Lessons from Theranos… Trust and Fear

I have just finished reading Bad Blood by John Carreyrou, the detailed story of Theranos and its eccentric founder Elizabeth Holmes.  The story itself is as captivating as it is bewildering.  A remarkable and incredibly well researched account, it has a lot of lessons that should be clear to startups and established companies alike.  I actually think there are even more parallels to draw into the crypto space, but I’ll get into that later on.  I highly recommend reading this book, and while there may be a few spoilers here, I want to focus on my take on the situations and their lessons rather than the situations themselves.

First off, just to put the main lesson first… don’t commit fraud, beyond that, I noticed a number of things about the situation at Theranos that the company had going for it as well as stunningly serious issues.  Let’s dive into them a bit further.

Theranos had (has?) a tremendous goal and persuasive mission to disrupt and improve health care for people around the world with technology.  They had a really charismatic and engaging CEO in Holmes and she was able to sell that mission well.  One of the major problems at the heart of the matter was that she had no patience for the technology to develop.  (That assumes that its possible to build what they set out to build, but I cannot judge that.) The book did a great job of explaining some of the nuances that have plagued this realm of microfluidics, but Holmes always assumed that the technology would catch up to her claims, despite what her team repeatedly tried to tell her. The claims she made then had to get even more grandiose as time passed and she would grasp on to anything she could that the team developed.  This is captured in one quote specifically and shows the need to understand the quality and production ready value of a particular project.

“Part of the problem was that Elizabeth and Sunny [COO] were unable, or unwilling, to distinguish between a prototype and a finished product.” Pg 104

She was also able to grow and attract an incredibly notable board with her charisma and exciting claims.  Clearly, however, that board did not have the right expertise or ability to monitor and support the company. Boards can play a very important role in a company, and it is critical to have the right board composition to protect and nurture a company.  In this case, they were taken by the charisma and overlooked the specifics they should have demanded.  Theranos had all the appearances of success and everyone from the VCs to the board all must have assumed that someone else had done the diligence needed. The company was able to grow to an incredible valuation as they spent money like crazy trying to build what they said they already completed.  The amount of money that poured into the company from VCs is simply staggering and I’m not sure how they got hoodwinked, especially later on in the story.  I take that back, of course I know.  FOMO drives this entire story.

Fear of missing out (FOMO) is one of the more powerful drivers of bad decisions out there.  A few legitimate unicorns like Uber and Facebook in Silicon Valley and suddenly everyone with money has to make sure they get in on the next one so they don’t miss out.  This lesson also shows in the Theranos deals that grew with Safeway and Walgreens. “What if CVS gets it?” was just another refrain made in the book that drove poor business decisions.  In the crypto world, a few successful (?) ICO events that made purchasers good returns and suddenly everyone wants in on the next.  Someone (crypto)famous makes a claim about a token/currency/ICO and it pops.  I’ve seen it over and over again from Palm Beach to Ian Balina and it always seems like the one winning those is just the person selling shovels.  I have learned myself that the most important rule about investing in anything is to take emotion out of the decision, and fear has been the overriding emotion in  many of these situations.

Anyway, back to the story…

Whether by design or necessity, Theranos became a company driven by fear.  This fear may have emanated from leadership as feat of their ruse being found out, but it led them to drive their teams with increased fervor.  The company became a meat grinder of employment and burned people out so quickly.  Security standards we set incredibly high to make sure that no one got into anything that could compromise the big lie.  A high premium was set on in office time even including bribing employees with dinner at night so people would regularly stay until 10pm.  Working weekends was commonplace and security logs were checked to see who was truly “committed” to the company.  It became necessary to run the company like a cult in order to get results, or at least that is how Holmes perceived it. Maybe she actually bought into it herself…

“Elizabeth told the gathered employees that she was building a religion.  If there were any among them who didn’t believe, they should leave.  Sunny put it more bluntly: anyone not prepared to show complete devotion and unmitigated loyalty to the company should ‘get the f___ out.’ ” pg 173

In the end of this story, the company collapsed under the weight, never produced a functional product and then was subject to lawsuits, SEC restrictions and eventually fraud indictments for Holmes and her COO.

But what lessons do this tragic and almost surreal story really hold outside of the obvious?  As I mentioned earlier, patience to build the technology or prove it possible prior to selling it.  Secondly, trust issues within the culture both from management to the team and also from the team back.  In fact, a lack of trust is the foundation of this story and that started when Holmes wouldn’t trust what her team was telling her about the project.  She may have believed that she could drive results personally or that only she could bring her vision to life. That view continues throughout the saga and culminates with this sad state of affairs:

pg 143:

“Elizabeth’s loose relationship with the truth was another point of contention.  He had heard her tell outright lies more than once and, after five years of working with her, he no longer trusted anything she said, especially when she made representations to employees or outsiders about the readiness of the company’s technology.”

Trust is a critical element in the culture of a company and that trust must be felt and proven.  I believe that a culture built around a mutual trust is the most effective way to run and create true engagement.  The emotion of a charismatic speaker is great for a few minutes, but truly trusting your boss to have your best interest as an employee and the company’s best interest is key.  A lack of trust leads directly to fear and as the staff has no idea when someone they don’t trust may stab them in the back.  Basically, up and down the entire org chart trust must be cultivated and maintained for any company to be successful and have the kind of culture that everyone craves.

Practically speaking, I work hard to foster trust with my team specifically through consistent and honest communication. One of my favorite quotes comes from Dave Ramsey: “to be unclear is to be unkind” and it exemplifies how candid conversation needs to be framed. The other half of the trust relationship comes from execution and excellence. I believe that keeping good track of tasks, requests, and desires can allow a manager to help a teammate to understand what they need to accomplish. In the same vein, when tasks are on my plate, accomplishing them with excellence is key.

In conclusion, I feel great sympathy for the employees who were trying their hardest to accomplish a worthy goal in the face of intense pressure. There is an opportunity to learn from this train wreck and reinforce the values that I see as necessary to be a successful team regardless of the company’s maturity or market, blatant fraud notwithstanding.  Take the time to check your emotions and ensure you’re making good decisions in the big things and the little ones.  I ask myself “am I being clear?” and “am I deciding this based on emotion or fear?” and in most of the situations that arise, I can avoid things turning into anything like this crazy story.

Thanks for reading, let me know what you think!

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