Key Takeaways from the Theranos Scandal
By: Jotham Lim
There are many unethical business practices, or scams, in the market that prey on the ignorance, greed, fear and hope of the people. However, few of them actually involve human lives, or more precisely, their deaths.
Theranos is one of these said companies. Spearheaded by a founder heavily driven by a strong vision and aspirations of disrupting the medical industry, she instead created a product that gave off inaccurate medical results, misled many top-level governmental officials, and created such a toxic work environment, that even the award-winning scientist, Ian Gibbons, was compelled to commit suicide while working for the company.
The founder in question is Elizabeth Holmes, and together with her former lover and president of Theranos, Ramesh “Sunny” Balwani, managed to raise about USD 1.4 billion and achieved a company valuation of almost USD 10 billion at its peak. With Holmes holding more than half of the shares in the company, her net worth was well over the USD 5 billion mark at one point.
She became the youngest self-made female billionaire in the world and was knighted as “the next Steve Jobs” by industry professionals and publications including Fortune magazine. In an interview, she even cited that she started wearing black turtlenecks ever since she was seven as homage to the founder of tech company Apple Inc.
Theranos’ business model concept and product are centred around delivering cheap blood tests that could be carried out with just a tiny drop of blood which heavily contrasts with multiple vials needed to conduct multiple tests using large immobile equipment such as those provided by Siemens, which remains the industry standard.
Down the road, Holmes managed to get endorsements from high-profile investors such as Larry Ellison, David Boies, and former Secretary of State Henry Kissinger through storytelling alone.
With such heavy hitters vouching for the project, it was easy to gain trust and support from other stakeholders, which landed them a partnership contract with Walgreens, the second-largest pharmacy store chain in the United States.
If the product actually worked as intended, it would have had revolutionary implications, so limitless it could be used in the military as well as for humanitarian purposes during emergencies.
But there was a catch: the technology didn’t work, and Holmes did everything in her power to prevent that from being revealed to the public.
The engineers working on the project all agreed it was impossible to create such a product per Holmes’ ideals. Doing so would have required them to literally break the laws of physics, they said.
When this matter was brought to upper management, their concerns were dismissed and many of them laid off. Staff turnover was high, and eventually seasoned industry professionals were kicked out for not “embodying the vision” enough. Behind-the-scenes bickering between tech engineers lacking both expertise and experience ensued.
In 2015, Wall Street Journal reporter John Carreyrou received a tip-off and started unravelling the veil of deceit surrounding this fraud, later publishing his findings in a book titled “Bad Blood.” In June 2018, the United States Department of Justice charged Holmes and Balwani with nine counts of wire fraud and two counts of conspiracy to commit wire fraud.
In September 2018, shareholders were formally notified that Theranos would officially be dissolved. Holmes was no more.
Vision Does Not Replace Execution
Despite Theranos’ initial good intentions, it begs the question: can a vision be so high above the clouds that it is just plain crazy talk?
This is where the ability to think accurately comes into play. Instead of looking at the glass as half full or half empty, it would serve everyone justice to just say “this glass has this much water in it” instead. Because at the end of the day, what purpose does it serve to deem the glass half full or empty in the first place? Does looking at the glass from a different angle increase or decrease the amount of water it holds?
A vision only serves as a guide marker or map direction for a goal people strive towards. But having a vision does not put food on the table nor pay employees. When your business model is built around selling a vision instead of a service or product, it is highly unsustainable.
Endorsement Can Be A Powerful Tool
Getting the right endorsement from the right candidate is an integral part of branding. Holmes was very disingenuous yet careful in selecting the right people to approach. In a sense, approaching former Secretary of State Henry Kissinger for his endorsement was a brilliant move on her part.
Theranos’ nature leaned towards selling hopes and dreams rather than working medical products. So instead of approaching medical experts, she specifically targeted a niche group of end-users who lacked the medical and engineering knowledge to evaluate the medical product and, importantly, lacked the tendency to question its functionality and effectiveness.
Despite Theranos’ questionable business practices, getting the right endorsements was essential in building credibility and confidence amongst the target audience. If Holmes could build an entire brand and company above a seemingly non-existent product based on credibility and stories alone, it is a testament to the importance endorsements play in the business world.
“Shark Tank” Yourselves
A good way to test your idea is to simply present the product to experts who are well-versed in the field and get their thoughts on it. Imagine if Holmes had actually brought out her latest product, the miniLab, and presented it to a forum for condemnation by the general public. Imagine how different the medical industry could have been if she had taken this constructive feedback and produced a device that was both realistic and functional at the same time. But more often than not, entrepreneurs are defined by the products and services they make.
When running a business, it is essential to place products and services as the top priority. If your local neighbourhood kedai runcit can make it without spending a single cent on marketing, I’m pretty sure your company with a solid product or service and business model can tough it out in the end as well.
Stop, See, Listen
Every now and then, take a step back and review your actions, goals, missions and practices. Within the entrepreneurship circle, people always talk about the “grind.” Even Holmes herself admits she sleeps an average of four hours a day and is essentially married to her job. For someone who lacks sleep and is caught up in revolutionising the world, how often and for how long does she spend analysing the situation she is in and reading the situation of the company?
How can someone suffering from a lack of sleep, perhaps to the point of delusion, be able to make sound and wise judgements on behalf of the company? When the limiting factor in a company’s growth lies within the hands of a few employees, it pays to take some time off to see things from a different perspective, a third-person view. Being vulnerable, wise, and wary of what matters most with a broader and clearer head, entrepreneurs are able to make not just the right decision but the best decision they can make at that point in time.
-JL