(Note: After nearly four years, since charges were officially filed against Elizabeth holmes, the case is now in court. The prosecution presented their air-tight case over eleven consecutive weeks submitting tons of evidence to show how her company Theranos had violated every known norm of ethical business practice, despite repeated warnings and signals from within the organization and outside. Ms. Holmes faces 11 criminal and fraud charges on virtually every count of indiscretion possible, and if found guilty faces up to 20 years in prison and a fine of $250,000 on each count. She began her defense last week. In a grueling nine-hour testimony, Elizabeth denied most of the charges against her and provided an alternate narrative to some of the accusations. She still remains adamant that no deliberate fraud was ever committed, except for a few acts of negligence here and there, and that her company did succeed in what it set out to do. During her testimony, it was evident that she hasn’t lost an iota of the conviction and persuasiveness that she used so well to build her company nearly twenty years ago. This essay is a profile of Elizabeth Holmes. Hope you get a sense of who she is, what her company Theranos was all about, and when went wrong. It is a classic study on the pitfalls of startups and the culture of starting a company with a whimsical idea that has no basis.)
“Some in clandestine companies combine,
Erect new stocks to trade beyond the line:
With air and empty names beguile the town,
And raise new credits first, then dry ’em down:
Divide the empty nothing into shares,
To set the town together by the ears”
Daniel Defoe – “London”
The meteoric rise and ignominious fall of young Elizabeth Holmes, the former founder, CEO of Theranos, and a billionaire by the age of thirty-one is a fairy tale, with the exception that the tale didn’t have a” lived happily ever after” ending, instead ended quite tragically for the heroine. In his book, “The extraordinary popular delusions and madness of the crowds” written in 1841, the Scottish writer Charles Mackay records many cases of what he calls “moral epidemics” — an irrational attachment to a crazy idea that starts off as a trickle but quickly generates enough momentum, gathering in its course, people from all walks of life, sometimes an entire nation, to follow a scheme, or an investment which in their saner moments they would never have embraced. Such snowballing effect is called the herd mentality. Such a moral epidemic could be anything from a business scheme, to a political idea, medical quackery to a religious belief. It doesn’t matter what the idea is, but its snowballing effect creates nothing short of mass hysteria; and for the time the frenzy prevails, the idea would look unassailable. But, one day the bubble bursts, and the person or persons responsible for the idea stand exposed in the public eye; the carefully constructed house of cards crumbles down and the heroes of yesterday become villains overnight. The rise and fall of Theranos is a story that Charles Mackay would have loved to include in his book. How a quirky medical idea, with negligible scientific backing, lured hundreds of millions of dollars not only from middle-income groups but from billionaires, former secretary of states, well-known businessmen, is a classic illustration of madness. The story of Human greed and untempered ambition is as old as civilization, and no matter how much wiser we become, regular episodes of deception and malfeasance punctuate our economic and social history. As long as success is purely measured in terms of popularity, power, and financial status, we will be susceptible to ideas that promise those gratifications as quickly as possible, and there will be many more Elizabeth holmes in our midst who can count on the gullibility of the public.
Silicon Valley is a fascinating, yet strange place, and within its fifty square mile radius, there is more wealth created than on any other patch of land on the globe. Dreamers are welcome there. No idea is taboo or inappropriate in the Valley, as long as one can get it funded and sold. For those who seek millions in quick time, aspire to own lavish homes overlooking sunny California beaches, and drive expensive and handcrafted lamborghini’s, silicon valley is the place to be if they have the gumption, smartness, and ruthlessness to convert their dreams into reality. It is not at all surprising that Elizabeth Holmes would when the time was ripe for her, choose to make her fortune in silicon valley. As a five-year-old child, a relative visiting her home in Washington DC asked Elizabeth what she would like to become when she got older; the young girl responded without hesitation she wished to be a Billionaire. That was the seed right there. Elizabeth’s parents were well off. Her father worked in a senior role at Enron, and her mother served the Federal government. Education, Money, and status were never an issue for young Elizabeth, and the young girl was precocious, intelligent, and possessed that rare ( and sometimes) disturbing quality of always getting what she wanted. Homeschooled in Mandarin, a language she took a liking to, Elizabeth enrolled at Stanford for their summer program in Mandarin. Perhaps, it was during this time, that her ambition to become a billionaire, began to metastasize and take shape. Soon after school, she enrolled in an undergraduate chemical engineering course at Stanford. Dr.Phyllis Gardner, professor of medicine at Stanford remembers Elizabeth as a hyper-intelligent student. Dr. Phyllis vividly remembers Elizabeth’s enthusiastic discussions about blood tests and how she had ideas to make them easy and effective. Dr. Phyllis also remembers with a faint shudder the cold, icy, almost hysteric look in Elizabeth’s deep, blue eyes when the scientific premise of these ideas was questioned. “There was something about her inability to listen that troubled me”, was Phylis’s cryptic comment on Elizabeth. If you look at a picture of Elizabeth, you will see a face that conveys a steely resolve. Whenever I see a photo of her, a description by GK Chesterton in a Father Brown story instantly comes to mind: “ She had the eyes of startling brilliancy, but it was the brilliancy of steel rather than of diamonds. She was one of those women whom one always thinks of in profile, as of the clean-cut edge of a weapon. She seemed to cleave her way through life…” This description fitted Elizabeth perfectly.
