, I decided to learn more about how companies start trading stocks. So I asked some of them to talk about how they got started and what worked and what didn’t. Through these conversations, I ended up learning a lot about market structure.

How do you decide what to focus on?

SBF: Frankly, this is something I wish I could do better. However, I do have a rough framework.

First, I check if there’s anything urgent. Is there anything that could put the company in danger right now? If there’s no immediate danger, I consider what’s most important in the medium term. When deciding what work to do, I try to ensure I’m not choosing based on what I’m good at. I believe a CEO shouldn’t say, "I’m not good at X, so I won’t do it." If something needs to be done, I’ll do it.

How do you view competition?

SBF: I’ve thought a lot about this, but I try not to think of it from a zero-sum perspective. I don’t spend time thinking about how we can hurt our competitors. That’s not a healthy atmosphere or beneficial for the industry.

I mainly try to understand what our competitors are doing, especially when what they’re doing is different from us. What do their decisions seem to be based on? How do I view their strategies?

If history proves their approach is correct, then that’s interesting to me. It tells me that maybe we should be doing more things. It also helps clarify our strategy. Sometimes people ask us why we don’t do what our competitors are doing. If I take the time to think carefully, when that question arises, I don’t have to panic. I can be confident in what we are doing.

What is your best branding decision?

SBF: Our best branding initiatives are very top-heavy. If you stop and think about it, I think almost everyone would agree on what strategies have been most effective for us. Ask a thousand people how they heard about FTX, and it’s usually one of four ways: our Super Bowl ad, FTX Arena, our sponsorship of MLB umpire uniforms, and Tom Brady. Those have worked, and I want to do more of that.

Honestly, some of the other things we’ve done have had almost no impact. Very few people have directly succeeded in driving users to the platform in one fell swoop.

What is your biggest management challenge?

SBF: Early on, the answer was that I didn’t know how to manage. Maybe I knew how to manage when things were easy and no one had any problems. But that’s not hard. The part I had to learn was what to do when things went wrong. When I was an employee at Jane Street, if I needed something, I could always find a superior to solve it. When there’s no boss to turn to, it takes time to learn how to handle conflicts or disagreements.

Recently, my best management talent has been figuring out how to scale the business without losing its character. How can you hire hundreds of people without experiencing the responsibility diffusion we see happening with competitors? I spend a lot of time on this now.

What is the story of FTX?

SBF: If you had asked me a few years ago, I would have said our story is about "financial products." What I didn’t anticipate was how active we would be in regulatory matters. To create the products the market needs, we must understand as much as possible about how to operate in a regulated environment. I think this ultimately changed our business in a good and quite revolutionary way. We have broad power rather than narrow power.

When I think of our story, this is what I think of. We are a company that doesn’t just compensate for our weaknesses; we grow from them until they become strengths.

What are you worried about?

SBF: I think about hundreds of little things, all of which are important. However, I try to focus as much as possible on the big events. We must stick to certain things because if they fail, everything will fail.

Regulation is one of them. But we have spent a lot of time ensuring we become leaders in this field. We may inevitably mess everything up, just like everyone else does.

What I worry about most is partnership failures. What would cause us to shift from a company that excels and is capable in many areas to one that only excels in a narrow range? If your capabilities decline across the board, everything gets worse. Your ability to handle regulation declines, and your ability to win customers declines.

The way this happens is through cultural decay. If we allow ourselves to become large and diffuse, we risk becoming a company that cannot execute. We’ve seen this happen in many businesses. I worry about ensuring it doesn’t happen to us.

How will FTX change our era?

SBF: If we can have the impact I think we can, FTX may be remembered as a company that provides the public with genuine, coherent market access.

Achieving this goal involves many steps. We must understand how finance works and then ask: how does it work or how should it work? What is holding it back? How far are we from that? What we are here to do is figure that out.