What can higher ed learn from the collapse of Silicon Valley Bank?
One of the major events in 2023 was the collapse of Silicon Valley Bank. Although that event was a surprise, in hindsight some red flags appear that should have warned of potential problems. Anne-Sylvaine Chassany, writing for Financial Times, identified some of the characteristics of the booming Silicon Valley Bank that should have caused people to be wary. As I read that article, I wondered if any of the unnoticed or unheeded red flags for SVB could also apply to educational institutions and businesses that have, or will in the future, experience spectacular growth in a relatively short amount of time. Considering some of the red flags with SVB’s practices that either were ignored or downplayed by bank executives and regulators can help us be on the lookout for those same or similar existing or arising characteristics that could potentially lead to the contraction or even collapse of seemingly highly successful entities in the education industry. Three of those red flags are listed below, followed by suggested lessons that can be learned.
Red Flags
1. Prioritizing being cool
The President of SVB portrayed himself and the bank as cool and “the future of education.” In the “SVB shows why we should worry about a ‘cool’ bank” article, Chassany wrote, “SVB saw that by embracing the codes of the tech scene, it would attract customers.” The tech scene in Silicon Valley was, and perhaps still is, a cool place to be where start-ups claim they can “change the world” with their innovations. But of great interest to SVB was the money that venture capitalists pump into those heady businesses. SVB prioritized being cool in order to attract those popular companies and entrepreneurs and their large deposits. That approach worked, but prioritizing being perceived as cool came with high risk.
2. Engaging in high-risk methods for immediate profit
Because SVB became reliant on continued large deposits from popular startups, it lost the leverage of raising interest rates on loans. That situation “led to a structural business model problem” according to Chassany’s article. The focus on providing cheap loans to woo large depositors in the cool technology start-up ecosystem made the bank vulnerable to herd behavior that could, and did, stampede without warning.
3. Taking chances with herd behavior
Riding the trail of herd behavior can result in a windfall or lead to disaster. SVB took a chance on the tech herd that paid off for a while but was not a good long-term strategy. The bank gained much but also had much to lose with that approach. According to Chassany, SVB did not make irrational decisions, but it “overlooked the important but boring job of risk management.”
Lessons
So what, if anything, can higher education learn from the Silicon Valley Bank collapse? What lessons can those involved in higher education use to evaluate the business models of their own or other institutions and corporations that experience quick, vast growth in the educational sector? It is important to consider questions such as those in the interest of best serving students in their educational endeavors. Below are a few of my suggested takeaways to get the discussion started.
– Institutions or corporations portraying themselves as cool and claiming to be the future of education should prompt scrutiny.
– Growing at a rate much faster than others in the same industry due to herd behavior could lead to future unsustainability and loss.
– Providing enticements on the cheap that increase revenue in the short term could be financially devastating in the long run.
What other lessons do you see that higher education and the educational technology industry can learn from the collapse of Silicon Valley Bank? Or what agreement or disagreement do you have with any or all of my suggested takeaways? Join the discussion and share your thoughts.