Great Lessons Learned from the Theranos “Bad Blood” book.
On a recent holiday I read a great in depth reporting on the strange saga of Theranos and its mercurial founder/ceo Elizabeth Holmes. While reading it I was struck by the similar maneuverings I’ve seen in my own local community. Same stories just on a smaller scale. I took four big takeaways from this read that I thought worthy of sharing with…. well you if you are reading this.
Lesson #1-Let Experience Be Your Guide
Theranos set out to change how blood testing was done. The potential impact and market opportunity was huge if the numerous technical hurdles could be overcome. One glaring problem was that the company’s founder had no experience in the field. In fact she had little experience doing anything at the point when she dropped out of Stanford and started the company. A great comment made within the book centered on the reason why most Nobel Prize science winners are in their sixties because it takes that long to assemble the knowledge, experience and connectivity to be awarded that honor. Note-I am not saying that this is a 100% maxim that all people must have experience but it’s a good indicator of potential success or failure. Here in the Triangle, I’ve seen a number of deals where founders are attempting to solve hard problems with no experiential background in the industry they are tackling. It’s amazing when someone wants to tell me about how they can sell data analytics to large enterprise orgs when they have no background in data analytics and they (nor members of their team) have any experience in selling to the enterprise. I recall a conversation with a male founder who wanted to sell a specialized tech enabled beauty product to females but he had no experience himself with that area nor did any of the other male members of his team. What possible outcome could one expect from this…In Holmes’s case she hired some of the best and brightest to get the system built and that leads me to Lesson #2.
Lesson #2- When Experienced Team Members Flee Beware
In the Theranos story it starts with the story of the CFO seeing weird happenings at the company and getting terminated. A story was concocted to explain why he disappeared. Throughout the story more and more key personnel departure under strange circumstances. More and more stories are concocted. When you see smart people leaving a venture you should ask why. Ask the founder, ask the employees who are leaving. Usually its because there is smoke and quite likely there is a fire burning someplace. In my own recent venture we have definitely lost some smart talent over time. We were pretty honest about the fact that we weren’t making enough money at that time to retain them in their roles as the primary reason for their departures. Counter to the Theranos story, we’ve maintained great relationships with almost ALL of the team members who have departed. We also didn’t sic lawyers on them or assemble “smear files” on them to keep them silent. As I track companies and deals I track key employees. When I see one has left, I note it but when I see that 4,5,6 have left in a short span of time I ask myself what is happening that I dont see? You should do the same.
Lesson #3- Take Heed When the Gods Ignore
A topic not mentioned deeply in the Theranos story is why neither Quest Diagnostics Labs or LabCorp paid much heed of Holmes or her team. There doesnt seem to have been an expressed interest in acquisition, partnership or stealth recruitment of any of its high churn employees….Why? I suspect that they knew that what Theranos was doing was hard and that Theranos had not developed any meaningful technology. Had the company actually produced something that worked then they would have acted and likely decisively. Most tech venture exits come through acquisition. Typically the acquirer is someone with whom the venture has partnered with or courted strongly. The ideal buyer is one of the large enterprise players. I tend to refer to these players as the Gods because they have the ability to make or break most ventures based on their own interests or whims. When the Gods the ignore a venture meaning eschew partnership or active recruitment of key employees that’s a red flag. I’ve seen a number of founders make this mistake within their businesses. They go after a really big fish but cant get them to actually close a deal. I suspect that if I reviewed all of the emails and communications collected over the past six years the mention of either Facebook or Salesforce as a potential acquirer would be legion but when you dig into what level of engagement has occurred with those companies you realize that the venture has barely gotten the attention of the Gods. On the other side of this coin, a recent venture I’ve been engaged with signed one of the largest players in the manufacturing sector as a customer. They have 100’s of places where this founders tech might be used and they have seen near term benefit in establishing a relationship. In his case the Gods are paying attention and that is a good sign.
Lesson #4- Beware Founders that are Good at the Wrong Thing
The two things Elizabeth Holmes was apparently good at were-Hyping Vaporeware and playing The Bill Gates Meme (https://me.me/i/i-told-my-son-you-will-marry-the-girl-i-1216222). She trotted her Edison boxes and variants of around the globe shilling the promise of near real time blood testing capability. She duped some of the most savvy executives and global leaders. The idea that a past Sec of State chose to believe her over the pleas of his grandson who worked at Theranos and knew what a shell game it was shows her persuasive powers. She raised hundreds of millions of dollars. Be careful of founders that have a singular talent for raising money but cant seem achieve any other success. One also has to be careful of founders who build houses of cards. In Holmes’s case she approached the military about using her devices. Next thing you know she was telling the market that her devices were forward deployed in conflict zones and helping to save lives. False! Look all founders play around the edges with truth. Its part of the game but when you lose your moral compass then you deserve what you get. Recently I’ve seen a founder share “shaky” financials with different investors in order to facilitate closing a round of capital to support a product that isn’t even much more than vaporware. It’s amazing to watch people walk around with eyes wide shut here but more amazing is watching this founder completely lose his moral compass during this process. It’s like watching the transformation of Smeagol into Gollum.
There are so many more things to be taken from reading the Theranos story. You should read it for yourself and whether you are a founder, investor or employee you should open your eyes and make sure that you arent on the crazy train and about to careen into the Void.
