The Theranos Myth
How a Steve Jobs wannabe became the CEO of a $9 billion technology juggernaut, based on nothing but a great story.
Before WeWork and uBiome, there was Theranos.
Today, Elizabeth Holmes is best known for how she defrauded investors and dodged government regulators as CEO of Theranos. Before that, she was an insightful Silicon Valley founder and a media darling—with an estimated net worth of $4.5 billion.
It came to an end when Holmes was indicted for wire fraud and conspiracy to commit wire fraud in 2018. Before her recent marriage to an heir to the Evans Hotel Group, Holmes’ net worth was almost nothing.
Back in October 2015…
Waiting in the Whole Foods checkout line, I was drawn to the magazine aisle. Elizabeth Holmes was on the cover of Inc. magazine. The article featured women scientists who spoke about her as a leader. She was inspiring and transparent. She worked like a machine, thriving on a steady stream of green vegetable juice and Chinese food. She was the best boss.
Elizabeth Holmes was not your typical success story. She dropped out of Stanford to found Theranos when she was 19 years old. Nearly a year later, Holmes had raised $6 million to deliver her ground-breaking solution. At its peak, Theranos was valued at over $9 billion. By the time Elizabeth was 29, it had operated 40 centers inside Walgreens stores and sold more than 1.5 million blood tests, yielding 7.8 million test results for nearly 176,000 consumers.
Being a former engineer, I understood how complex it would be to solve the problem that Elizabeth was tackling. Finding the solution would require a combination of advanced mathematics, biochemistry, mechanical engineering, and physics theory. This diverse knowledge is not typically found in a first-year college student unless she is a child prodigy, which Elizabeth Holmes was not. I could not comprehend how she could solve a problem that the world's most accomplished scientists could not solve. It sounded—as the cliché goes—too good to be true.
Elizabeth was, or should I say “is,” a shrewd salesperson. Rather than focus on the technology, she used storytelling to sell her idea. She created emotional connections with her audience by sharing her experience with losing her beloved uncle to cancer. That loss shaped her life’s mission: empowering people everywhere to live their best possible lives. She wanted everyone to join her.
Elizabeth initially focused on filling her board with power players and fundraising. She attracted powerful board members from venture capital (Tim Draper), technology (Larry Ellison), law (Victor Palmieri), and government (James Mattis and Henry Kissinger). Board members would use their influence to attract even more funding, help push sales, and cut through “red tape.” In fact, Mattis personally pushed to implement Theranos technology into a field test in Afghanistan.
Investors included the Walton family of Wal-Mart fame, Rupert Murdoch, former education secretary Betsy DeVos and her family, members of the billionaire Cox family, members of a South African diamond dynasty, and Mexican tycoon Carlos Slim. She successfully pitched to venture capital firms DFJ and ATA Ventures and went on to raise more from hedge fund Partner Fund Management.
Spreading the word
The media amplified the “instant” credibility that investors and board members gave Theranos and Elizabeth Holmes. On magazine covers, Elizabeth’s story was one of success through persistence, pushing through roadblocks to make her innovative ideas a reality, and championing women in STEM. Most importantly, she was fighting to make the world a better place. Anyone perusing the headlines or skimming puff pieces might think that Theranos was a juggernaut.
Theranos’ marketing further pushed the narrative with media interviews, billboards, and television commercials touting its proprietary technology, Edison. Edison could deliver accurate results from a finger-stick sample of just a few drops of blood. The company was revolutionizing the lab industry.
Oddly enough, Elizabeth would say that she only wanted investors that were already bought into her mission and dismissed those asking for details on the technology as not dedicated enough. People focused on Theranos’ technology were not true believers—or maybe they were not good marks.
From myth to reality
Holmes’ need for incredulous investors portended the goings-on within the company itself. Despite Holmes’ efforts to curb communication by keeping teams siloed, the scientists and engineers working to execute the Theranos mission gradually discovered that they were on a fool’s errand. People within the company were desperately trying to "educate leadership." Employees who had assumed that leadership did not understand that Theranos was selling solutions that did not work eventually understood the reality of the situation.
