On March 9, Fortune CEO Alan Murray and I hosted a lunch for 30 executives in Lake Nona, Fla. We asked for a show of hands: How many felt we’d soon enter a recession? Only a few did.
If we had asked the next day, they might have answered differently. During my short flight home, Silicon Valley Bank imploded: Depositors moved $42 billion out of its accounts in 24 hours, thanks in part to a VC-led Twitter frenzy. That weekend, SVB and another regional player, Signature Bank, collapsed. The biggest reason: They were caught flat-footed as interest rates swiftly jumped over the past year.
More than three years after COVID emerged, we are finally beginning to see the negative impact of our abnormal pandemic behavior on businesses. As I write this, the shakeout is sweeping through two of the most powerful industries, tech and finance. Meta, Amazon, Zoom, Salesforce, and Google all benefited from an artificial boost in spending as years of free government money sloshed around. They are now having to recalibrate, swapping exuberance for efficiency; collectively, the tech sector has laid off more than 150,000 staffers since the year began.
The spending also fueled high inflation, which Federal Reserve Chairman Jerome Powell has been trying to tame with rate hikes—which in turn are now crushing banks that were overexposed and under-regulated. It’s making the rest of us nervously watch our accounts, wondering whether our money is safe.
When times are good, it’s easy to think they will last. And that’s when leaders can lose discipline.
Meta, for example, saw its stock drop more than two-thirds from its 2021 high, prodding CEO Mark Zuckerberg to declare 2023 “the Year of Efficiency”; he recently announced Meta’s second round of layoffs in six months. Meta’s shares have rebounded some. But as Geoff Colvin points out in his story in this issue: “If this is the Year of Efficiency, what were all the previous years—the Years of Squandering?”
No industry has been humbled more than crypto, whose market cap has plummeted since the beginning of 2022. In our inaugural Crypto 40 package, editor Jeff John Roberts and his team picked the companies best positioned to survive and transform what remains of the industry. One of those picks is Binance, which has been the cryptocurrency exchange leader in terms of trading volume. Jeff’s team penalized it in our ranking, however, because its financials have been a black box.
Fortune’s Shawn Tully spent months unearthing some surprising details about those financials. Binance’s explosive growth in recent years, it turns out, has been aided by an exorbitantly expensive influencer marketing scheme. The rest of the industry needs to hope that Binance’s founder, Changpeng Zhao, used the good times to prepare for a black swan. As we’ve seen with SVB and Binance’s rival FTX, a loss of consumer confidence in the social media era can be swift, vast, and deadly.
It’s not clear how far the current contagion will spread. But the lesson is clear: CEOs can’t assume that their best days will become normal days. Crashes are unpredictable—and inevitable.
Alyson Shontell
Editor-in-Chief, Fortune
@ajs
This article appears in the April/May 2023 issue of Fortune with the headline, “Efficiency is cool again.”
