Theranos was a biotech company that claimed its device could carry out comprehensive laboratory tests from a drop of blood. Its failure to deliver on that promise present valuable business lessons for tech entrepreneurs.
Founded by Elizabeth Holmes, a self-acclaimed female Steve Jobs, Theranos was forced to shut down in 2018 after 15 years of operation. Elizabeth and Ramesh "Sunny" Balwani, the former chief operating officer of Theranos, have been indicted for wire fraud and conspiracy to commit wire fraud. If convicted, the duo faces possible 20 years in prison.
While their trial has been postponed because of the novel coronavirus (alias COVID-19) pandemic, Theranos has been making the rounds. Many people have wondered if it's possible to have Theranos-like for COVID19: a device that'd make testing people for COVID-19 "quick, painless and affordable"—just as Theranos envisioned for blood tests.
Meanwhile, companies have been coming forward with COVID-19 tests that can tell if someone is infected within five to 45 minutes. Notable among the companies are Abbott Laboratories, Labrador Diagnostics, Cepheid, and BioFire.
The question shouldn't be what if Theranos had worked because its patents have become useful in the fight against coronavirus. Also, an Israeli startup Sight Diagnostics has begun to sell its AI-based blood diagnostics device that can carry out complete blood count (CBC) tests from a drop of blood. The question should (continue to) be what can we learn from the failed biotech startup?
...blood count test within 5 minutes such that physicians and community health workers can provide/recommend basic recommendations.— Francis Sani (@francis_sani) June 19, 2019
Yoel is ex-military and it's interesting how much of their military technical expertise is utilized in the ecosystem.
It's a key bedrock.
Five lessons entrepreneurs can learn from the rise and fall of Theranos
There are different accounts of the rise and fall of Theranos. But the definitive reports are John Carreyrou's book, Bad Blood: Secrets and Lies in Silicon Valley Startup, HBO's documentary The Inventor, and ABC News six-part podcast series The Dropout.
From these materials, we gleaned five lessons entrepreneurs should learn from the rise and fall of Theranos and Elizabeth Holmes.
Elizabeth Holmes, amongst other things, showed the power of storytelling, that social influence affects investors too, a good team would either achieve organisational goals or save the organisation from self-destructing, and choosing the right mentors/role models is important.
1. Storytelling is an important part of branding
One of the things Elizabeth Holmes got right is her personal branding and that of Theranos. The story of a young woman trying to disrupt the health sector by making comprehensive lab tests quick, affordable and accessible was very convincing and everyone was rooting for her and Theranos.
She would also recount the story of her uncle who died of cancer at different forums, and submit that Theranos was creating "a world in which no one ever has to say goodbye too soon" by making early-detection of disease possible. This heroic vision attracted 800 employees and received up to $1 billion investment.
Patrick O'Neil, who was the chief creative officer of Theranos when it commercially launched in 2014, created a "simple, human and optimistic" persona for the biotech company. He created an ad that had real people dissatisfied with the current method of testing blood tell their stories, which resonated with Theranos target audience and swayed the public.
In the Nigerian tech ecosystem, one of the healthtech startups using storytelling quite well is LifeBank—a distribution company using technology and logistics to increase access to blood. The vision of Temie Giwa-Tubosun, the founder of Lifebank, is to save "as many lives as quickly as you can" endears the startup to everyone.
To my sisters across Africa, LifeBank is my labor of love for you. I want to make sure that should you choose to have a baby, you will survive childbirth, and to guarantee good health for you and your family! Because you deserve life and you deserve good health! Happy #IWD2020 ❤️ pic.twitter.com/nKjg67bOgG— Temie Giwa-Tubosun (@temite) March 8, 2020
In short, while stories are not necessarily factual (but they should), they settle in our mind and subconscious better than data. Stories evoke emotions, data don't. But the best stories are data-backed stories.
2. Raising money is easier with a powerful board of directors
Unlike what investors would have us believe, most of them—especially early-stage investors—invest in founders with their gut. The data and justification for investing in one startup rather than the others are usually after the fact.
By being able to receive her first cheques from the likes of Don Lucas, an early-stage investor in Oracle, and Tim Draper who had invested in Tesla, Skype, Baidu and Hotmail, Elizabeth was able to easily raise more money from other billionaires like Rupert Murdoch, a media mogul.
Also, by courting George Shultz, a former American Secretary of States, early in 2011, Elizabeth was able to recruit many power brokers, including Henry Kissinger, William Perry, and Gary Roughead, as advisors and directors.