Elizabeth floated Theranos ( formed with the words “Therapy” and “Diagnosis”) when she was nineteen, just out of college. She was a lady on a mission. She knew if she had to challenge the predominantly male-dominated culture in the Valley, she had to act and behave tough. The moment she assumed control, she made changes to her persona. She modulated her voice to a baritone, deliberately speaking at an octave less so that words come out deep and intense. She changed her costumes to mimic Steve jobs black turtle necks ( which she ordered from the same designer Jobs’ employed). She adopted a body language carefully orchestrated to look more flamboyant, expressive, and in control. Over and above all this, she created a crystal clear narrative in her head of what she wanted people to hear about her idea. And those who listened were carried away by the force of her personality and the persuasive story she told. Between 2003 and 2016, in a span of 12 years, she received millions of dollars from capital investors to fund her company. Offices were leased out at enormous costs in the heart of Silicon Valley. Theranos attracted top talent from Apple and many other established silicon valley companies, many of whom, were simply blown away by her vision. By 2014, at the age of thirty, Elizabeth Holmes was ranked by Forbes as the youngest self-made billionaire, and her assets were valued at over nine billion dollars. She had reached the pinnacle of her dreams and changed the way people looked at Women entrepreneurs in silicon valley. She was the poster girl of women’s power in a male-dominated work landscape. What more could one want?
That brings us to the question: What exactly was Elizabeth’s business proposition and what went wrong. Her business idea was to revolutionize the process of conducting blood tests. Traditional blood-testing methods, as all of us know, can be time-consuming and repetitive, and the results could often take days to process. Patients have to wait in anxiety to know the outcome. Elizabeth wanted to change that. She convinced herself that Blood tests can be made really simple. She claimed that she had found a scientific way to run over 240 different kinds of blood tests with just a drop of blood using her proprietary portable appliance called Edison. With this scalable method, patients could walk into pharmacies, have their blood tested in no time, and return home with the results – all within an hour or so. This was a fascinating idea, considering blood tests are critical for diagnosing most medical diseases, the technology that powered Edison promised to expedite the process and make it less painful ( just a drop of blood from a pinprick). The investor community was excited over the idea to commercialize the process. What a boon such a process could be in emergent circumstances — for instance, in war zones, where the time to diagnose and treat is short, or in medical situations where delay of any sort could be fatal for the patient. Elizabeth audaciously claimed during her pre-launch conversations that her method had worked well on the battlefields of Iraq in the early 2000s. People believed her. That’s all you need for a business proposition to take off.
There were three key elements that had to be in place for Elizabeth’s idea to work: first, a medically safe manner for the blood to be drawn, the precautions and conditions needed to store and test, and most importantly, the reliability and scientific accuracy of the appliance ( Edison) to generate accurate results based on those minute samples. Theranos began commercializing the product even before any of these factors were thoroughly tested and certified by FDA (Federal Drug Administration). By 2006, Elizabeth had managed to set up a company staffed with good talent from Apple and other places. She paid scant attention to the failure of Edison to pass even simple quality checks. Her overpowering personality, carefully orchestrated image, and persuasive articulation were enough to get the idea and the media going. The people who worked for Theranos – the scientists, researchers, and technicians, repeatedly wrote memos to Elizabeth and her partner Ramesh Balwani ( an Indian immigrant who had made millions in venture capital funding and was living with Elizabeth during that time) on the discrepancies in the results and the untenability of Theranos’s medical claims; but it fell on deaf ears. Theranos was a big brand by then; brimming with money, investors, and public adulation. It didn’t matter that the practices it evangelized were medically unsubstantiated. Theranos was on driving fast on the success highway and any dissent within the company, or thoughts about slowing down were immediately talked down or removed from the picture. Elizabeth was ruthless in the pursuit of her dream and success.