Former employees began to leak stories about the dysfunction within the startup that countered the carefully narrative. Holmes was a “tyrannical” boss who fired anyone who tried to question the machine’s legitimacy. After questioning employees who seemed uncomfortable during prospect demos, Former Theranos CFO, Henry Mosley, found that pre-recorded, falsified test results were used during demos to Novartis and prospective investors. Mosley was fired after questioning the reliability of its technology.
Despite the mounting evidence of questionable malfeasance at the company, Theranos and Holmes leveraged their connections and glowing PR to put critics on the defensive. Whistleblowers were silenced. Holmes attempted to discredit those who expressed skepticism and concern about the technology.
Ian Gibbons, the chief scientist at Theranos, had nearly 200 patents in his name when he joined Theranos in 2005. Throughout his tenure, Ian had warned Holmes that the Theranos’ machines were not giving accurate results. She continued pitching Edison as a fully functioning technology. As he continued to voice his discomfort, Ian Gibbons was sidelined. Holmes needed scientific credibility, not his input. Eventually, his widow said that Ian was told that “They would fire him if he didn't go along with the company's story." In May 2013, battling cancer and fearing unemployment, Ian Gibbons attempted suicide. He died a week later.
External experts were raising red flags. In response to Mattis’s lobbying for field testing of Theranos technology in Afghanistan, Lieutenant Colonel David Shoemaker raised his concerns about the company’s regulatory compliance to the FDA. After Shoemaker confirmed that Theranos was not FDA compliant, Holmes insisted that Mattis intervene after Shoemaker “misrepresented” her technology. This query triggered a surprise inspection by The Centers for Medicare and Medicaid Services (CMS), which uncovered numerous “deficient practices.” Federal lab regulators with the CMS revoked Theranos's laboratory certificate after finding its operation posed an "immediate jeopardy" to consumers.
In early 2012, Theranos took over blood testing at a Safeway employee health clinic as a beta run. The chief medical officer of Safeway, Kent Bradley, raised concerns as it rolled out. Bradley noticed some alarming patterns that suggested the Theranos devices were seriously flawed. When presented with these red flags, Safeway’s CEO, Steve Burd, ignored them. Safeway invested a total of $350 million into the failed partnership with Theranos.
Then the media started sharing customer stories. One featured a Theranos customer who thought she could have a new tumor because of incorrect test results. Another customer stopped taking his blood-thinning medication. He eventually had heart surgery and a follow-up procedure to drain blood from the pericardial sac, which contains the heart. Others endured unnecessary surgeries and medical procedures -- some of which negatively impacted their health. And then there were the false-negative results: those who had cancer. Those inaccurate test results delayed their seeking treatment.
Lastly, there was the reason that Elizabeth worked tirelessly to build Theranos: the love for her uncle. No one really knew her uncle’s name until Theranos began to unravel. John Carreyrou identified him as Ron Dietz, the husband of her mother's sister Elizabeth. Dietz died 18 months before Elizabeth Holmes’ TEDMED talk, long after she came up with the concept of the Edison. While Holmes did visit her aunt and uncle with her parents, Carreyrou clarified, "To family members who knew the reality of their relationship, using his death to promote her company felt phony and exploitative."
How did Theranos become a $9 billion company? Elizabeth told a great story. She was able to sell the idea that if everyone helped her, if everyone invested in her idea, they could be part of something big. They could save people. Together, they would change the world.
And that's how the big con begins: creating a good story. A story that people want to share, that people want to be part of. We all want to make a difference in the world and make it a better place. Perhaps Elizabeth Holmes did, too... Until it interfered with her own goals, one of which was to become the next Steve Jobs.
The sad part is she could have built the next innovation in health tech. Holmes had an impressive team, the best in the industry in some cases, at her disposal, and she had cultivated a powerful group of investors. If she really wanted to make the world a better place, she would have reacted to the botched test results and pivoted. Instead, she clung to bigger, grander, and more audacious ideas—ideas that were inspiring but did not adapt to reality.
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