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USA | Jan 5, 2022

Theranos – Don’t believe the hype

Al Edwards

Al Edwards / Our Today

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Elizabeth Holmes in a marketing image showing off how little blood was supposedly needed to conduct a range of tests with the machine that was being produced by Theranos. (Photo: HBO)

Founder and CEO of blood testing firm Theranos, Elizabeth Holmes has been found guilty of four charges of fraud and the reputation of the company will forever be covered in shame.

Holmes dropped out of Stanford University at 19 to form Theranos in 2003. She had the idea that, with a blood-testing machine, she could uncover many illnesses and diseases.

It was a revolutionary idea that would go on to transform modern healthcare, she proclaimed.

The word ‘Theranos’ is a combination of the words “therapy” and “diagnosis”.

She managed over the next decade and a half to get funding and support from some of the richest people on the planet, including Larry Ellison, Rupert Murdoch, Tim Draper and the New England Patriot’s Robert Kraft.

Her board comprised political heavyweights like Henry Kissinger and George Shultz and she was endorsed by both Bill Clinton and Joe Biden.

Businessweek, Forbes, Fortune and Bloomberg hailed her as the next great business titan, a superstar who would change the world.

Theranos founder Elizabeth Holmes leaves after attending her fraud trial at federal court in San Jose, California, U.S. November 22, 2021. (File Photo: REUTERS/Brittany Hosea-Small)

Theranos would go on to have a valuation of US$10 billion.

It all came crashing down, primarily because Holmes could not deliver. She talked a good game and got America’s power players to buy in, thus creating the impression that Theranos was actually a bigger deal than it actually was.

This is a cautionary tale. Media outlets have focused on Holmes’ dress wear, her love life, her imitation of Steve Jobs, that she doesn’t blink. That all makes for click bait but the lesson here is that she failed to establish proof of concept.

It makes you wonder whether all these big shots really know what they are talking about. They got duped by a college dropout who had no experience in the field she chose to operate in.

One must marvel at just how far she got.

Today you see  a lot of “entrepreneurs” hyping business ventures with no substantive credentials so to speak. All too often they shove fancy spread sheets under financiers’ noses and make big claims.

Backing start-ups is taking a bet, but you have to have your wits about you. The reality is there is no substitute for hard work and on delivering on what you said you can do.

Perhaps the best advice on this comes from the late Chinese President Deng Xiaoping, when he said,  “Observe calmly, secure our position, cope with affairs, hide our capacities and bide out time; be good at maintaining a low profile and never claim leadership.”

Theranos’ Edison blood testing machine.

Theranos made a lot of noise with its Edison machine without proving it could work effectively. Holmes was unable to establish credibility. It would have been better to first ensure the blood-testing machine worked and then gone back for further rounds of funding.

There is always pressure to see to it that investors at the very least get back their money, let alone make a good return. Investors though are far more content knowing what is going on and the viability of their investment.

How many times have we seen young entrepreneurs lucky enough to secure funding going out and buying swanky cars, palatial homes, “living it up” before they can prove they can make their business work. Elizabeth Holmes now joins that long list.

It is easy now to point the finger at her but where were all the corporate giants here? They must have seen the car crash waiting to happen. Theranos had a valuation greater than Airbnb and Uber, but based on what?

Elizabeth Holmes was an ingenue. She took investors’ money on the condition that she wouldn’t have to reveal how Theranos’ technology worked. Plus, she would have final say over everything having to do with the company.

Her COO was her lover, the Pakistani Sunny Balwani, who also had no relevant experience. Due diligence and corporate governance was completely absent here, yet Holmes was worshiped as one of the greatest corporate leaders of her time, the youngest female self-made billionaire.

There can be little doubt that Elizabeth Holmes’ “Juju” was strong and it befuddled a lot of rich old men.

At a time when anything goes on social media and charlatans are hailed as gods, it was edifying to see the Wall Street Journal still carrying the flag for credible journalism.

 John Carreyou (read his book Bad Blood) did some fine reporting on Theranos, uncovering the lie that was the myth. For his efforts he was called a “misogynist”, “a hater”, he was castigated by both Holmes and Balwani; nevertheless he was right.

The FDA found “major inaccuracies” in the testing Theranos was conducting on patients which must have caused Walgreens and Safeway a major headache – after all they both went into business with her.

Carreyou demonstrated what journalism should be about and his work signaled the beginning of the end for the inexperienced and exposed Elizabeth Holmes.

Theranos founder Elizabeth Holmes is cross examined by prosecutor Robert Leach as an image of CNBC programme Mad Money appears on a screen at Robert F. Peckham U.S. Courthouse during her trial, in San Jose, California, U.S., November 30, 2021 in this courtroom sketch. (File Photo: REUTERS/Vicki Behringer)

Theranos didn’t turn out to be a unicorn but an emaciated donkey.

Looking to put a brave face on it and answer her detractors, Holmes went on CNBC and said: “This is what happens when you work to change things; first they think you’re crazy, then fight you, and then all of a sudden you change the world.”

Changing the world suddenly with untested methods by inexperienced people is a most dangerous road to travel upon. More often than not it ends in tears and it certainly did for Elizabeth Holmes.

Theranos founder Elizabeth Holmes (centre) arrives to attend her fraud trial at federal court in San Jose, California, U.S. January 3, 2022. (File Photo: REUTERS/Brittany Hosea-Small)

What will she now do with the rest of her life?

She will have plenty of time to think about that in jail. Perhaps from there she will begin to dedicate herself to a meaningful career, maybe take a few courses, learn a trade.

Maybe she can craft a second act and set an example for her newborn child.

You have to earn it. There is no easy road.

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