In 2014 Forbes magazine, when Elizabeth’s photo appeared on the front page, she was at the height of her fame. Her descent began soon after. By 2016, her carefully constructed empire started disintegrating. A few key whistleblowers within the company broke their silence, and a reporter for the Wall Street Journal picked up the trail. At about the same time, business partners like Walgreen were beginning to grow uneasy about Theranos’s claims, and negligence to conform with federal regulations. It started coming to light that the blood samples weren’t tested on-site, as originally advertised, but flown into a secret basement at the Theranos’s silicon valley office. Patients also began to note critical discrepancies between blood tests performed through Edison at Walgreens and other places against tests done from established diagnostic labs. They also felt uneasy that more often than not, syringes were used to draw larger quantities of blood, when the whole point and claim of Theranos was to draw just a drop. Serious doubts about the company and process started to surface. Based on whistleblower confessions and published reports, In 2016, the securities exchange commission stepped in to investigate. It didn’t take long for them to identify serious violations in product claims and compliance. Once the cat was out of the bag, the market valuation of Theranos plummeted from billions to zero in no time, and Elizabeth’s carefully constructed image broke into pieces. She was ostracized from the business world as quickly as she was venerated when things were going well. That is the tragedy of inorganic success. The fall is steep and painful. During her lengthy deposition to the SEC in 2017, the usually confident Elizabeth was hesitant and unsure of her answers. Over 600 times, she responded, ” I don’t know”. She couldn’t clarify her position on critical questions regarding Theranos technology and its scientific claims.
Elizabeth faces criminal charges along with Ramesh “Sunny” Balwani, her accomplice in the Theranos journey. If found guilty, she could land in prison for decades. The court proceedings have just begun. Whatever be the outcome of the case, there are a few questions that stand out in our minds. Was Elizabeth a Sociopath whose narcissism blinded her to facts ? or did she genuinely believe in the efficacy of her idea, and hoped to get away with something she knew wouldn’t work? or is she just a product of modern times who was interested to make those quick bucks at any cost? or is it just a case of plain deception and fraud in the world of business? Or, did she really think she could change the lives of people with her idea, but just didn’t know how to go about it? There are no answers right now. But we hope, we get some answers soon. Elizabeth Holmes is only 37 years old, with a full life ahead of her. With what she has gone through so far, it seems she has already lived many lifetimes. Will the courts acquit her? Will she resurrect, as she promised she would? In an interview couple of years ago, just after the scam broke out she said: “You’ll get knocked down over and over and over again, and you get back up, I’ve been knocked down a lot, and it became really clear that this was what I wanted to do, and I would start this company over 10,000 times if I had to.” Can she really make a comeback? I don’t think so. But you never know.
What is sad about Elizabeth’s rise and fall is how her talent was wasted defending an idea that wasn’t scientifically viable. Her idol was Steve Jobs, and in many ways, she strived to imitate his work culture and mannerisms. But what she didn’t quite learn from Jobs was his important quality of never selling an idea before it can be thoroughly researched, studied, designed, and tested. Her goal was to grow big, make a mark in silicon valley with (let’s give the benefit of the doubt) a vague notion of “doing good”. She didn’t quite think through the process and weigh her options, with the result, her approach, adamancy, and unwillingness to retract from her position despite good counsel from colleagues and others pushed her headlong on a path that was doomed to fail. Her reckless attitude short-circuited her journey as a woman entrepreneur, and knowingly or unknowingly her acts of deliberate omission and misrepresentation have left a shadow on the creative ethos of Silicon Valley. The case of Theranos raised important questions among investors and regulators about the integrity of Startups and their ideas. Not that silicon valley has become conservative or cut down on crazy ideas after the tragedy of Theranos, but it has certainly induced some sanity in the proceedings. Unfortunately, that may be the only legacy that Elizabeth Holmes will leave behind.
We will wait to see how the case unfolds in the coming weeks.
God bless…
yours in mortality,
Bala