Management lessons from Theranos

I’m digging into Bad Blood, the authoritative book on the rise and fall of Theranos.

I would have thought that there were no lessons to be learned for those who toil in ordinary enterprises, but there are some!

Background: Theranos was not all-fraud, all-the-time. The founder’s vision was far too advanced for Silicon Valley engineers to achieve, at least on a non-Apple budget, but the team did try. There were some reasonably competent people from Apple, Logitech, et al., and they did doggedly build devices. Maybe the combined efforts of the best people at Siemens and Agilent (formerly HP) would have sufficed to deliver most of the vision.

One lesson for managers is that firing the disloyal is a good technique for preserving one’s job. Elizabeth Holmes wouldn’t have lasted past 2005 or 2006 if not for the fact that she axed everyone who disagreed with her. A rebellion in 2008 nearly led to a Board vote to remove her as CEO, but she survived via “contrition and charm” and then fired everyone who had exposed her overoptimism and outright lies to the Board.

Another lesson is that incompetence plus sucking up = long-term job. The head of software would reliably say “yes, we can do it” and that enabled him to survive despite a long track record of failure. Folks who were more capable and who pushed back on unrealistic goals were routinely fired.

[Sort of a “management” lesson: the book describes that Holmes had a boyfriend, Ramesh Balwani, who was two decades her senior and provided her with a roadmap to garnering personal cash without necessarily building a real business. Wikipedia says that he made $40 million personally on a company whose investors were wiped out. He used some of this money to guarantee a loan to Theranos when the company had burned through its first three rounds of seed/VC money. The company might not have lasted past about 2010 without Elizabeth Holmes’s personal connection to the rich guy.]

One weakness of the book so far is that it doesn’t explain how the company was able to hire anyone in the face of competition from Apple, Google, Facebook, et al. The author makes it sound as though many of the people had skills to get jobs at the unsinkable behemoths. How did they end up at Theranos in the first place? The magnetic personality of the founder is one explanation.

6 thoughts on “Management lessons from Theranos

  1. Thousands of moonshot gadgets end up not working, but this one was unlucky enough to get attention from lawyers. That hurt a lot of startups with better ideas, because no-one suddenly wanted to invest in a medical device that could end up not working. A moonshot medical device tends to be more attractive work than another set top box or digital assistant. Longevity of the startup isn’t as serious a concern as it is in Boston, where you don’t have many options.

  2. “Kemp had spent thirty years at IBM. Diane Parks, Theranos’s chief commercial officer, had twenty-five years of experience at pharmaceutical and biotechnology companies.”

    It sounds to me like these folks were over the hill by Silicon Valley standards and were glad to land a job.

  3. Great book! Elizabeth Holmes is my favorite bad girl of Silicon Valley. I remember reading that she put Henry Kissinger on her board of directors and thinking that was a stroke of genius- he was a guy who would have zero expertise or oversight in running the company while still commanding respect from a Silicon Valley crowd.

    If you want to hear about rich millenials being scammed check out Fyre Fraud on Netflix. Billy Macfarland is another fascinating sociopathic swindler.

  4. Sounds like a good read, and as lion points out a sad story because of its chilling effect. And aside from the management lessons, what about the basic medical science lessons? I did a little side reading about this over at Scientific American. I’m astounded by how little skepticism there apparently was among the investors about the basic idea behind what they were trying to do! As the author points out, taking a few drops of blood from a fingertip is a *very different thing* than a larger sample of venous blood:

    By Norman Paradis from April, 2016: https://www.scientificamerican.com/article/the-rise-and-fall-of-theranos/

    Given the amount of money the investors – presumably intelligent people – sunk into it, you’d think some of them would have demanded to see more proof and at least asked more trusted outsiders for a second (and third, and fourth) opinion about basic idea. I’m exaggerating but it’s a little like investing tens and hundreds of millions of dollars in an electric car company that claims you’ll get 250 miles of city/highway range out of a 9 volt Energizer rechargeable and a solar sunroof.

    “Folks who were more capable and who pushed back on unrealistic goals were routinely fired.” I should say SO.

  5. “Another lesson is that incompetence plus sucking up = long-term job. The head of software would reliably say “yes, we can do it” and that enabled him to survive despite a long track record of failure. Folks who were more capable and who pushed back on unrealistic goals were routinely fired.”

    So true, and so painful to learn.

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