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.

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Gillette ad shows the changing standards for being a male hero?

I recounted my Costco conversation (see yesterday’s post) about the Gillette ad on Facebook. A cousin in her 20s responded

As someone with a daughter you should be happy about this. The whole purpose of this ad is to show men they can be kind and loving. Which I know you want for Greta. It’s shedding the awful stigmas that have been pushed onto men.

To me the ad was absurd. The situations in which the men found themselves entailed no personal risk and no consequences for action versus inaction. One young man says “not cool” to a same-age friend who is considering pursuing an attractive young woman on the street (maybe “it might be expensive” would be more effective?). A full-sized adult male separates two young boys who are wrestling/fighting on the grass. Shoveling the front walk after the weekend’s snowstorm is more challenging than what any of the guys in the video are doing.

What kind of conduct was valorized when I was this cousin’s age? Roger Olian and Lenny Skutnik were warm and dry prior to deciding to dive into the icy Potomac River to save people from Air Florida 90. They took a huge risk that was in no way related to their jobs or responsibilities. Nobody would have criticized Olian from staying in his warm truck or Skutnik for staying in his warm coat and boots on the shore. That’s not “the best a man can be” anymore, though!

The Thai cave rescue presented a similar situation in 2018. The “over 100 divers” (were they all men?) who went in would not have been criticized for staying home, right? Saman Kunan, a former Thai Navy SEAL who died, was “working in security at the Suvarnabhumi Airport when he volunteered to assist the cave rescue.” Surely at least one of those 100+ divers identifies as a man and is (or “identifies as”?) a Gillette customer. Yet to resonate with young consumers, Gillette decided that men dealing with children on grass was more powerful than men leaving their cozy homes, flying to Thailand, and pulling children out of miles of flooded cave.

I wonder if the debate about the Gillette ad is actually a debate between generations. My young cousin had a completely different impression than I did. So Gillette wasn’t clueless. They just don’t care about older customers who are stuck with a 1970s/1980s concept of achievement.

Related:

  • Dorco Pace 7, the Korean-made shaving system for the non-woke and/or elderly
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Gillette versus Dorco Shaving Test 1

The controversy over Gillette’s recent “toxic masculinity” ad campaign got me curious about the state of the art in razor blades.

Test 1:

  • three days of growth
  • no shower beforehand
  • warm water applied with cloth
  • Edge shaving gel
  • Dorco Pace 7 on right side of face
  • latest and greatest Gillette Fusion 5 ProShield with FlexBall on left side of face
  • brand new cartridges in both handles

Results:

  • Dorco: slight pulling/grabbing sensation at times, no trouble shaving under nose despite lack of single blade in the back, no nicks
  • Gillette: less resistance, one nick

Winner: Draw. Equal smoothness of face on both sides.

[Separately, from Friday:

Costco cashier assistant (looking at roses in cart): “What’d you do?”

Me: “If you’ve seen the Gillette ads, then you know that simply existing as a man is reason enough for apologizing.”

Assistant (in her 60s): “Aw. That’s not true. We need men.”

Cashier (in her 30s): “I’m doing fine without. The only thing that I miss is the dual income.”

]

Readers: How much better could Dorco do in the U.S. if they didn’t market their flagship under the name “Dorco”?

See also: Test 2 (in-shower shaving).

Related:

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You didn’t build that, Jeff Bezos edition

“MACKENZIE BEZOS AND THE MYTH OF THE LONE GENIUS FOUNDER” (WIRED):

Admittedly, MacKenzie’s role in the history of Amazon may not be as crucial as the existence of the World Wide Web. Then again, it’s hard to say for sure.

See also, my review of The Everything Store.

(The book describes Mrs. Bezos as providing some assistance, such as bookkeeping or getting shipments out the door, during the first years of Amazon, but then exiting the workforce. She is mentioned on page 22 as having a degree in English and “targeting” Jeff Bezos for marriage, on page 27 as “supporting” Jeff Bezos in moving from NY to Seattle, on page 39 as driving boxes to UPS, on page 40 as depositing checks, and on page 60 as attending a 1997 post-IPO party. There is no mention of MacKenzie Bezos as having had any role in the management or operation of Amazon after 1997.)

Related:

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Amazon settles into low-tax New York City

“Amazon Announces New York and Virginia as HQ2 Picks” (nytimes):

Amazon could receive more than $2 billion in tax incentives across the two top locations, the company said in its announcement. Up to $1.2 billion of that will come from New York state’s Excelsior program, a discretionary tax credit. In Virginia, the company could receive up to $550 million in cash incentives from the state.

Plainly both New York and Virginia will be low-tax environments for Amazon (not for small competitors, though! The Tax Foundation ranks New York almost dead last in business tax climate; only California and New Jersey are more punishing places to have a company), but how exactly are the “tax incentives” ladled out?

Amazon will pay less in state income tax? In payroll taxes? In property taxes? A combination of these taxes? 

“The mystery tax breaks bringing Amazon to LIC; New York has an incentives package for Amazon, but taxpayers may never know what’s in it” talks about “tax credits,” but doesn’t say if these are credits against state income tax or local property tax or what.

