Wunderkind. Genius. The next Steve Jobs.

All of these titles and more were conferred on Elizabeth Holmes, founder and former CEO of Theranos, a clinical lab-testing business that just a few years ago was worth about $9 billion. In an email to the company's shareholders on Tuesday, current CEO David Taylor announced that the company will soon be shut down.

What happened? How did Theranos's investors and believers get it so wrong?

Ultimately, blame must be laid at the cult of hero worship that sprung up around Holmes, much as it did around Steve Jobs and, more recently, Elon Musk. People were enamored with her story, and they wanted to believe that whatever she did would one day turn into gold.

And, for a while, it did.

According to her origin story, when Holmes was just 7 years old, she decided to build a time machine -- not the kind that you might imagine a 7-year-old child would build, but one that actually worked. In an interview, she said, "I still have a notebook with a complete design for a time machine that I created when I must have been, like, 7. The wonderful thing about the way I was raised is that no one ever told me that I couldn't do those things."

An experience that marked her childhood and that would change her life forever was when an uncle whom she loved very much received a diagnosis of skin cancer. The skin cancer quickly turned into brain cancer, and then he died. His death didn't make sense to the young girl, and she was devastated. She kept thinking that if only the cancer would have been caught in time, if only he had had the information he needed early in the course of his illness, then it could have been managed.

In 2003, at the age of 19 -- while a sophomore at Stanford University -- with an idea brewing in her head, Holmes decided to start a business. She gathered together the savings her parents had set aside for her college tuition as seed money, and she left Stanford that year to start her company. She eventually persuaded her chemical engineering professor to join her, and he gave up his Stanford tenure to join her new company, Theranos, which is an amalgam of the words therapy and diagnosis.

Her core desire? To revolutionize the $76 billion diagnostic laboratory industry.

Soon after she devoted herself full time to her company, Holmes attracted a number of key investors (including Larry Ellison and Draper Fisher Jurvetson) and high-profile board members (including former U.S. secretaries of state Henry Kissinger and George Schultz, and former U.S. senators William Frist and Sam Nunn).

The first product the company pursued -- a small device Holmes invented that could administer a dose of medication, monitor its level in a patient's bloodstream, and then automatically send this data to a doctor or other health care professional -- turned out to be the wrong product at the wrong time, and after five years it was shelved.

The company pivoted to focus its resources on a different product area -- clinical lab testing, including the ubiquitous blood test. The blood test, in which samples of blood are traditionally drawn through needles into large vials -- often several -- is probably the most common, and the most dreaded, laboratory procedure around. Instead of the familiar needles, tourniquets, vials, and bandages of the past, Theranos offered a comprehensive blood test that required just a finger stick and a single drop of blood.

That is, it did offer these services, until an in-depth Wall Street Journal article in October 2015 questioned Theranos's practices, casting further doubt on the company's ability to deliver on its promises. That article tore the fabric of Holmes's cult of personality, and the company began its rapid decline.

In 2016, federal prosecutors opened criminal investigations into Theranos's promises to investors, and in March 2018, the SEC sued Holmes and her company for fraudulently raising more than $700 million from investors. A few months later, a federal grand jury indicted Holmes and the company's former COO on charges of wire fraud. Holmes stepped down from her position as CEO, and as Tuesday's announcement made clear, the company she founded will be no more.

Perhaps it's time for Holmes to dust off those plans for her time machine. I'll bet she'd like nothing more right now than to go back in time and start all over again.

 

Published on: Sep 6, 2018
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