In the wake of the collapse of Silicon Valley Bank, entrepreneurs, business owners, and finance professionals are left pondering the critical lessons to be gleaned from this event. This exclusive article features expert insights on maintaining financial prudence while fostering innovation and growth. Additionally, discover the significance of risk management in the decision-making process and learn how to effectively integrate it into your business operations to avoid similar pitfalls
Interviewee: Oniel Samuel
Company: ODAN Capital
Answer: 3 words here: hedge, hedge and hedge! SVB’s collapse was due to the bank taking on too many long-term positions without having sufficient cover in place for when interest rates rose. This left them exposed to market fluctuations and ultimately led to a bank run. The lesson for other companies is to carefully manage risk by adopting effective hedging strategies, regularly assessing exposure to market fluctuations, and ensuring sufficient cover is in place to protect against potential losses. For example, if a company has a variable-rate loan and is concerned about rising interest rates, it could enter into an interest rate swap agreement to lock in a fixed interest rate and protect against potential rate increases.
Financial prudence does not necessarily mean limiting growth and innovation. Balance is key. Companies can (and should) identify areas where they can safely take risks, while ensuring they have sufficient financial reserves to protect against potential losses. For example, you could invest in research and development to create new products or services, but also maintain a diversified portfolio of investments to spread out risk. Additionally, companies can explore various financing options such as venture capital, private equity, or debt financing to fund growth and innovation, without putting excessive strain on their finances.
Finally, risk management is crucial and should play a central role in the decision-making process of any business, large or small. It is important to establish clear risk management policies and procedures and ensure they are effectively integrated into business operations. This involves regular risk assessments, identifying potential risks and opportunities, developing risk management strategies, and regularly monitoring and reviewing the effectiveness of these strategies. Additionally, it is key to ensure that all stakeholders, including employees, shareholders, and customers, are aware of the company’s risk management policies and procedures and the potential impact of those risks on the company’s operations.
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Interviewee: Leo Ye
Company: Cubo Online Office
Answer: Silicon Valley Bank is still in operation and remains one of the most prominent banks in the technology and innovation industries. However, I can provide some general insights into financial prudence, risk management, and decision-making processes that may be relevant to entrepreneurs, business owners, and finance professionals.
Financial prudence is critical for companies of all sizes, whether they are just starting or have been operating for many years. One way to maintain financial prudence while pursuing growth is to establish clear financial goals and regularly monitor performance against those goals. Companies should also maintain a healthy cash reserve and manage their expenses carefully, focusing on essential expenses and avoiding unnecessary expenditures.
In terms of risk management, companies need to identify potential risks and develop strategies to manage or mitigate them. Risk management should be an integral part of the decision-making process, and risk assessment should be conducted regularly. Companies should also have contingency plans in place in case of unexpected events or changes in the business environment.
Effective integration of risk management into business operations requires a systematic approach. Risk management should be incorporated into all aspects of business planning, from strategy development to day-to-day operations. Companies should also establish clear roles and responsibilities for risk management, and provide regular training and education to all employees on risk management best practices.
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Interviewee: Rizek Housari
Company: Divergent Wealth Advisors
Answer: 4 words: “Don’t fight the Fed.” When positioning your business or personal assets it’s increasingly important to make sure that you are well positioned for the volatility and interest rate hikes that the Federal Reserve may implement. Clearly the US Treasuries that SVB chose to purchase a few years ago put them in a position that exposed them to interest rate volatility. As rates rose, the value of their bonds fell. Because of the accounting for these bonds (HTM and AFS) the losses showed up in the Balance Sheet through an equity account, as opposed to the Income Statement.
Duration, and exposure to interest rates, compromised their ability to withstand increased customer withdrawals as a majority of their customers (VC/PE backed firms and start ups) began facing an increasing cost of capital, among other industry constraints. As the cost of money becomes more expensive, it is likely that more small and medium sized companies will face a headwind. These firms, when compared with large corporations, do not have the credit facilities or inexpensive financing options to continue growing at the same rate they have been over the last decade. Additionally, many mid-market firms have limited financing options and primarily use variable rate debt (private credit), in addition to equity rounds of funding, to support ongoing operations and growth. As interest rates continue to rise, the private credit facilities, along with private equity capital, may cause these firms to reduce costs. Many analysts would not be surprised to see layoffs continue and R&D budgets decline.
In the upcoming months and years, it will become imperative for individuals and businesses to shore up assets that limit their exposure to interest rate hikes. They will also want to review their funding and capital structure to ensure their own personal cost of capital remains within the appropriate bounds.
This content is for educational purposes only. Any ideas presented are not intended to be personalized financial, tax, or legal advice and are provided for informational purposes only. Rizek is not rendering, or offering to render, personalized investment or tax advice through this content. Consult your own tax professional, financial advisor, or estate planning attorney to perform your own due diligence.
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Interviewee: Asaf Darash
Company: Regpack
Answer: I believe the biggest problem with the collapse of SVB was that many businesses were presented with a high level of insecurity about their ability to continue operations. Money is the oxygen of a business, and without access to it, a business can die very quickly. When it is not possible to function financially, the business stops. You cannot pay bills, work with partners, or onboard clients. Many of the SVB businesses faced this situation since these companies had a single solution in place for these actions. Companies that had multiple bank accounts at different banks were relieved from this problem. More so, companies that made sure that their income was distributed between different banks were able to continue operations without a single day of downtime. Using the engineering analogy is helpful: engineers constantly plan for disaster and have contingency plans for bringing service back up within minutes. They create redundancies and units that are ready to function in minutes when needed. The same applies to the financial structure of a company. Obviously, when using such a limited resource such as money it is harder to do, yet today some billing software that can distribute billing, recurring payments, and autobill payments into different bank accounts on a weekly or monthly basis. This automates the distribution of funds and ensures a failsafe engineer-like financial structure. It is risk management on autopilot.
I believe many companies learned that this is a must as the financial markets become insecure and demand more planning.
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Interviewee: Tatiana Tsoir
Company: The Bold Method
Answer: There are numerous lessons for all of us to learn: first of all, it’s a lesson in leadership (bad leadership to be exact) and tone at the top matters and not just in accounting. There has been a lot of talk in the past decade about leadership and this word became a shield for bad management. Heads of organizations focus more on how they’re perceived as heads of companies vs being a true leader of people. True leaders are hard to find and they care about the team (their employees no matter how big) and long term health of the organizations. Many care about short term gains to impress the board and their own yacht.
Not everyone has a yacht of course, but also not everyone is cut out to be a leader and the secret is to be self-aware, to always keep learning and growing and to never think you know anything. This is a major lesson here and a big one. When you approach anything and everything you do with a clean slate in your mind, that’s a first and major lesson we’ve all learned from the collapse of SVB.
And the lesson is this: it’s hard to lead a large financial institution. And many of us apply to a position we are “sort of” qualified for and hope that we rise to the occasion. It seldom happens in positions of leadership. Accountant industry is a great example. Managers and partners at accounting firms are often terrible leaders and terrible people managers: getting the work done, being a good accountant- like very detailed, somewhat OCD, introverted and perfectionist- ultimately leads to poor social skills especially feelings of empathy, sympathy and perspective AND big picture. That’s just the nature of the beast (though due to very egotistic nature it’s impossible to get any accountant to admit to that — and I know, I AM an accountant by trade).
Yet, what gets you promoted in accounting is exactly those qualities mentioned and those are the same qualities that disqualify you as a manager. So naturally, top people in accounting firms are terrible managers and often breed misery and hate in and for the profession.
How does this relate to a banking collapse? Well, a good look at how the C-suite was hired and why is required. Of course, just like in driving you can control a LOT but there are a few situations where you have zero control — like being rear-ended or standing at a red light and someone losing their consciousness and hitting 3 cars- but overall most accidents are preventable, and many difficult situations in a financial organization are, too. It requires a strong leader and someone who is not afraid to get their hands dirty and not give up. Out of the box thinking is kind of important, too, of course.
Another big lesson is that ANYONE is prone to failure. It’s how you deal with it and how you get up and get going that matters and makes a real difference and that’s something that takes courage and curiosity working together inside a leader’s brain.
As plain and “I told you so” as it sounds, companies can do quite a few things to keep financial prudence while still pursuing innovation and growth. One of those things is building reserves and that’s something my clients and I always make a priority in our work together. Knowing your numbers is another great thing — and it’s amazing how few leaders actually do it. That’s why 50% of businesses fail in just 5 years. Understanding every number, forecasting and actually doing something about that forecast when you see a dip in cash, or using it to make a decision to hire or expand or grow — that’s probably the most critical piece of advice I can give you. THAT is what makes a difference between the SVBs and the JPMorgan’s of the world.
Risk management is not an event, it’s a habit, just like profit is. And risk management is another critical tool that is the catalyst between conservative company growth and innovation. Leaders, C-suite, top executives, should always have their hand on the pulse and always be ready. There is something called a “Crisis response curve” that starts with a top point being a state of shock (when a crisis occurs). Then the curve goes down to desperate actions and eventually levels (bottoms) at evaluation and then trends up for deliberate action.So the idea behind risk management is to get to evaluation and deliberate action as quickly as possible and jump over the shock and desperation stages quickly too. Making risk management, anticipating the unlikely and creating a plan of action, communicating that to the entire organization consistently is how it should be integrated into organizations of any size by leaders.
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Interviewee: Melissa Terry
Company: VEM Tools
Answer: In order to pursue innovation and expansion while maintaining financial responsibility, entrepreneurs, business owners, and finance experts can learn from the collapse of Silicon Valley. Growth without sound financial management can result in calamity.
By establishing good internal controls, such as the segregation of duties and fraud prevention measures, businesses may ensure that they retain financial prudence. These internal controls include frequent financial reporting, budgeting, and forecasting. Consumers can also look to licensed experts for advice, such as accountants, financial counselors, and lawyers.
Companies should place a high priority on risk management during the decision-making process because it can help detect and reduce potential risks that could have an impact on the company’s financial performance, reputation, and legal compliance. In addition to reducing risk exposure, effective risk management can assist businesses in seizing opportunities and achieving their strategic goals. Companies should establish clear risk management policies and processes and give staff the necessary training in order to effectively incorporate risk management into business operations. In order to adjust to changes in the business environment and emerging risks, they should also assess and update their framework for risk management on a regular basis. Also, everyone inside the organisation should share responsibility for risk management, participating in the identification, evaluation, and management of risks.
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Interviewee: Tracy cauley
Company: Vem medicals
Answer: What lessons do you think entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank?
Diversification, The collapse of Silicon Valley Bank highlights the significance of diversification. As an entrepreneur or business proprietor, it’s pivotal to have a different range of profit aqueducts and not calculate too heavily on one source of income.
Risk Management It’s important to have strong threat operation practices in place. As a finance professional, you must understand the pitfalls of different investments and make informed opinions grounded on your threat forbearance and investment pretensions.
It’s important to conduct thorough due diligence before investing in any company or fiscal institution. Finance professionals need to dissect fiscal statements, operation practices, and other applicable factors to assess an investment’s threat and implicit return.
How can companies ensure that they maintain financial prudence while still pursuing innovation and growth?
Companies can ensure fiscal prudence while pursuing invention and growth by establishing clear fiscal pretensions, covering fiscal performance criteria regularly, and prioritizing fiscal threat operations. This includes developing and clinging to a well-defined budget, ensuring profit growth is accompanied by healthy profit perimeters, and conducting regular fiscal checkups to identify implicit pitfalls and openings for enhancement.
It’s also important for companies to prioritize strategic planning and prosecution to ensure that invention and growth enterprise align with overall business objectives and are financially doable. Companies can maximize their chances of long-term success by balancing the need for invention and growth with fiscal prudence.
In your opinion, what role should risk management play in the decision-making process of companies, and how can it be effectively integrated into business operations?
