3 Takeaways From the Demise of Theranos Founder Elizabeth Holmes Holmes was an entrepreneurial darling until it became apparent her miracle company was a sham.
By Steve Tobak Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
From the day it became apparent that Theranos had gone to great lengths to hide serious issues with its blood testing technology, it wasn't hard to predict that things would end badly for the much-hyped $9 billion startup and its iconic founder, Elizabeth Holmes. But I doubt if anyone foresaw it going this badly this quickly.
Late last week, Federal regulators delivered a crushing blow to the company, withdrawing certification of its Silicon Valley lab and slapping Holmes with a two-year ban from the lab-testing business. It's hard to see how the famed entrepreneur with an uncanny way of getting what she wants gets out of this mess.
Until recently, the Stanford dropout who started Theranos at 19 seemed to have investors, the media and retail partner Walgreens eating out of her hand. But then, the secretive company's claims it could run a full range of tests from a few drops a blood had yet to be vetted by anyone. That would prove to be its undoing.
Once John Carreyrou's blockbuster expose appeared on the front page of the Wall Street Journal last October, things quickly began to unravel for the Palo Alto native and her 13-year old company. Having covered this intriguing story from day one, here are three big lessons you should take away from Holmes' and Theranos' demise.
1. Startup CEOs must be hands-on.
In April, after months of denying things were anything but hunky-dory at the company, Holmes did a complete about face, telling NBC's Maria Shriver "I feel devastated that we did not catch and fix these issues faster." She vowed that it would never happen again.
But the ever-shrewd Shriver wasn't buying it. "You're running a healthcare startup, you're dealing with people's lives, you're dealing with test results that doctors prescribe medicine based on," she said. "You would have thought you'd have that in place from the get go."
"Absolutely," Holmes said. "And probably the most devastating part of this is that I thought we did."
Even presuming Holmes was telling the truth (I have my doubts), her statement is absolutely inexcusable for any CEO to make, let alone one who thinks she's going to upset the status quo and change the world.
Whether you're in the healthcare business or not, you must know whether your products and services actually work … before you make bold claims to the media, not after.
You must be hands-on. That's not micromanaging. That's doing your job.
Related: Why Theranos CEO Elizabeth Holmes Should Be Banned
2. Failing to deliver on the hype is a recipe for disaster
After a decade in stealth mode, in 2013, Theranos made an enormous public relations splash, lauding its iconic founder and her altruistic vision of disrupting the $76 billion lab testing industry by delivering low-cost diagnoses to the masses in real-time from a simple finger stick.
Those claims turned out to be way, way over the top. The technology was obviously not ready for prime time. But that didn't stop Holmes from grabbing headlines everywhere from Forbes and Fortune to the New Yorker and Vanity Fair. She became an instant entrepreneurial icon who some heralded as the second coming of Steve Jobs.
Look, it doesn't matter how much money you've raised, how many people you've hired, or how much pressure you're under to deliver. Technology breakthroughs happen in their own time. Creating a buzz ahead of a big product rollout is one thing. Creating enormous hype when you can't deliver the goods is clearly a recipe for disaster.
Related: Out For Blood: Theranos Orchestrates Bold PR Coup in the Face of Damning Allegations
3. Even a crisis based on perception is real.
When the WSJ story broke, Holmes went on CNBC and said, "This is what happens when you work to change things. First they think you're crazy. Then they fight you. And then all of a sudden you change the world. I have to say I personally was shocked to see that the Journal would publish something like this …"
For six months, Theranos' position was that the Journal's reports were "inaccurate, misleading and defamatory" and that the allegations are "grounded in baseless assertions by disgruntled former employees and industry incumbents."
Related: Are the 'Wall Street Journal's' Claims Against Theranos Accurate?
That was an enormous mistake. So was thinking they could get away with stone-walling perhaps the best investigative media organization in business. Even if what Holmes believed to be true were true, there's an old saying, "perception is reality." You still have to deal with it. Treat every crisis as real, even if you think it's based on perception.
As far as that goes, the three rules of crisis management are straightforward: First, own up to the truth and do it quick; second, move heaven and earth to make things right; and third, quietly let everyone move on.
That's all there is to it.
I can't believe I have to tell anyone this in the age of our famously insatiable 24/7 news cycle, Don't mess with the media. It will be your undoing.