[Separately, anyone planning to sue an Amazon employee for child support or alimony should probably wait for the lawsuit target to be transferred from Washington (capped child support and limited alimony) to New York ($100,000 per year in tax-free child support readily obtainable and far longer taxable alimony duration). New York enables child support profits to be collected through age 21, while Washington cuts them off at age 18. New York is also more favorable for plaintiffs seeking to obtain sole custody of a child (see TMZ for why it was smart for Katie Holmes to sue Tom Cruise in New York rather than in California). For plaintiffs suing the very highest Amazon earners, the Virginia location offers unlimited child support by formula, but a child stops yielding cash at age 18.]

I wonder if the Amazon New York location will end up presenting the nation’s largest contrast in leisure time. “Amazon’s New Neighbor: The Nation’s Largest Housing Project” (nytimes) says that 6,000 people who have no financial incentive to work (they may actually suffer reduced spending power by working due to the welfare system structure) will live right next to people that the same newspaper says are essentially slaves (see “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace; The company is conducting an experiment in how far it can push white-collar workers to get them to achieve its ever-expanding ambitions.”: “When you’re not able to give your absolute all, 80 hours a week, they see it as a major weakness,” she said.)

Readers: What do you think of New York residents paying the nation’s highest tax rates (tied with California?) so that Amazon can be in NYC but be taxed more like a business in Florida or Nevada?

Also, does this mean that the New York transportation system will melt down? How can it handle 25,000 more commutes per day via subway, Uber, private car, train, etc.? Every mode of transit in NYC (even walking in Midtown!) seems to be gridlocked and/or overburdened currently.

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Social justice = replacing a slate of white male directors with white female directors?

A reader sent me these amusing portrait galleries:

I wonder if everyone will view these all-white (plus one token) groups as progress…

[Related: During the 2008 Presidential race, a (short) Massachusetts female friend said, regarding my primary vote for Obama, in a disgusted tone of voice, “What a surprise. You voted for another tall man.”]

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How long would it take a Nike worker to earn as much as an American welfare family?

Nike has hired Colin Kaepernick for an ad campaign, presumably to show that the company virtuously opposes the “wrongdoings against African Americans and minorities in the United States” (Sports Illustrated, 2016): “I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color,”

If we assume that the most oppressed Americans are those on welfare, let’s look at the economics of this. The typical welfare household in 2011 consumed roughly $60,000 in tax dollars (“America Spent Enough On Federal Welfare Last Year To Send $60,000 To Each Household In Poverty”, from budget.senate.gov). That’s roughly $68,000 today.

Also in 2011, it was reported that the folks in Indonesia making Nike shoes were being paid 50 cents per hour (Mercury News).

Assuming that inflation in Indonesia has been comparable to the U.S. rate, a Nike worker would have to work 120,000 hours per year to enjoy the same spending power as the American welfare family whose oppression Nike is now concerned about. (We wouldn’t want to question whether the $68,000 per year of tax money translates into $68,000 of spending power; if it did not, it would mean that our central planners were inefficient somehow.)

Using a standard 2,000 hour/year working rate, a Nike worker is getting only 1/60th as much as an oppressed American welfare family.

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A new film camera system introduced in 2001

Digging through some old content I found this article on the Contax N1 system, a film SLR system to compete with Canon EOS and Nikon. It was introduced in 2001! (The Kodak (/Nikon) DCS digital SLR came out in 1991. The Canon D30 came out in May 2000; the professional EOS 1D in 2001)

There were a lot of bright people at Kyocera and Zeiss behind this. Let’s forgive ourselves next time we miss a trend that seems obvious in retrospect!

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Yahoo’s corporate suicide

We were restoring a bunch of old content into http://philip.greenspun.com/travel/ and had to remove every link to a Yahoo! page, e.g., their old directory or their finance service. Not a single link into any Yahoo! content or service was functional. How does a company manage to commit corporate suicide like this? How hard would it have been to put in some redirects?

Who else is this incompetent? Canon! While letting Nikon and Sony take away their customers they’ve been breaking inbound links to get rid of web site visitors. I had to remove all of the links to Canon’s site.

[Who does it better than Yahoo? 23-year-old links to Amazon still function, even if the product has been discontinued. Specialty photo gear supplier Tiffen preserved some database-driven links to its Domke camera bag pages. Digital camera review sites have preserved 18-year-old links.]

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Chilean versus California wine

Wine down here in Chile ranges in price from $1 to $3 per bottle. I’ve been drinking these and some luxury ($7) Chilean wines and, to my uneducated palette, they compare favorably to wines tasted in California’s Napa Valley on a recent long weekend out there.  The Napa wines were $30-50/bottle.  So the question for the wine experts reading this is… why would anyone buy wine from Napa, where a small bit of land for a house is almost $1 million?  One would naively suppose that grapes and wine produced on some of the world’s most expensive real estate would be a bad bargain.  We don’t buy apples from the Upper East Side of Manhattan.  We don’t buy oranges from Beverly Hills.  Why does it make sense to buy wine from what is now a Bay Area suburb?  Couldn’t a winery in a place where real estate and labor are cheaper (e.g., Australia, Argentina, Chile, etc.) always produce a much better wine for any given price?

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