Does anybody know if Theranos got started with at least an idea how to accomplish what they wanted to do? From what I have heard in interviews they started with the thought "Doing xxx would be super useful" but didn't have an approach for accomplishing this but instead took in money and tried to figure it out. It's like me saying "An antimatter drive would revolutionize space exploration" and starting to collect money but without even the faintest idea how to produce one.
Does anyone know? Did Holmes have any insight that caused her and the investors to believe she could do the blood tests?
This interview with John Carreyrou [1], the Wall Street Journal journalist who is largely responsible for exposing Theranos, goes into a lot of detail. It's long, so if you want a shorter answer, jump to the question "What technology did Theranos actually develop?":
Basically there were three iterations of the technology. The first one used microfluidics, which are basically the repurposing of the micro-fabrication techniques that the computer chip industry pioneered to move tiny volumes of liquid. Theranos tried to work on that for several years before Holmes lost patience in late fall 2007 and abandoned it. At that point she pivoted to what was essentially a converted glue-dispensing robot. One of the engineers ordered a glue-dispensing robot from a company called Fisnar in New Jersey, studied its components and rebuilt a smaller version of it. It was a robotic arm on a gantry with three degrees of motion and a pipette stuck to its end, and it replicated what the scientist does at the bench. That ended up being called the Edison and it could do only one class of test, known as immunoassays. It was also error-prone. The third iteration of the technology was the miniLab, which Holmes wanted to be able to do more than just immunoassays. The miniLab didn’t invent any new techniques to test blood with. It miniaturized existing laboratory instruments and packed them into one box. By the time Theranos went live with its tests, the miniLab was a malfunctioning prototype.
The interview also explains how Holmes was able to attract so many influential people on her board. The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing non-scientists that their science worked.
There’s one other REALLY important reason why Holmes was able to raise money. Remember venture firms with blood test knowledge like Google V were turning her down.
Holmes was close family friends with George Schultz, and that allowed her to do two things. First, get a bunch of military and government guys on the board. And second, sell to the military.
That was Theranos’ real ace in the hole. Holmes knew top military brass and they were going to give her military contracts to test soldiers’ blood. We don’t know what she was telling investors, exactly, but that seems like a real source of revenue investors would care about.
Carreyrou describes how it was a mid level DoD employee that screwed up the plan - he looked at the data and scuttled the contract even though the generals wanted to award it to Theranos. Hat tip to hard working, honest govt employees.
How about Tyler Shultz? The main whistleblower and grandson of George Shultz. He was working at Theranos and realized they were a giant fraud. He lost his job, was harassed by lawyers, he and his parents almost had to sell their house to pay legal fees, his grandfather wouldn't speak to him anymore, etc.
Basically the gov't employee, son, and likely others we don't know about lost their jobs and even blacklisted.
I say 90% of VC back companies are blowing smoke to the endpoint investor, public and consumer. 100% of those companies have miracle products that scale forever and work... In 1 specific ise case: the demo booth. They oversell. I see 2 out of 10 startups bring a viable product to the global 2000 table.
Spacex: we can go to Mars, but haven't even launched a Mars rocket.
Google: AI is here, and the product? Waymo, logs millions of miles, is just sunny conditions?
The common strategy: lie(aka promise), sell the future, hopefully you get the solution and hit time to market. Holmes was following the same playbook, BUT just gave up, and that's got her investors and comsumers furious. If she apologized, AND stuck with it, investors would still back her, and the public flac would have subsided....VCs were sold on her future.
On the opposite end, aside from real mistakes is a company like Apple: they sell the future and deliver.
I don't think those examples match very well. Theranos really didn't have anything that worked. Spacex has rockets that work and satisfied customers. They aren't going to Mars yet, but most of their current satellite launch customers probably really don't care.
And of the various self-driving car efforts, Waymo seems one of the most careful, both in their engineering and PR. I don't recall them making any claims they can't back up, but I may have missed some.
Holmes was not following the same playbook, there's a big difference. What you say holds true for the early investors who may have been sold the future expectations, however, long after that Holmes recruited investors by stating that they have a "working Mars rocket" that's being used right now, when in fact it was smoke&mirrors using altered Siemens machines instead of the claimed Theranos technology.
The difference between saying "we expect to have X working within a year" and "we have had X for a year" is that if X doesn't work out, the second sentence is a crime of fraud. And Holmes was on the wrong end of this difference.
They're not prosecuting for the broken hopes of 2004-2006 investors (who were sold a future that didn't materialize, oh well), they're prosecuting for misleading the investors of, say, 2014 by lying about the achievements of their first 10 years.
> Spacex: we can go to Mars, but haven't even launched a Mars rocket. Google: AI is here, and the product? Waymo, logs millions of miles, is just sunny conditions?