Although the eclectic collection of the investors and directors failed to ensure corporate governance—they were swayed by her story. Many entrepreneurs open to equity investment would kill to have such a support system.
For most entrepreneurs, pre-seed funding is considered a validation of their idea. As a co-founder of a fantasy sports platform told benjamindada.com, "We were glad to receive the $5,000 investment from our first angel investor. It confirmed to us that we were not crazy—and if we were, we weren't the only ones".
The difficult task for the entrepreneur is to convince the first investor or board member, after that, social influence would work on the other people.
Today, many Nigerian startups covet cheques from Y Combinator (YC) because of the support and the pedigree of YC, which would enable them to receive bigger cheques in subsequent funding rounds.
3. Put together a good team
Elizabeth Holmes was able to put together a great team of engineers, lab technicians, scientists, creative directors and lawyers.
The team, sold on the vision of Theranos, believed they were going to disrupt healthcare. Until they saw the ugliness of Elizabeth and Ramesh and knew Theranos was on a slippery slope. Despite the failings, staff like Ian Gibbons, a biochemist that was appointed Theranos' chief scientist in 2005, worked on achieving the vision until their last breath.
Faced with a decision to either lose his job or rat out Theranos, Ian buckled and committed suicide in 2013. But young and brave staff like Tyler Shultz and Erika Cheung left the company and helped in exposing its secret, lies and fraud.
A good team will either achieve the organisation's goals or save it from self-destructing. But unless the leader listens to the team, they won't be able to achieve either objective—saving the company or achieving its vision.
A delicately good part of the team Elizabeth put together was her lawyers, led by David Boies—a renowned American lawyer who had won a case for the United States against Microsoft. Although Theranos used the brilliance of its legal team to hound critics.
Most Nigerian entrepreneurs, however, don't make provision for a legal team. Jason Njoku, the founder of IROKOtv, advised Nigerian entrepreneurs to "never scrimp on legal fees. Ever. I find it will save your lives more times than not".
Never ever ever scrimp on legal fees. Ever. I find it will save your life more times that not— JasonNjoku (@JasonNjoku) February 5, 2020
Seeking legal services could be expensive, but platforms like DIYLaw and LegalForms have made it quite affordable.
4. Pick the right mentors/role model
Elizabeth's excessive obsession with Steve Jobs, and following the footstep of Bill Gates and Mark Zuckerberg by dropping out of college contributed to the failure of Theranos.
While Bill, Steve and Mark could reasonably teach themselves how to code and fake it until their products were ready for primetime, Elizabeth didn't have much runway with Theranos.
When Steve unveiled the iPhone in January 2007, it's reported he used an unfinished iPhone for his presentation. Thus, the late release of the smartphone in June 2007. Similarly, Bill and Mark reportedly taught themselves how to code and quit school.
But with health products that their failure can lead to loss of life, fake it till you make it is a reckless strategy. Also, as John Carreyrou noted in his book, most scientists receive Nobel prizes in their sixties because scientific breakthroughs are proven over the years.
Nigerian entrepreneurs, especially those building medical and financial solutions, must acquire the requisite knowledge and choose the right mentors or role model.
5. Don't drink your own Kool-Aid
The default premise of most startups is reality tries to catch up with the hype. A lot of fanfare usually accompany the launch of a company, product, fundraising and milestones announcements. While the fanfare is not bad in itself, the team must work tirelessly to ensure reality catches up with the hype.
That was what Thomas Edison did. Long before his incandescent light bulb actually worked, he went public and fooled people through the media. Eventually, after failing many times, Edison's invention worked.
Theranos failed, largely because Elizabeth refused to actually work on it and ensure the different iterations—Edison and Minilab—worked. Rather, she was increasing the tempo of the hype; she drank her own Kool-Aid because of her hubris. John Carreyrou noted that at some point in 2014, Theranos was the most valuable company in Silicon Valley—more valuable than Uber, Airbnb, and Spotify.
The hype is good: It can present a larger-than-life image of the company and wade off competition, attract users and more investment. But the company must deliver on its promises. Else, it's the same fanfare, media, in particular, that would bring them down.
Many allegedly scrupulous businessmen and women have come under scrutiny or be implicated because of their penchant for the spotlight. Notably—allegedly—Ismaila Mustapha, also known as Mompha; Obinwanne Okeke, alias Invictus Obi; and Glory Osei.