Threat operation should play a pivotal part in the decision-making process of companies. It’s important for companies to consider implicit pitfalls when making business opinions and to develop strategies to alleviate these pitfalls. Effective threat operation can help companies make informed opinions, minimize fiscal losses, and maintain their character and stakeholder trust.
To effectively integrate threat operation into business operations, companies should establish clear threat operation programs and procedures, regularly assess implicit pitfalls and their implicit impact, and incorporate threat operation into their overall strategic planning and prosecution. Companies should also invest in appropriate threat operation tools and coffers and give ongoing training to workers to ensure that threat operation remains precedence across all association situations.
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Interviewee: Richard Stafford
Company: Fettle
Answer: Entrepreneurs and business owners can learn from the collapse of Silicon Valley Bank that it is critical to have a risk management plan in place because every business, including banks, faces risks.
Maintaining financial prudence while pursuing innovation and growth can be a difficult balancing act for companies. However, conducting a risk analysis can assist you in identifying potential financial risks associated with your growth and innovation strategies. This analysis can assist you in prioritizing investments and developing contingency plans to manage potential financial risks.
Risk management should have a significant role in company decision-making. Companies can support their long-term success by identifying and assessing potential risks, minimizing potential losses, increasing profitability, meeting legal and regulatory requirements, enhancing their reputation, and aligning with strategic goals.
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Interviewee: Young Pham
Company: BizReport
Answer: 1. What lessons do you think entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank?
One of the most important lessons entrepreneurs, business owners, and finance professionals can take away from the collapse of Silicon Valley Bank is the importance of proper risk management. It’s essential to thoroughly evaluate the potential risks associated with any investment or business decision and to have contingency plans in place in case things don’t go as planned.
Another important lesson is the importance of diversification. Silicon Valley Bank was heavily focused on lending to the technology sector, which left it vulnerable when the dot-com bubble burst. Business owners and investors should diversify their portfolios across various industries and asset classes.
2. How can companies ensure that they maintain financial prudence while still pursuing innovation and growth?
Companies can maintain financial prudence while pursuing innovation and growth by leveraging technology and automation to improve efficiency and reduce costs. They should invest in software and systems that streamline processes, reduce manual labor, and eliminate waste. By using technology to optimize operations, companies can save money and free up resources directed toward innovation and growth initiatives.
3. In your opinion, what role should risk management play in the decision-making process of companies, and how can it be effectively integrated into business operations?
Risk management should play a critical role in the decision-making process of companies by identifying potential risks and developing strategies to mitigate them. To effectively integrate risk management into business operations, companies should establish a comprehensive risk management framework encompassing all aspects of the business, from planning to performance evaluation, and allocate appropriate resources and expertise to implement it successfully.
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Interviewee: Robert Bird
Company: University of Connecticut
Answer: The collapse of Silicon Valley back highlights the importance of risk management and compliance in a bank’s operations. While managers and executives are responsible for the day-to-day activities of banking, a board of directors can play an important role in preventing bank failures. Typically, a board of directors concerns itself with the broad strategic direction of the company and what is best for the organization from an overall perspective. However, boards must also be proactive and have a monitoring and feedback system in place to prevent serious misconduct. Boards must be engaged with top management in order to ensure productive and compliance operations. Boards must also have the willingness to confront management when the bank is exposed to unnecessary risk. A board that is disconnected from management, especially in areas of compliance or risk management, is leaving the organization vulnerable to serious misconduct or even collapse.
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Interviewee: Bob Wood
Company: University of South Alabama
Answer: Question 1: Always consider all factors and potential outcomes when making decisions. The managers (implicitly with board approval) invested excess deposits in US treasuries. Treasuries are considered a risk-free investment and was, at the time, a prudent move. However, they ignored the importance of maturity matching in asset and liability management. This is especially important if interest rates increase. The maturities of the treasuries were longer than the shorter-term deposits and the bank was forced to liquidate their treasuries at a loss. The losses led to SVB’s collapse.