I don't think that is their literal message and goal. SpaceX's real mission is to innovate space travel which they've been capable of doing and have demonstrated with clear achievements.
SpaceX's revenue is in the billions and is very close to profitable. It most likely would be profitable if it wasn't constantly spending money to expand like Amazon in its early years.
Extremely brave what he did, especially when it means combatting his own (extremely wealthy and powerful) grandfather. The court of public opinion and the history books will see him as the hero in the end, at least. And he's since started his own medtech company.
In the short-term, his life was a nightmare and Holmes and Balwani held all the cards, but in the long-term he'll probably be successful and considered honorable while Holmes and Balwani will be disgraced at best and convicted felons at worst.
>> The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing non-scientists that their science worked.
This confuses a lot of people (not saying you are one of them), but this is really common in intelligent non-experts. People vastly overestimate how intelligent they are when they place value on their intelligence; in other words, they like thinking they are smart.
When they prize their own intelligence, they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.
So all it takes is someone with sociopathic tendencies and who has extreme confidence with a good CV, and bam, they're willing to go to the mat for that person. Holmes is one example but certainly not the only one.
> ...they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.
The antidote to this effect: pick any object around you, and set out to make it yourself from scratch. Or just set out to make the precursors. An object as prosaic as say, a window. A lot of people who suffer from this effect dismissively wave away such a challenge, saying in more words that it's beneath them to attempt because it is so pedestrian, or of course they could do it, but they don't have the time to.
Those I know who are scary smart, are the ones who will more frequently pick up the challenge, and boy, are they fast at picking up what they need to know to meet the challenge.
Me, I just feel dumb every day, but have a heck of a lot of fun along the way. I also stick to far less lofty aims. A few months ago I had never owned a chainsaw before, and a few weeks ago I processed half a cord of firewood with a chainsaw, maul, wedge and sledgehammer into smaller chunks for my smoker. I respect the hell out of the woodsmen who walk into the mountain forest for a full day of work with nary but a milk crate of supplies and those machines, and the experience makes me appreciate just how vast an efficieny improvement they represent over hand sawing.
I think about this alot, starting from absolutely nothing I doubt I could even make a nail, let alone a screw, let alone a nut and bolt. I have no idea what iron ore looks like in the wild or where to find it. I could probably make charcoal and a furnace... if I had the tools, which I wouldn’t. It’s quite humbling.
I didn't want to get all management-consultant-preachy earlier, but you touched upon why I persistently perform that exercise. I believe there is a very valuable leadership lesson imparted by continuously performing that exercise first-hand. Too often leadership devolves into management, especially when people lose sight of just how fractally difficult many human endeavors are. The humility helps teach me perspective on problems and people.
That Australian aboriginal might live a dramatically different life than "developed world" citizens, but there is no way I can be convinced that on average, they aren't as smart.
What if I say making a window is a giant pain in the ass and I'm not set up for handling molten glass in that scale. I might could pull off a bottle or glass with the right equipment and a few hundred hours of training and practice. Is that reasonable? And yes I'd be buying tools and raw glass, not sourcing sand and blowing my own fire brick or making my own kanthal wire from scratch.
I don't doubt that that's true, but it's also educated, intelligent people who are more likely to have the kind of money that makes them targets for con men.
Funny, the PhD taught me to keep what I say fairly limited. On the other hand, I find generalists will say all kinds of crap that "sounds true" but they have at best a weak theory and a couple of anecdotes.
>>When they prize their own intelligence, they have false confidence about areas they have zero expertise in, purely because they feel they can figure it out.
I wonder how this squares with the Dunning-Kruger effect. Are domain-stupid generally intelligent people more susceptible than domain-stupid generally stupid people if they are equally cocky?
> The short answer is her Jobs-like "reality distortion field" -- she was exceedingly good at convincing ...
Considering this and the lack of substance behind her claims, I would personally bet money that she is a clinical psychopath.
The most disturbing thing I have ever observed about human beings is our tendency to follow psychopaths. Psychopaths seem to have this gravity around them and people just fall into line. I've observed some spectacular examples. A psychopath can say the most questionable or even absurd things and people will just believe, whereas people will be skeptical of even very sane things that come out of the mouths of non-psychopaths. It's as if clinical psychopaths have some special instinctive ability to generate body language, vocal cues, and linguistic patterns that manipulate others very effectively.
I am not claiming that everyone with a "reality distortion field" must be a psychopath, but I've definitely observed a positive correlation.
One of the patterns that interests me a lot is supernormal stimulus. An organism is evolved to deal with a stimulus in a certain range, and something comes along that is so far outside it that things break.
The classic example is Niko Tinbergen, who created models of fish that were rounder and redder than the real fish, who would ignore other real fish and focus on the models. The human ability to refine things produces a lot of good examples. