Weekly Thoughts: Baby, Now We Got Bad Blood

Here is something that caught our eye this week:

Baby, Now We Got Bad Blood

This week we listened to a fascinating Recode Decode podcast with John Carreyrou, the Wall Street Journal reporter who initially broke the Theranos-is-a-fraud story back in 2015, and author of the recently published Bad Blood: Secrets and Lies in a Silicon Valley Startup.

For those unfamiliar, Theranos, founded in 2003 by Elizabeth Holmes, is a biotechnology company that was, for a period of time, the darling of Silicon Valley.  At its height, it attracted $900 million of capital from high-profile investors such as Robert Kraft, Larry Ellison, and Carlos Slim, reached a valuation of $9 billion, and employed more than 800 people.  Holmes received widespread press highlighting her status as a visionary in the mold of Steve Jobs, which at the time, seemed somewhat justified. The New York Times explains the promising concept behind the company:

“Her beguiling concept was that by a simple pinprick — drawing only a drop or two of blood — Theranos could dispense with the hypodermic needle, which she likened to a gruesome medieval torture, and perform a full range of blood tests in walk-in clinics and, ultimately, people’s homes.” 

On the surface, the invention was equal parts ground-breaking and game-changing.  There was only one, itsy bitsy, problem: the technology didn’t work.  On top of that, Holmes lied to pretty much everybody about its efficacy.  The Times again:

“Despite warnings from employees that Theranos wasn’t ready to go live on human subjects — its devices were likened to an eighth-grade science project — Holmes was unwilling to disappoint investors or her commercial partners. The result was a fiasco. Samples were stored at incorrect temperatures. Patients got faulty results and were rushed to emergency rooms. People who called Theranos to complain were ignored; employees who questioned its technology, its quality control or its ethics were fired. Ultimately, nearly a million tests conducted in California and Arizona had to be voided or corrected.”

Today, Theranos is on the verge of forced liquidation and Holmes is under criminal investigation after being charged with “massive fraud” by the SEC.  Taylor Swift was right, band-aids don’t fix bullet holes.  The story in itself is captivating, but those familiar with it all wonder the same thing.  How was Holmes able to attract so much capital, so many high-profile board members, and so much press for so long when the underlying business was not only defective but increasingly fraudulent?

Clearly, whatever Holmes lacked in technical proficiency she made up for with exceptional marketing and brand association that allowed her to create the allure of prestige, exclusivity, and near-certain success.  She headquartered the company across the street from Stanford University hospital and medical school before moving the company into Facebook’s former headquarters in 2012.  Her personal history as a dropout from an elite university (Stanford) and her preference for black turtlenecks suggested she hailed from important CEO central casting.  Finally, pitching Theranos as a technology company rather than a biotech or healthcare company afforded her the latitude to shun best practices in the medical space (i.e., peer review).  While none of these actions are particularly incriminating, the combined mosaic created a business profile that was easy for investors to support without asking too many detailed questions.

For us, the big problem with Theranos is that even before Holmes started blatantly lying, the world acted as if she had actually executed her idea and had already changed the world.  It’s as if the cues surrounding her and the powerful associations she drew made everybody forget Steve Jobs and Bill Gates actually did something with their ideas.

We personally struggle with many aspects of marketing mainly for fear of it erring on being promotional, and stories like Theranos give us all the cover we need to shun the practice entirely.  We believe we are still in the very early innings of our aspirations for Chenmark and therefore have not done anything of consequence (yet).  What, then, is there to talk about?  Of course, if we do achieve our goals, talking about it would definitely be self-promotional, so we can see ourselves becoming even more publicity-shy when we actually have something to talk about.

We acknowledge that simply because we are not comfortable with something doesn’t mean it can’t be worthwhile and effective, and we understand that marketing, used effectively, can be a powerful tool that helps us achieve our goals more efficiently.  While Theranos is a cautionary tale of the dark side of marketing, we must be able to look past it as we continue to muse about ways in which to balance outward facing positioning while maintaining authenticity.  You are far more likely to see us in a t-shirt putting together office furniture than in a black turtleneck giving a keynote address (if at all), but at least you can now find us on Twitter.

Have a great week,

Your Chenmark Capital Team

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