Question 2: Seeking returns must always be balanced by considering risk. In this case, interest rates had remained in a relatively narrow (and low) band for several years. The possibility and risk of rapidly increasing rates was either ignored or dismissed. Given the level of uncertainty at the time due to the pandemic, it would have been prudent to consider the outcomes should risks increase. Careful consideration of the risk/return tradeoff is requisite for success.
Question 3: Risk-management should be a prime consideration in all business activities. The enterprise risk management process (a holistic process of identifying and developing plans to mitigate potential risks) should be adopted and led by the senior managerial team.
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Interviewee: Steve Griffin
Company: Madison Avenue Technology
Answer: I am writing in response to your press request query regarding the lessons that entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank. I am Steve Griffin, the leader of Madison Avenue Technology, and I have extensive experience in finance, banking, risk management, and entrepreneurship. I have a record of transforming early revenue and growth companies into industry leaders.
The role of risk management in the decision-making process of companies is essential. Companies must be able to identify and manage risks in order to maintain financial prudence while still pursuing innovation and growth. Risk management should be integrated into business operations and should be taken into account when making decisions. It is important to understand the potential risks of any decision and to have a plan in place to mitigate those risks.
When it comes to the collapse of Silicon Valley Bank, there are a few key factors to consider. Poor risk management was a major factor in the bank’s collapse. The bank was taking on too much risk without having the proper risk management processes in place. Additionally, the bank was not adequately diversifying its investments, which led to a lack of financial stability. Finally, the bank was not properly monitoring its investments, which led to a lack of oversight and accountability.
These are just a few of the lessons that entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank. By understanding the importance of risk management, diversifying investments, and monitoring investments, companies can avoid similar pitfalls.
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Interviewee: Dinesh Pandian
Company: Lenders.fi
Answer: The collapse of Silicon Valley Bank is a lesson in how not to run a business. The bank was founded on the principle of “doing good” by its employees and clients, but failed to practice what it preached when its own behavior caused it to fall apart. It didn’t just fail to live up to its own values — it failed to be honest about its problems, which led to a lack of trust among customers and employees alike.
Business owners can learn from this example by making sure their companies are transparent and honest with their employees and customers about any issues that might arise. This will help establish trust between all parties and prevent any unnecessary fallout that could arise as a result of failing to communicate clearly.
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Interviewee: David Martinez de Lecea
Company: Exirio
Answer: The most obvious lessons are that:
1. Bank deposits are not your money… they are debt, i.e. when you make a deposit in a bank, the bank owes that money to you and they could lose it before you ask for it back.
2. Operational risks can come from anywhere. I don’t know any entrepreneur who contemplated not having access to their bank account last week.
As any other area in the business… Business owners need to hire professionals according to the needs and scale of their business. A small early stage startup might not need a full-time CFO but if your company has $500m in the bank account you probably need a professional manager that diversifies risks efficiently.
Risk management should be embedded in every decision of the business. One cannot rely on another executive or a risk management committee. Resilience is an objective that must be on par with growth and profitability. Again, hiring experienced professionals normally pays off in the long-term.
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Interviewee: Ron Geffner
Company: Sadis & Goldberg LLP
Answer: There is a lot to be learned about the recent events. First and foremost, it should be clear to everyone that our financial markets are very interrelated. 2008 was a prime example of this. Almost every asset class moved in a similar direction. Risk management is dynamic and while its importance cannot be stressed enough, its weighting in connection with making informed decisions should be applied differently depending on the market cycle faced by an industry and the broader community. What is surprising is the rhetoric that was shared last week suggesting that there was no “contagion” from SVB. While it is unlikely to take us down the same path and devastation as 2008, it is certainly not isolated. Given troubles being faced by Credit Suisse, while it is unlikely to continue to move up the food chain, we as a society need to exercise caution and evaluate the risk to which we and our counterparties are exposed. The learning lesson is trust but verify.
