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When Distorting Reality Doesn’t Change The World

Thoughts on the Theranos verdict and what it says about startup culture

Elizabeth Holmes in 2014 (Photo by Steve Jennings/Getty Images for TechCrunch, via Wikimedia Commons)

The Theranos verdict seems to be a judgment against ‘fake it ’til you make it’, a core tenet of startup culture: it’s prompted founders and incubators to make gloomy and panicked pronouncements about the death of innovation. But Theranos’s error was really to conflate confidence with delusion. The verdict, therefore, says more about the value of doubt, listening to criticism, and investor due diligence.

Last week Elizabeth Holmes was found guilty on several counts of defrauding and intentionally misleading investors. This will surprise few people familiar with her story. Theranos made bold claims, took investment, made sales, and built partnerships on the basis of technology that didn’t work, had never worked, and was very unlikely to ever work.

This is more than a cautionary tale against the overinflated egos of entrepreneurs. Holmes wasn’t just arrogant. Knowing nothing about biology, and presuming (with no evidence or real experience) that something like Moore’s Law could apply to medical instrumentation, I think she earnestly thought she could make her claims come true if only she believed hard enough. Theranos wasn’t necessarily doomed from the start — but more of that later. The amazing (and frankly impressive) thing is how she got so many people to believe in a product she herself had no idea how to create.

Reality distortion is not leadership

One of the things Steve Jobs was famous for was his ‘reality distortion field’. Time after time, his knowledge, charisma, and sheer authority allowed him to inspire Apple’s engineers to push the technology beyond previously conceived limits. He was ambitious and his company continues to achieve some very impressive things — but there were few people who could bear to work with him. For years after the publication of Walter Isaacson’s biography, bosses would copy Jobs’s external traits such as his prima donna behavior, hoping that it would bring them authority and success. Elizabeth Holmes also modeled her leadership style and appearance closely on Steve Jobs.

But Jobs wasn’t just a baby throwing his toys around. He knew his stuff. He was restlessly creative and inquisitive, and tinkered with electronics for years with Steve Wozniak, building actual computers that worked. He had a nuanced vision for his products, informed by years of experience through his life journey from unwashed hippie to tech-giant CEO and father.

It definitely works, honest

It’s true that any ambitious startup sometimes needs to ‘fake it ‘til they make it’. Creative success requires an amount of irrational optimism and stubbornness. You can sell investors on the idea of a product, maybe even sell a ‘faked’ experience to a few early customers, and then take investment to actually build the product that you’ll scale to a mass market. This works for software and services because the technology already exists to build the thing, so the only real question is whether people will buy it. For a new technology, on the other hand, you can validate the customer proposition all you like, but if the core technology doesn’t actually work, it’s a dud. Anyone thinking of putting money into something like this really needs to have someone with relevant scientific training on their investor team.

(I know this from personal experience, having once successfully pitched for investment for a startup with a clever but unproven idea… At the time, my conscience got the better of me, and I left the company before the investment deal was signed. I may or may not write more on that subject another time!)

Unlike Jobs, Holmes had not spent years tinkering with technology. There was no obvious reason why she would have had any special insight to create a medical tech breakthrough. Her lack of prior experience does not necessarily disqualify her from starting a billion-dollar biotech company — but it should have prompted some serious questions from her investors.

Postscript: No-way Holmes

The sad thing, to me, is that Holmes made herself into a caricature of a confident startup founder, hoping that alone would ensure her success. Was Theranos doomed from the start? I think not. She could have saved the situation if she had responded to criticism with creativity and a workable plan, and perhaps pivoted into becoming, say, a truly user-centered medical diagnostics company (which might have better warranted her ‘Apple of healthcare’ epithet). We can only guess what someone at the helm with more life experience might have done.

Instead, when the cracks began to show in the reality she had built around her, she dug in. With cult-like zeal, she and her business partner, Sunny, purged doubters from within the company, ignored criticism, and loudly lambasted their critics. Today, Holmes still claims herself to be innocent, and may indeed believe in her own innocence. If so, it will be because she spent so long ‘faking it’, constructing and living inside her own distorted reality, that making it back to the real world might be a tall order.

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