I’m a purist when sourcing a quote. When reflecting on history, Mark Twain’s quote was, “no occurrence is sole and solitary, but is merely a repetition of a thing which has happened before, and perhaps often.” Why is so much attention paid to Silicon Valley Bank’s collapse? Isn’t it just a lousy sequel to a cringeworthy original?
Having worked for a Wall Street firm during the 2008 financial crisis, I see many similarities between the response to that crisis and the current banking panic: the government will engineer a solution to return to business as usual as quickly as possible. However, another SVB is inevitable because regulators and the market failed to address the root cause of previous crises.
The SVB Crisis is a Wicked Problem
As strategists rooted in design thinking, we look for wicked problems, defined by former UC Berkeley Professor Horst Rittel in 1967, as “ill-formulated, where the information is confusing, where there are many clients and decision makers with conflicting values, and where the ramifications in the whole system are thoroughly confusing.” Running through this list, we find:
- Ill-formulated → yes, explain duration risk, mark-to-market accounting, and reserve requirements at a dinner party.
- Information is confusing → yes, social media amplifies the noise of people seeking attention rather than sober voices defining the problem.
- Many clients and decision-makers → yes, entrepreneurs, venture capitalists, bankers, and government regulators.
- Ramifications are thoroughly confusing → yes, backstopping deposits risks leading banks to take on additional risk knowing that the Fed will make depositors whole.
You can read more about Wicked Problems in our earlier post.
Who is at the Table?
When faced with a crisis, pursuing the most stakeholder with the most pressing need is tempting. However, how are we sure this is the right path? Too often, the false urgency of social media pressures decision-makers into short-term fixes that exacerbate long-term problems. Rather than answering the pleas of the loudest voices, let’s define who’s at the table.
In the case of Silicon Valley Bank, there are three key players:
- Startup founders urged by VC to get their money out of SVB ASAP.
- Venture capitalists are supposed to be the most intelligent people in the room.
- Silicon Valley Bank profited from the startup ecosystem and gained significant prestige as the Valley’s “kingmaker.”
When a market-based bailout fails to materialize, the government decides which child to feed first. Using design thinking makes this decision much more manageable.
Design Thinking in a Crisis?!
Tim Brown, the former CEO and now chairperson of IDEO, defined design thinking as having three components, in this order:
- Desirability (the needs of people)
- Feasibility (the possibilities of technology)
- Viability (the requirements for business success)
Focusing on desirability via the Value Proposition Canvas, the needs of the stakeholders when the Fed shows up is pretty straightforward:
- Pains
- Startup founders → access to funds, inability to make payroll, business failure
- Venture capitalists → risk to their image, relationships with startups and GPs
- Silicon Valley Bank executives → loss of power, no longer the trusted kingmaker
- Gains
- Startup founders → a trustworthy banking partner
- Venture capitalists → focus on building companies
- Silicon Valley Bank executives → be the bank of choice among startups and VCs
- Jobs to be Done (JTBD)
- Startup founders → reset confidence among employees and investors
- Venture capitalists → raising the next fund
- Silicon Valley Bank executives → regain lost power
In short, the JTBD among each stakeholder appears to be aligned: get back to “normal” as quickly as possible. However, the motivations of each player are divergent and will require a deeper dive, which we’ll cover in our next post. Stay tuned.
In the meantime, what do you think is the underlying motivation of each persona?
