Silicon Valley Bank Collapse: What to Look for and Do
The Impact of the Silicon Valley Bank Collapse
The swirl of a sensational news story can obscure real human impacts. First and foremost, I want to express my empathy with everyone who has been affected by the SVB collapse. I directly know people who have already received furlough notices and others whose jobs are in the balance.
In face of trauma, anxiety, and uncertainty, I’m wishing calm and strength to everyone.
For business founders, this may be the time you’re called upon to demonstrate exceptional leadership and resourcefulness. Even if the FDIC’s intercedes to guarantee depositors can access all their funds (as Treasury Secretary Janet Yellen indicated would be the case), and even if your business was not directly affected this time, you just got a big reminder that crises can arise at any moment and that you need to be prepared.
Looking at Precedents
We don’t have to look back too far for a crisis that forced many industries worldwide to respond. Just three years ago this time, in early and mid-March 2020, we were witnessing what seemed like science fiction: schools shuttered, thoroughfares in major cities emptied of cars and pedestrians, and many sectors of the economy upended.
If we go back a little further, the bursting of the tech bubble in 2000, the attacks on September 11, 2001, and the subprime mortgage fiasco that started boiling over in 2007, tragic and costly as they were, can serve as precedents and provide lessons for how we may be able to navigate the SVB crisis or other unforeseen challenges.
Impact on Consulting Companies
In October 2013, an impasse in federal budget talks prompted the US government to furlough federal employees and put contracts on hold. While the economic impacts of this were not as widespread as for the crises referenced above, it posed a great challenge to the marketing and analytics consulting company that I owned and ran and that depended significantly on government clients.
While the current SVB crisis may affect technology product companies most broadly, consulting companies also face three potential impacts, in any combination:
- Your own company’s money is tied up
- Your clients’ money is tied up, impacting their ability to pay invoices
- A company whose product or platform you sell, implement, or support is compromised financially, putting their viability at risk
A 5-A Crises Framework for Businesses
I’m happy to say that my consulting company was able to get past the difficult stretch when government contracts became uncertain. Following the basic “5-A” framework helped us make it through. It’s not a formal procedure, but offered as a way to help business founders and leaders prioritize actions to take in a crisis.
- ASSEMBLE a crisis management team, including founders, senior leaders and specialists in legal, finance, HR and (as warranted for larger organizations) PR/comms
- ASSESS impacts as objectively as possible financial resources you have at your immediate disposal other financial resources you have access to
- ACKNOWLEDGE that it won’t be “business as usual,” at least in the near term meaningful steps that you can take what you don’t have control over
- ACT QUICKLY
- ANNOUNCE your response internally, externally, and frequently
Short Term Liquidity
The ACT step above, of course, refers primarily to ensuring cash flow. If any of your business accounts have been affected by the SVB meltdown and you can’t readily access other business funds, you may have to take one or more of the following actions short-term:
- Dip into personal savings
- Inquire about increasing credit card limits
- Apply for a line of credit from another institution, which may be inclined to recognize the extenuating circumstances that overtook many companies
- Ask for a bridge loan from investors
- Ask clients for early pay
- Ask vendors for delayed payment
- Seek out any kind of public- or private-sector grants that may be available
- If necessary, institute furloughs/weeks without pay, reduced work weeks, or salary reductions
On the last bullet above, check with your HR and legal team to make sure that any actions regarding work hours or salary follow legal requirements.
At one point in the history of the consulting company that I referenced earlier, I had to pull funds from my own 401k to meet payroll. It was a drastic measure that was needed to preserve the organization, which I was able to sell to a global media company years later. The short-term sacrifice provided a long-term benefit to everyone in the company.
I’m not recommending that you make this decision lightly. Do consult with family members, but if you have a good thing going, it’s probably worth risking some personal funds to help get the company past the crisis.
Stay Connected, Level-Headed, and Flexible
When you’re a business leader, a crisis is no time to avoid and isolate. Staying in touch, grounded, and even politically active can be key.
- Network with your peers to find what others are doing.
- Reach out to family, friends or any partners. Keep them informed and graciously accept any form of support, advice, or general good will that they offer.
- Draw upon mindfulness, spirituality, or any other practice that can provide solace and perspective.
- Regardless of your political inclination or direct impact in the SVB ordeal, this might be the time to join like-minded individuals and advocate local, state, federal entities to support businesses like yours… not for underwriting million-dollar bailout bonuses for execs whose heedlessness and greed pushed their companies off cliffs, but for developing creative programs to provide a lifeline for responsible companies (and their employees) who find themselves in a crisis that is in no way of their own doing.
- If your own business has been largely dependent on another company (such as in a reseller or product implementation arrangement) consider diversifying. One of the first sayings that we all learn as children warns us about the danger of keeping all your eggs in one basket.
- Same thing for your company’s finances: consider breaking up your business accounts with more than one bank.
More communication more frequently (externally and internally), as well as a more flexible approach to your business model and operations, can be the key to making it through a current crisis and building up smart contingency plans for the future.
Next Steps
As has been the case with similar banking crises, FDIC is expected to give access to insured deposits. As mentioned above, the US Treasury Secretary has issued unambiguous messaging that SVB depositors should have full access to their funds. If this plays out differently and impacted companies can’t readily make payroll, company leaders may have to resort to some of the measures outlined above.
If another financial entity steps in to take over Silicon Valley Bank, the new owner will most likely make additional funds available to depositors. This scenario, activated quickly, would surely be another favorable outcome.
Over the next days and weeks, I hope to provide additional guidance for business founders and leaders who may be caught in the maelstrom. For right now, I offer my best wishes for fortitude. With your team, be truthful but reasonably optimistic about long-term, big-picture prospects. Know that this, too, shall pass.
Please feel free to reach out to me directly with any specific questions.
