5 Start-up Lessons from the Elizabeth Holmes Trial
On November 18, 2022, Elizabeth Holmes learned her fate. The disgraced Founder and former CEO of now-defunct biotech start-up Theranos was sentenced to 11.25 years in prison for defrauding her investors in what is arguably one of the craziest chapters in Silicon Valley history. If you are unfamiliar with the case or just don’t give a hoot about Silicon Valley (I really can’t blame you there), let me catch you up. You can also check out the documentary on HBO The Inventor, the dramatized miniseries on Hulu The Dropout, or the non-fiction bestseller by John Carreyrou Bad Blood.
Elizabeth Holmes, a 19 year-old Stanford dropout and Steve Jobs wannabe known for her piercing blue eyes and oddly deep voice, started a biotech company called Theranos back in 2003. The premise was simple. Create a machine that could run any blood test imaginable on a single drop of blood rather than the vials required by standard labs. Holmes allegedly had a major phobia around having her blood drawn, which was the alleged inspiration behind the product. She recruited a dynamite board with names like Henry Kissinger and George Shultz and soon crazy, stupid money began flooding into her start-up. Within 11 years she had raised $700 million and Theranos would be valued at $10 billion. There was only one problem. The product didn’t work, and Holmes knew it. In the process of the truth coming out, countless people’s lives and fortunes were destroyed, families were ripped apart, and at least one person committed suicide. The culture of Theranos is a cautionary tale full of secrecy, paranoia, overwork, and the cult of personality. So here are 5 major takeaways for any company just starting out.
Bad leadership will kill good ideas every time
This lesson is especially important for all charismatic, smart, and driven leaders out there. It doesn’t matter how great your product or company idea is. If you don’t know how to lead, you will destroy everything good about your idea and take the ship down with you. Leadership requires humility, a servant’s heart. It requires surrounding yourself with people who are smarter than you and actually listening to them and taking their advice. Elizabeth Holmes’s idea had the potential to revolutionize laboratory science, but her inexperience and naïveté as a leader coupled with overweening pride and unflinching resolve meant her idea never stood a chance at real success.
Failure isn’t the problem. Admitting it is.
It’s trendy right now to talk about failure, and that’s a good thing. Failure is often our most powerful teacher and can lead us to success and wisdom. By contrast, an unwillingness to admit failure is fatal. If your approach or idea isn’t working, you have to admit it before you can change. We will never know where the Theranos product might have gone if Holmes had been willing to admit her technology’s limitations and pivot her approach. Instead, she doubled down on a failing idea, digging herself into a deeper hole and lying through her teeth in the process. Admitting failure is not weakness. In fact, I would argue it takes tremendous strength and self-awareness to admit when you, the leader, are wrong. Don’t be an Elizabeth Holmes.
Perception is reality
Many early-stage founders have to fake it until they make it. In fact, it's so common in Silicon Valley, it has a name — vaporware. Even later stage start-ups may demo features that don’t exist yet as if they already did. This “fudging” is an accepted and understood part of being in a fast-moving, agile environment. As a start-up leader you have the ability to craft the reality that your prospects and customers experience. Whether that experience is just perception or is, in fact, reality is a careful line you must walk. And if we have learned anything from Elizabeth Holmes, we know that people’s appetite to believe the unbelievable is actually quite large. So err on the side of transparency.
Ask the REAL experts
One of the major blunders Holmes made was surrounding herself with famous, successful people who had zero experience in biotech or laboratory science. They certainly had leadership skills and knew how to grow businesses, but they didn’t understand the technology or product she was developing. In fact, it would be fair to argue, she herself didn’t understand it. This meant that in the areas where she needed the most guidance, she wasn’t getting it. As you think about building up your advisory board or hiring executives to lead your company, be sure they are people who have expertise in the industry or vertical you are going after. They will be able to help you weather the inevitable storms that arise, navigate the complexities of start-up life, and they should be able to connect you with other experts in the field who can help you too.
Listen to your people
The real heroes in the takedown of Theranos are the average employees, many of them scientists hired right out of college, who tried to speak up about the abuses, lies, and unethical practices rampant at Theranos. They first tried going to leadership, who, not surprisingly, shut them down. Some even tried talking to board members, which meant they now had a legal target on their back. If Holmes had been smart enough to hire exceptional talent in the Valley, she should have listened to them when they surfaced product problems to her. Instead, she ruled with an iron fist, instilling fear of retribution. As you build your company, listen to what your employees have to say, even the not-so-nice things. If you are unwilling to hear them out, you have already lost.