Theranos was the darling of the tech and healthcare fields in the United States, and at one time was valued at USD 90 billion. Now, it is worth nothing. Here we share three takeaways we can all learn from the spectacular rise and fall of that firm.

If you do have any interest in the global tech space, you should have heard of Elizabeth Holmes. Holmes was the Founder and Chief Executive Officer of Theranos, a 15 year old heath tech company that claimed to have developed breakthrough technology that would allow it to conduct a broad range of blood tests using less blood and being considerably more cost effective than the traditional practice.

Holmes and Theranos became the darlings of the tech and health fields, and secured considerable funding, including most recently over USD 90 million dollars, to continue to build out the company. However, in recent years, there had been rumours that all was not ‘kosher’ at Theranos:

  • the blood testing technology the company claimed it had developed, did not exist
  • the technology and devices that company did create had not been properly tested and validated, and so produced inaccurate and inconsistent results
  • the company was in fact using traditional/mainstream blood testing equipment, instead of its own equipment, to conduct the tests that it claimed that its own in-house technology performed.

In summary, all of the lies deceit eventually caught up with the company, with the United States Securities and Exchange Commission (SEC) charging Holmes, and former president Ramesh “Sunny” Balwani, with several counts of fraud in March this year. However, this week, on 4 September to be exact, the company announced that it was shutting down, effectively leaving investors and creditors in the lurch.

For those of us who have been following Holmes and Theranos seemingly meteoric rise, the demise of the firm, though sad, is not wholly unexpected. It thus offers us some lessons and reminders that businesses – particularly those in the tech space, where there is still an emphasis on fast growth, and faster and larger returns – should keep in mind.

1.  The pressure to be successful can lead to the telling of very small, and very big, lies

Although Theranos might have appeared to have been ‘an overnight success’, it wasn’t. The company was 15 years old, with Holmes establishing it in 2003. However, after securing several rounds of funding, and even having some blood testing breakthroughs, such as successfully developing a fingerstick blood testing device for the herpes simplex virus (HSV-1), the pressure to live up to all of the hype would have been great.

It should thus not come as a surprise if Holmes and Theranos “stretched firm the truth” a bit. However, based on the then growing profile of the firm, the difficulty is that those untruths would have begun to take on a life of their own. Further, both Theranos and Holmes became poster children for what is possible in the health tech industry, which in turn would have spurred increased interest and investment in that space, and even greater attention – and scrutiny – on the firm.

2.  Although there might be trade secrets, being completely secretive is not the answer

From all reports, Theranos was incredibly secretive about the technology it allegedly had developed. More importantly, that degree of secretiveness – in and of itself – would have led to speculation, which it could be argued, hastened the company’s downfall.

In the Caribbean for example, techies and prospective start-ups can be so hesitant to speak about their business or business idea, for fear that their ideas get stolen. However, although safeguarding trade secrets and commercially sensitive information is crucial, there ought to be a way to allay concerns, or demonstrate (or share) some evidence of a product’s performance, without divulging what might be considered trade secrets.,

To some degree, tech firms, such as Apple, Samsung and Google, all walk that tightrope when they release new products: the devices demonstrate the latest tech innovation of their manufacturers, but exactly how those innovations are achieved is either patented or not divulged at all. Hence, there ought to be a sense of transparency, which can offer some assurance that a tech business and its leaders are competent, authentic and capable in the venture they are pursuing.

3.  An ‘impressive’ board of directors is not the same as having an ‘effective’ board of directors

For a start-up, having a set of luminaires on its board of directors provide prospective investors and partners with some assurance of the capability of the business. In the case of Theranos, its board included individuals such as Henry Kissinger, George Shultz (former Secretary of State), to current United States Defence Secretary, James Mattis, who although acclaimed in their own right, have no background in the tech or medical fields. So although they might have been useful in opening doors for the company. It is questionable whether they could ask the tough questions of Holmes and the Theranos management team, thus effectively executing their fiduciary duties as board members.

Too often, company founders and management teams want a board that will rubber stamp their decisions. But boards are really there to offer independent judgement, and to interrogate the strategies, etc., that are being proposed, which ultimately, should make the business more robust and poised for even greater success.
 

Image credit:  peejhunt (Pixabay)