Thanks to Elizabeth Holmes, Silicon Valley is now being forced to explore the real-world implications of faking it until you make it. And the fall of Theranos is a poster story of how due diligence should always be prioritized over blind faith and enthusiasm.
In recent years tech companies have celebrated the ability to fake it before you make it. The world of crypto famously grabbed this baton and began securing investment based on future promises. Silicon Valley has always romanticized the image of someone like Jeff Bezos, who hustled his way from humble beginnings in his garage and an office with a spray-painted Amazon logo on the wall, or Mark Zuckerberg starting Facebook from his dorm.
The story of a rags-to-riches entrepreneur who has followed the template of being a college drop-out has now entered the spotlight for all the wrong reasons as the story of Elizabeth Holmes is played out in court. Predictably, Holmes dropped out of Stanford University in 2003 at the age of 19. But she quickly attracted the interest of investors when she filed a patent for a biotech solution that could perform a wide range of tests with a tiny amount of blood from a finger-prick sample.
Holmes had the perfect pitch and backstory of allegedly being afraid of needles. This fear inspired her to revolutionize the medical industry and eliminate big needles and large blood samples. The ability of tech to provide a more efficient way to detect conditions such as cancer and diabetes quickly attracted many investors, from media tycoon Rupert Murdoch to US Treasury Secretary George Schultz.
Theranos would remain in stealth mode for a decade before emerging with a phenomenal valuation of $10 billion.
Forbes quickly jumped on the bandwagon, unveiling Holmes as the youngest self-made female billionaire. A charismatic young, strong female leader in the male-dominated tech world was precisely what the industry needed, and INC even promoted Holmes as the next Steve Jobs.
Despite promising a tech revolution in diagnosing disease, the company failed to deliver. When Biochemist Ian Gibbons reportedly expressed his concerns, employees warned him not to question the tech or its accuracy. In 2013, his death by suicide the night before he was required to testify in a lawsuit about the company's technology should have set off a few alarm bells.
By 2015, Holmes was accused of being a fake as it was revealed that the technology did not live up to the future promises being made to investors.
By 2018 Theranos had collapsed, and Holmes stood accused of fraudulently raising $700m from investors. As the court case unfolds, the media continues to be obsessed with the story. There has already been an HBO documentary, a podcast, and the best-selling book Bad Blood which is being turned into a movie with Jennifer Lawrence in the lead role. But how did we get here?
The demise of due diligence
We are living in a digital world that depends on technology that very few people understand. For the most part, many leaders do not care what goes on under the hood. They just expect it to work. But somewhere along the way, many businesses stopped looking under the hood before buying the next tech solution that the vendor promises will transform their business. Sure, they will perform due diligence around legal and financial problems, but the tech is often forgotten or based on trust.
Many tech companies infamously keep their technology shrouded in mystery and will attempt to baffle businesses with buzzwords.
Employees working on new solutions are also reportedly encouraged to believe that they have no right to raise legitimate issues. The result is often an over-hyped product built on future promises to gain significant investors. But when a tech company is making promises about the health of patients rather than a laptop, things are very different.
Silicon Valley is now being forced to explore the real-world implications of faking it until you make it or moving fast and breaking things. How many are other tech unicorns with insanely high valuations similarly flawed?
Focus on what tech can do now, not in the future
Investors of Theranos were distracted by the shiny allure of high-profile board members. How Holmes leveraged her elite connections combined with her charismatic leadership created an echo chamber of collective optimism. It also created a fear of missing out on the next big thing and a unique healthcare invention that promised to change the world of healthcare. But due diligence should always be prioritized over blind faith and enthusiasm. The fact that Theranos's tech had not been peer-reviewed should have set off a few alarm bells.
As the court case continues to unfold and gain attention from the mainstream media, there are many lessons that the industry must learn from.
The story of a notoriously failed healthcare start-up is not the first, and it won't be the last. The road ahead should be less about the outcome of the trial and the fate of Elizabeth Homes. Alternatively, it’s an opportunity for every start-up founder and tech unicorn to be open and transparent about what their technology can do right now, rather than focusing on the overselling of future promises.