In 2015 this unicorn entrepreneur was named one of TIME’s Most Influential People. President Obama invited this individual to be his Presidential Ambassador for Global Entrepreneurship. And, Forbes estimated their Net Worth at $4.5 Billion. This is also someone I personally liked and admired.
Fast forward a year and their net worth is $0.00. It’s even been reported that they owe their company a cool $25 million.
In case you’re curious, I’m talking about Elizabeth Holmes.
At one point, Holmes, and her company Theranos that founded when she was 19 in 2004, promised to change the way people got blood tests. This was by replacing needles with finger pricks.
The biotech company made Holmes a household name. She was featured on the covers of Forbes, Fortune, and The New York Times. Holmes also went on to became the world's youngest self-made female billionaire in 2014.
Theranos struck deals with Walgreen, the Cleveland Clinic, Capital BlueCross, and AmeriHealth Caritas. The company was valued at a healthy $9 billion - with more than $400 million in venture capital.
The sky was the limit.
That was until the Wall Street Journal reported the Edison blood-testing device used by Theranos might deliver inaccurate results.By January of 2016, the Centers for Medicare and Medicaid Services, which regulates Theranos, sent the company a letter. It stated that the company's blood tests “pose immediate jeopardy to patient health and safety.”
Despite Theranos claiming the issues pointed out by CMS were being fixed, the downward spiral continued. Forbes lowered its estimate of Holmes net worth to zero. By October the company laid off 340 people-;43% of its staff-;and exits the business of running a laboratory.
To make matters worse, The Centers for Medicare and Medicaid Services, revoked Theranos Inc.’s certificate to run medical tests. It also banned Holmes from owning or running a lab for at least 2 years.
In May 2017, Holmes reportedly gave out shares of Theranos to avoid lawsuits.
Simply put, the rise and fall of Holmes and Theranos is one of the more interesting one for entrepreneurs to follow. Despite having a promising company that could do something great, everything came crashing down due to the following mistakes.
Lack of Integrity/Knowledge.
Healthcare regulatory lawyer Harry Nelson writes that for Holmes spent ten months “putting on a clinic of how to run your company without integrity:
“For me, the key lesson we should all take away is: First, have integrity. Understand it, demand it, and live it,” adds Nelson.
Integrity, according to Nelson “is one of the least-understood words that gets batted around in both a leadership and healthcare compliance context.” In its most basic definition, integrity boils down to “leaders and their organizations being honest and truthful.”
“On a deeper level, integrity involves nuance because leaders are called upon to answer difficult questions - from investors, from employees, from those the organization serves, from government.”
Good leaders, says Nelson, should be both aspirational and inspirational. This involves good leadership communication that delivers the message the right way, emphasize the right facts, and crafts the takeaway.
However, good leaders also have “to be careful about giving nuanced answers that achieve the necessary goal while remaining truthful at all times. At its core, the message always has to have integrity. Once you allow for a gap between what you say and what’s actually true, you and your organization are off the path and headed for trouble.”
“Simply put, there isn’t any room for a person who doesn’t understand and live up to that. People smell the dishonesty. It’s clear that Elizabeth Holmes missed this lesson,” adds Nelson.
“She exhibited no integrity in mischaracterizing the cessation of the ‘nanotainers’ as a voluntary step when it was demanded by the FDA. She failed to level with Theranos employees about the mistakes made.”
An organization simply can’t operate without integrity. And, even when a founder or leader is honest, integrity is still a challenged. That’s because there is “no amount of lip service to behaving in an honest or ethical way will mean anything if you don’t ‘live’ your organizational integrity.”
Nelson believes that “accountability and transparency” are the two pathways of achieving organizational integrity.
While I don't fully agree with Nelson, I do believe full knowledge of everything happening in your business would have been a better bet.
She wasn’t hands-on.
Six months after the WSJ story broke, Holmes gave an interview with NBC's Maria Shiver, where she said, “Anything that happens at this company is my responsibility.”
“I feel devastated that we did not catch and fix these issues faster.” And Holmes vowed to “rebuild the entire laboratory from scratch so we can ensure it never happens again.”
Shiver wasn’t buying it.
“You’re running a healthcare startup, you’re dealing with people’s lives, you’re dealing with test results that doctors prescribe medicine based on, you would have thought you’d have that in place from the get go.”
