“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”― Ernest Hemingway, The Sun Also Rises
Our bank collapsed…
Tiller was briefly caught by the collapse of Silicon Valley Bank on Friday.
In a matter of hours, we went from a financially healthy, strong position to a balance of zero available funds. Nothing.
Along with thousands of other companies, our bank account was shut down. While the FDIC was quick to share that the $250,000 insured portion of deposits would be protected, our exposure was orders of magnitude more than the FDIC insurance.
The immediate crisis appears to be averted, but it holds lessons for Tiller and all of us working to be good stewards of our personal finances.
The collapse of SVB was a quintessential black swan.
That term, coined by Nassim Nicholas Taleb, describes events that are:
- exceptionally rare and hard to predict
- have an enormous impact, and
- in hindsight can often be explained as if it were predictable
All of that is true here. If you asked me last month, yes, I could explain a bank run, and I could even share that my grandparents lived through a bank run a century ago. That said, I was not remotely worried about that risk.
This is true even though we at Tiller are always talking about risk management. Through audits, security reviews, and training, we are constantly, vigilantly thinking about how we can protect our data and our customers’ data from system failures, bad actors, and other catastrophes.
We even put significant effort into protecting our SVB bank account from hacking. We just hadn’t anticipated the bank itself would disappear in one day.
I knew the FDIC only guaranteed deposits up to $250,000. It just wasn’t a risk that I perceived was worth managing. Our CFO and I had even recently talked about opening multiple bank accounts. But we both concluded a deeper relationship with one bank was preferable to the complexity of many banks. Ha!
Regarding black swan events, Taleb writes that predicting the next one is futile. Whether it’s the terrorist attacks of 9/11, a pandemic, or a war, it’s pointless to predict very low probability events.
The same is true personally, be it cancer or car accidents. To weather these storms, we have to build resilience in our lives and our work.
Tiller’s preparation and response
While we only used a single bank account, Tiller was resilient in other critical areas. We use Tiller to budget and forecast Tiller of course, and we know precisely what our cash needs will be.
As SVB collapsed on Friday, our CFO and I reviewed Tiller’s 2023 budget forecast and flipped the cash balance from a number with many zeros to a number with a single zero.
Then we started planning: how can we keep Tiller running until the $250,000 lands from the FDIC, and presuming we lose everything else beyond that $250,000, how can we keep Tiller thriving and growing into the future?
The good news is we were already fluent with this forecast and budget, and Tiller has the flexibility to forego aggressive growth and focus on profitability.
If our cash from investors vaporized, we could continue to serve our customers without a hitch. We could continue with payroll. We could even fulfill the job offer we made earlier that day.
Yes, we’d be cutting some new growth initiatives, but we would survive.
My next step was to update Tiller’s investors and employees: Tiller is on stable footing, and we’ll be ok, even if nearly all of our cash disappears in this bank collapse.
Tiller being Tiller, we’ve always been sharing regular financial updates with investors and employees. I knew I might create undo stress for our employees over the weekend by sharing something completely out of their control, but I also knew there was no alternative. We speak openly here at Tiller.
So on Friday PM, I fired off the alerts: our money is gone, but we’ll survive.
Mission driven, plus sharing the benefit of the doubt
The culture you put in place shines when the rain pours. This is true as a company but also with our personal relationships, be it family or otherwise.
Despite this being a black swan event, I owned this. It was my failure. As CEO, I made a choice to put everything at SVB rather than store our cash in a diaspora of different banks or treasuries.
Yet to a person, all of the responses from investors and our team here were supportive and positive. One of our team responded, “I know we’ll weather this storm and still come out strong!! 💪” Well said!
With Tiller’s mission and culture, it’s true – no matter the outcome, this event would make us stronger. This knowledge carried me through the weekend.
The more redundant our systems, the better protected we are from black swans. Redundancy also creates complexity, so judgment is involved to know the right balance.
The choice not to have multiple bank accounts was a decision favoring simplicity and security (fewer access routes into our money), but obviously, we will review this decision going forward.
Beyond banks, there is already a lot of redundancy at Tiller. Redundancy is important not just for black swans but for a well-run company.
I know I can take a two-week vacation and literally not check Slack once, as an example. That’s the standard operating procedure here. Most systems and roles have redundancy built-in at Tiller so if one person is out or one system is down, we can continue.
Lessons for Tiller customers
At Tiller, we will continue working to build resilience for the next black swan. We’re also in the business of helping you, our customers, to be more financially resilient.
When you are in control of your personal finances, you are much better prepared to handle the unexpected, be it a new transmission for the car, a job loss, or a health crisis.
First, a note about Tiller for those who use our service. Resilience is inherent in our design. If Tiller were to be offline unexpectedly, customers would still have full access to their complete spreadsheets in Google Sheets or Microsoft Excel.
If either Google Sheets or Microsoft were offline, customers could create a new spreadsheet on the other platform, and with Tiller, they could have that spreadsheet populated in minutes with all their financial data.
This level of redundancy is unique in our industry, and it leverages Tiller’s architecture built on the leading spreadsheet platforms.
Beyond using Tiller, how prepared are you?
What is your financial cushion? There are many ways to build a cushion. For some, a good budget is a planning cushion because it can help you quickly reduce spending if you hit turbulence. For others, having a sturdy emergency fund is another way to cushion when things get tough. For best results, have a budget plan you can modify and also an emergency fund.
If you share finances, is there a culture of transparency and communication? If your finances are shared, you will be much better at navigating a black swan if you’ve already built up the good habits of open communication and transparency around money.
If you need to tighten the belt for a period, this is something you’ll have to do together. Or imagine if one of you becomes incapacitated for a few weeks: who would be able to ensure that bills, rents, mortgages, and obligations are met?
Redundancy is also key. Redundancy can quickly make things more complicated, which has its own risks, but there are a few scenarios to consider. How would you respond if your bank goes offline for a period of time? What if your paycheck doesn’t arrive? What if the phone or computer where you store your account credentials goes missing, how would you access your accounts? What if you are incapacitated, is there someone who can pick things up?
After a weekend of anxiously watching and waiting for a resolution with SVB, we’re grateful our deposits will be kept whole. This was a black swan with a quick resolution. These don’t always end well. A family member of an employee recently had their checking account drained from fraud, and there’s no resolution likely. All of this is a good reminder to be prepared.
We won’t anticipate the next black swan, but we can continue to build resilience into our systems and lives so we can withstand the unexpected.
We can all learn from each other, and I would love to hear your black swan stories. What black swans have you survived? How are you working to be prepared for the next one?
Please share your thoughts in this Community thread!