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Most stories of startup failure are only told in the aggregate. The average startup that fails touches a set of familiar points along its lifecycle and ends for a number of generally understood reasons, with lack of funding being high on that list. In order to draw attention to itself in its failure, a company has to have achieved something close to ubiquity or needs to have failed so particularly so as to break through the usual noise of companies entering and exiting the entrepreneurial landscape.
Rare is the company that has failed so spectacularly or so famously as Theranos, the biotech startup that purportedly could divine your health through revolutionary new blood-testing devices that could be brought into the home. On its surface, Theranos seemed both typical and exceptional among Silicon Valley startups: a young CEO, who worshipped at the altar of Jobs promising disruption and innovation but also pledged to improve not only our healthcare system but our health and welfare. It was a promise that would have seemed too good to be true outside of the Silicon Valley bubble, and one that would eventually be exposed as promise and nothing more.
By now, most of the details surrounding the company’s rise are enshrined in public consciousness because of its precipitous fall. Theranos was founded in 2004 by a Stanford dropout named Elizabeth Holmes, who sought to revolutionize not just blood testing but health care with blood testing machines for consumers that spared the pain of traditional venal blood draws and would test for a battery of potential ailments using just a few drops of blood. The company found itself on the fast track to success in short order, raising funds and growing its staff at a rate commensurate with the addition of press clippings and partnerships and high-profile board members, and was soon at the head of the pack of the new breed of Silicon Valley “unicorns”, startups with a $1 billion valuation. Holmes was the darling of the startup world, Theranos the next in a lineage of companies that were going to change the world. Holmes raised $700 million from savvy international investors.
But the success and fame Holmes and Theranos garnered was built upon almost nothing, as the world would begin to discover in 2015. In October of that year, the Wall Street Journal published an article that laid bare the truth of Theranos: the blood-testing machines they created largely didn’t work, and that the company had been both faking proficiency testing and using other commercial machines to complete the tests it claimed were being done on its machines. The company tried to fight back against the charges, but the evidence offered in the story was sufficiently convincing to all but the most fervent believers to begin the company’s unraveling. Soon contracts were terminated and lawsuits filed on the behalf of investors, with the denouement coming this June as Holmes and former Theranos president and CEO Sunny Balwani were indicted on charges of criminal fraud.
Why did Theranos fail? Well, the fact that their products didn’t work as intended, and having that information plastered across websites and newspapers around the world, jumps out as a primary factor, but that fails to capture the full story. Most companies that have non-working products don’t get as far as Theranos did, because most companies are bound to both corporate and personal ethics that seemed to be absent at Theranos. To perpetuate a lie so far and for so long is undoubtedly a personal moral failing, but the fact that Holmes and her top lieutenants were allowed to do so without being caught out speaks to the danger of belief if it becomes unmoored from reality. In his book Bad Blood, John Carreyrou illustrates how a bold idea and personal charisma enabled Holmes to maintain support and faith from key figures at partner companies and among influential board members, even in the face of information and events that should have given pause. The book also portrays the perils of untempered ambition and what can happen when the “fake it til you make it” ethos is taken a bit too literally, as Holmes and others created a structure that for so long prevented anyone or anything from derailing their efforts to succeed.
Theranos might be an extreme example, given the tendencies and proclivities of those involved in the story, but it does point to lessons that might apply more broadly. It’s vital that entrepreneurs believe in themselves and their ideas, but that belief and drive are best paired with advisors willing to speak the truth, even when it might be painful, and a willingness to admit mistakes, shortcomings and even defeat. Honesty goes a long way in avoiding a myriad of potential startup problems, including jail. #onwards.
December 13, 2018 at 07:01PM
Forbes – Entrepreneurs