Cause of Failure

Elizabeth Holmes was a real sensation in the media, often featured on the covers of various business magazines and lists of top executives and innovators. On top of this, she was also honored with an interview with former US President Bill Clinton. During these media opportunities, Holmes stated that Theranos’ goal was to give people the power to have critical health information at the time it mattered and that she wanted to create a world in which no one ever had to say the phrase "if only I had known sooner."

However, despite this ambitious goal, in October of 2015, when investigative reporter John Carreyrou of The Wall Street Journal questioned the validity of Theranos' technology, Holmes and her company started slipping into hotter and hotter water. The company soon found itself facing legal and commercial challenges from medical authorities and investors. The U.S. Securities and Exchange Commission (SEC), Centers for Medicare and Medicaid Services (CMS), state attorney generals, former business partners, and former patients among other parties got involved in uncovering the fraud and by June of 2016, it was estimated that Holmes's personal net worth had dropped from $4.5 billion to virtually nothing following Holmes’ charging of wire fraud, among a list of other accusations. Soon after this, in September 2018, Theranos ceased operations.

So what exactly happened here? Why did it take over a decade to expose this company?

The story begins much earlier in 2002 when Elizabeth Holmes arrived at Stanford University with her breakthrough ideas. Holmes wanted to build a patch that would scan the wearer for infections and through its results, release the necessary antibiotics a patient needed. However, Dr. Phyllis Gardner, Holmes’ professor, tried to explain to her that the antibiotics Holmes wanted to use needed to be given at higher doses than a patch could deliver and that her idea would be difficult to implement. Undeterred, Holmes went on to drop out of Stanford University in 2003 at the age of 19 to start Theranos, then called Real-Time Cures under the disproven premise. As John Carreyrou points out in his thrilling non-fiction masterpiece, Bad Blood, Holmes had an unusual obsession with Steve Jobs that manifested in an obsessive copying of Job’s dressing style and making her employees read his books. Holmes had also infamously claimed that her device would soon be the “iPod of healthcare.” This “Apple complex” that Holmes possessed also led her to spy on her employees and demanded absolute loyalty from them.

As Holmes’ scaled Theranos up and members of the team inevitably found out about the fabled, fraudulent technology, as the company scaled up operations, various early. "disgruntled employees" were fired, threatened, and sued for trying to expose the reliability of the technology that Holmes claimed as revolutionary. The fraud was exposed when a former employee during the peak years of the company, Tyler Shultz, had attempted to bring concerns about the company's activities to his management, and when that had failed, he had spoken to Carreyrou and under an alias, reported the company to the New York State Department of Health. Despite ardent efforts by Holmes trying to get Rupert Murdoch to shut down the story that Carreyrou published on her, everything came crumbling downhill for what’s gone down as possibly one of the biggest frauds ever in the healthcare industry.

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Opinion

Looking at the story of Holmes, the recipe for failure can be traced to back in 2002, when she failed to heed the advice of her professor while just a freshman at Stanford. This fostered success complex to chase dreams has destroyed young and seasoned entrepreneurs alke who look to get too successful too quickly. In an interview with CNBC, Patrick Hillman, a senior vice president at crisis-management firm Levick summarizes this effect, saying that startups are prone to big spending mistakes like any person put in the position of sudden wealth. “It’s the Hollywood syndrome,” Hillmann says, “they are stars and rich beyond their wildest dreams, and everyone is saying how brilliant they are. You need to stay grounded!” With the replication of business models becoming easier than ever, entrepreneurs today feel the need for excessive risk taking and constant innovation to protect market share at all costs.

However, in the case of Theranos, there was another problem than just trying to obsessively recreate Apple’s success in a few years. Michael Sitrick, chairman and CEO of strategic communications firm Sitrick and Co., who has represented companies including ExxonMobil, Disney, and Hewlett-Packard during various crises, brilliantly states that “You can’t have sycophants who tell you that you’re the best-looking CEO in Silicon Valley. You need someone to tell the emperor they have no clothes on.” This is exactly what Theranos failed to do as a company. The thin skinned idealists heading the company could never take no for an answer and created a cult reminiscent of totalitarian regimes that wanted nothing but loyalty from its employees.

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