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Interviewee: Darlene Gregory
Company: Loan Advisor
Answer: One important lesson learned from the collapse of Silicon Valley Bank is the risks associated with focusing on a single industry or customer base. Silicon Valley Bank had a heavy reliance on the tech industry, and when the dot-com bubble burst in the early 2000s, the bank suffered significant losses. This highlighted the need for diversification and risk management in the banking industry. Additionally, the collapse of Silicon Valley Bank also highlighted the importance of sound lending practices and due diligence in evaluating potential borrowers to mitigate the risk of defaults and losses.
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Interviewee: Adam Zbar
Company: Hamsa
Answer: SVB’s failure will cause startups and VCs to fundamentally change how they bank. The system failure it exposed is that over 90% of the depositors’ funds were uninsured. If the government hadn’t stepped in to backstop the deposits, it would have resulted in over $100B in losses. A major area that needs to be addressed is startup risk management. While this varies by industry, Treasury Management is a universal risk management area that all startups will need to start proactively addressing.
Startup Treasury Management Policy — Set at the board level. Reported on quarterly.
Startup Treasurer — In-house or hired consultant that designs startups treasury management. This will no longer be left to startups doing it on an ad hoc basis.
Startup Treasury Management — Diversification of risk management to ensure all capital is protected. This will be done in two ways: A) Asset Diversification: one of the main products used will be off bank balance sheet sweep products that sweep either into multiple $250K FDIC insured accounts and/or sweep into treasury funds managed by major asset managers like Blackrock and Morgan Stanley; B) Bank Diversification: all startups will likely have at least two bank accounts — a major bank account where they can protect the corpus of their capital and a smaller bank account where they can get access to more innovative financial products that are designed for startups.
A major outstanding issue is venture debt. Currently most banks require that you keep all your capital at their bank when they give you a venture loan. This is one of the things that created such a concentration of startup and VCs capital at one bank — SVB. Going forward, no startups or VCs will agree to this set-up. As such, banks will either have to create flexibility around this condition or VCs will no longer allow startups to get venture debt loans from the banks that require this.
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Interviewee: Pannathorn (Pan) Lorattawut
Company: VUCA Digital/CROWN Token Project
Answer: To answer your first question: A company might focus on any specific sector or niche market, but diversification and risk management remain important for any business operations. We need to start by understanding our ecosystem or supply chain, then determine whether we’re better off having more than one main business partner or vendor either for efficiency or risk management. It’s crucial to build strong relationships with strategic partners for each key business activity, and also to develop a plan B, especially if an unexpected incident arises.
To answer your second: We pay great attention to risk management, including liquidity management. The use and source of funds need to be carefully managed. Businesses need to continue developing products, services, and their team. Market conditions and other macro factors will significantly impact businesses, but proper fund management and reserve levels will help a company align its goals and operating speed with the market.
To answer your third: Risk management should be integrated into a company’s whole process, from strategic planning to operations. When making decisions, we always need to identify, manage, and control risks, and weigh them against potential benefits. As it’s nearly impossible to eliminate all types of risk, a company has to determine the level and type of risks it can accept and monitor the activities or processes with the highest risk. Risk management factors into financing, operating, investing, people management, PR, and marketing. This means integrating it into each operational function: workflow design and implementation, monitoring and reviewing, and so on.
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Interviewee: Blake Harris
Company: Blake Harris Law
Answer: What lessons do you think entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank?
Bank smart! There are tools available for safeguarding your wealth beyond placing your money directly into an American bank account. I highly recommend utilizing an offshore trust in a jurisdiction such as the Cook Islands, Belize, or St. Kitts and Nevis and having your trust on a bank account in a very safe banking jurisdiction such as Switzerland or Liechtenstein.
How can companies ensure that they maintain financial prudence while still pursuing innovation and growth?
Balancing risk and reward is a key to any business’s success. The important thing to remember is to not take any risk that you don’t need to. For example, avoid opening a bank account in your name directly when you can open a bank account through an offshore trust, which will keep those funds protected from lawsuits. Also, if you have more than $1 million, consider opening a bank account in an extremely safe banking jurisdiction with a safe bank in a country such as Switzerland or Liechtenstein. These offshore accounts can be opened under your offshore trust. The structure gives you protection from lawsuits in your home country, and protection from an unstable banking system in your home country.