“Absolutely,” Holmes said. “And probably the most devastating part of this is that I thought we did.”
As a business owner myself, I couldn’t believe this exchange. It appeared as if Holmes was completely hands-off. I could maybe surmise that that was too much micromanagement and she was preoccupied with promoting the company.
As the founder of startup that was a decade in the making, it was Holmes responsibility to know every nook and cranny of her business. If there was a problem with the tech Theranos relied on, Holmes should have been aware and insistent that it was fixed.
Have the right investors and board members.
One of the most important parts of being a startup founder is connecting with investors and board members that are a good fit for you and your business. This means working with investors who will challenge you and add value to your business. Additionally, it means selecting board members who support the management, growth, and fiscal responsibility of your company.
Holmes didn’t do that. Instead, she went with investors and board members based on names, net worth, and clout. The group also lacked relevant experience and diversity in terms of demographics and skill sets. I believe this set her up for failure before she even began.
Failed to establish transparency and leadership.
The downfall of Theranos all started when The Wall Street Journal questioned whether or not Theranos’ technology actually worked. To be fair, startups working in such a competitive category shouldn’t publish proprietary data without having appropriate IP protection. At the same time, Theranos was too secretive.
The company also refused to let it’s technology be reviewed and tested by their peers. In fact, it was reported that scientists and engineers at Theranos weren’t even allowed to talk to each other. When concerned employees expressed their doubts, leaders attempted to minimize their concerns.
So, what could have been differently?
For starters, the company should have met the gold standards of quality, credibility, and safety within it’s industry. It should have also published its results in a peer-reviewed journal.
Furthermore, Theanos should have encouraged a culture where collaboration, communication, and transparency were encouraged. Of course, that starts with hiring a diverse and trustworthy team who have the skills to meet those standards of quality, credibility, and safety.
Theranos didn’t live up to the hype.
Even though it took a decade, Theranos made a splash in 2013 with a massive public relations campaign that promised to disrupt the lab testing industry. It also proclaimed that Holmes was the next Steve Jobs.
Those were both big shoes to fill. And, as we now know, both Holmes and Theranos weren’t ready to fill them.
While there’s nothing wrong with gaining some traction before a product launch, it’s completely different to generate enormous hype when you clearly can’t deliver.
In other words, if you’re going to over-promise, then you better make sure that you can live up to your word.
Didn't adhere to compliance.
“If the test results been accurate and valid, quality control standards had been respected, and qualified personnel had kept proper documentation, Theranos could have remained a powerful company for a long time. A pinch of humility and honesty could have bought the company many years to perfect its methods,” writes Emerson Dameron for Neoteryx’s blog.
“However, by failing to comply with regulatory demands and established quality standards within the industry on the one hand, and knowingly compromising on patient safety on the other, Theranos sabotaged its own important, groundbreaking work. It wanted too much, too soon.”
“The main lesson here is to never compromise on patient safety, especially if you do want to achieve positive change. Regulations exist for a reason. True innovation means working within constraints and putting people first, not making your own rules and hoping for the best.”
Even though I’m involved in a completely different industry, I must also adhere to compliance and regulations. For me, this is following security standards established by the Payment Card Industry Data Security Standard.
If I don’t, I could be penalized or held liable for card replacements. I could even be required to undergo audits. But, most importantly, it’s beneficial for my brand’s reputation.
Holmes had years to meet regulations and make sure that Theranos was compliant. Personally. Find this inexcusable.
The company picked the wrong fight.
When the WSJ story broke, Holmes went on CNBC and said, “This is what happens when you work to change things. First they think you’re crazy. Then they fight you. And then all of a sudden you change the world. I have to say I personally was shocked to see that the Journal would publish something like this …”
That became the company’s position for the next six months. The company kept insisting that the Journal’s reports were “inaccurate, misleading and defamatory” and that all allegations were “grounded in baseless assertions by disgruntled former employees and industry incumbents.”
In short, the company didn’t follow the three rules of crisis management;
Instead of owning up to their mistakes, and correcting the problems within the company, the company was focused on picking fights with the media. And, that’s always going to be a losing battle. In case you weren’t aware, journalists can get vicious when backed into a corner.