Elizabeth Holmes Theranos Woes Could Have Been Avoided

I consider myself a bit of an armchair Theranos analyst now. I have successfully watched and read all the mainstream media on the scandal. I have watched the Nightline Documentary The Drop Out:The Story of Elizabeth Holmes that came out 3/15/19. I also read the book Bad Blood by John Carryrou and I just finished watching the HBO documentary The Inventor: Out For Blood In Silicon valley which came out on 3/17/19.

Essentially it is a story about a Silicon Valley Entrepreneur named Elizabeth Holmes. She dropped out of Stanford in 2004 to pursue her idea of being able to run several diagnostic blood tests with a single drop of blood. It was an arduous task to undertake but at the tender age of 19, she figured it could be done.

Over the next twelve years what unfolded can only be considered something of scandalous Silicon Valley folklore. Except it wasn’t. It was the stuff of amazing documentaries! In the end, her and COO Sunny Balwani are facing several Wire Fraud Charges that could land them in prison for 20 years. This really could be all avoided if she did these things:

Listen to Those Who Know

Great entrepreneurs like Steve Jobs and Bill Gates know their idea and talent alone would only get them so far. If they were going to make their vision a reality, they would need to enlist the help of some very talented people. Yes they would push them beyond their limits but they listened to them. A good example is when Elizabeth met any resistance to an idea that wasn’t part of her carefully curated vision. To her it was considered infidelity and not being a “team player”. Instead of the exchange going like this “I hear that you say it can’t be done this way then, how can it be done?” It went like this “Well maybe Theranos isn’t the place for you…”. The former invokes the expertise you desire out of your hire while the later is just…well…childish.

Prove Viability, Then Scale

What Theranos was trying to do was not impossible. It just was going to take time. A lot more time then they thought. Things in the medical industry move at a monolithic pace and this would be no different. If she had a little more medical engineering experience, she would know that. A good example is my own brain surgery. My first surgery involved a cutting edge surgical technique. It had already been used for my type of surgery for 25 years and it was still considered experimental!! The point is she had time to prove out a few tests with the Edison (later it was called the MiniLab) machine. Not the 200 plus tests she claimed it could do. Once she could prove a viable product she could then start scaling it, all the while getting the necessary FDA approvals for the device. She wouldn’t have had to raise all that money (almost a billion) to keep the charade going or staff her Board of Directors with very high profile but ignorant (only of the Medical Field) people. As for all the talk about the two big Blood Testing competitors trying to stop them…it seemed to look like unwarranted paranoia. Not once in any of the media I watched or read did I hear about Quest Diagnostics and Laboratory Corporation of America checking in to see what Theranos was up to nor did I read or see anything about litigation towards Theranos.

Admit Mistakes and Move On

I will call this Transparency part one. Admitting you made a mistake and give some explanation as to what happen is a good first step is transparency. Keep your investors in the loop is not only good business sense but it keeps you accountable. Remember it is their money you are using not yours. I heard Elizabeth say in the HBO documentary that it is OK to make 10,000 mistakes. You have to just keep trying and you will get it right on try 10,001. You still have to explain a little more than that. The blanket excuse of “divulging trade secrets” is not going to cut it. What worked for Thomas Edison was tolerable at the time since the technology he was inventing 100 years ago hadn’t been invented yet. What Elizabeth Holmes and Theranos was trying to do was improve upon existing technology and she was in effect playing with peoples lives.

Go Public Sooner

I will call this Transparency part two. From what I understand it is normal in Silicon Valley for companies to delay going public as long as they can. It allows more protection for the tech they are developing from their competitors and less accountability to regulators and investors. If they truly had developed the technology they said they did why not go public? What have you got to lose? I guess instead of a dozen shareholders you have thousands if not if not more. Unfortunately if all you have is a malfunctioning, unreliable prototype, the less people you have to misguide the better.

The Moral of the Story

The “Fake it till you make it” approach is good for self help gurus and to some extent entrepreneurs but this was to the extreme. You can believe your own hype but you still need to be grounded in reality. The only thing that I keep thinking about was why it went on for so long? If you invested would you not want regular reports and if you got them would you not get them audited? A private company to go several years without a revenue stream or regular client / customers would make me a little nervous? Maybe I should drink some of that Kool-Aid that kept the reality distortion field going for so many at Theranos.