In your opinion, what role should risk management play in the decision-making process of companies, and how can it be effectively integrated into business operations?
Risk management is key to the survival of every business. However, every business also requires you to take on some risk. As a business owner, you should be prudent in what risk you take on and avoid all unnecessary risk, such as leaving yourself exposed to lawsuits which you can avoid with an offshore trust and leaving yourself exposed to an unstable banking system, which you can avoid by opening a bank account in a more stable banking jurisdiction such as Switzerland or Liechtenstein.
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Interviewee: Daniel Kroytor
Company: TailoredPay
Answer: While bootstrapping enables me to grow my business on my terms, it also means taking on all the financial risks myself. However, this comes with an incredible sense of reward. Not accepting outside financing means we can do what’s best for our customers rather than what’s in an investor’s best interest. And because our client list includes many high-risk merchants — those with uncommon sales models, transaction volumes, fulfillment times, or industry — it’s an opportunity for us to help democratize entry into the eCommerce space for many young startups.
Risk-taking enables entrepreneurs to step outside their comfort zones to achieve greater success. Opportunities can pass by when you fear making the next move might possibly lead to failure. And playing it safe can limit your business’s potential, causing it never to evolve and be short-lived. It’s a gamble–especially when you don’t have enough cash on hand.
Unfortunately, that’s just what SVB did — gambled on those steady returns from long-dated Treasury bonds and mortgage bonds when they should have been diversifying their investments to offset the risk that typically comes with rising interest rates. The failure of SVB to diversify is a sharp reminder to banks and businesses alike: don’t put all your eggs in one basket.
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Interviewee: Ryan Hansen
Company: Liquid Mercury
Answer: What lessons do you think entrepreneurs, business owners, and finance professionals can learn from the collapse of Silicon Valley Bank?
One of the lessons for entrepreneurs and business owners from SVB’s downfall is to know your counterparty risk as best you can and to think through a framework ahead of time for when things don’t go according to plan. With Liquid Mercury’s collective backgrounds across financial markets, we know that it is imperative to know who you are trading with, to eliminate single points of failure so operational risk doesn’t take you “out of the market”, and to know what you will do in the event that things go wrong because the worst time to figure it out is in the middle of the crisis, and this is something that could have been applied to the SVB situation.
How can companies ensure that they maintain financial prudence while still pursuing innovation and growth?
While most companies would rather focus on building their business than determining the stability of their bank, how things unfolded at SVB should require many to ask hard questions about their treasury management and corporate risk plans, such as how many banking relationships should be maintained as contingencies in case our primary bank has an issue, what happens to our business if we lose this critical piece of infrastructure, and more.
In your opinion, what role should risk management play in the decision-making process of companies, and how can it be effectively integrated into business operations?
Risk management is a sometimes boring topic but so critical to long-term success. If some of the companies who banked with SVB had asked harder questions, such as what is an appropriate amount of money to put into our SVB account knowing that it is uninsured and at-risk or how will our business be affected if we only have one banking relationship and something happens to disrupt the bank’s operations, then perhaps we wouldn’t have seen so may companies facing dire consequences only to be saved at the last moment by government action.
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Interviewee: Solomon Lax
Company: Revenued
Answer: Resilience and redundancy is key. Although we all tend to do business where there is the least friction which then means you get concentrated in just a couple of relationships you need to diversify. Sometimes that means the expense of increased friction and less comfort with a relationship.
Companies can ensure that they maintain financial prudence while still pursuing innovation and growth by realizing that each cycle brings new risks and to be prepared to pivot and tighten quickly.
Risk management generally is managed by senior management and additionally by someone a bit on the outside, whether formally the risk manager or informally so. Senior management tends to groupthink over time so even if you cover the bases on the classic risks, the ones no one thinks of or wants to consider can kill you. An outsider is valuable to point out the non consensus view.
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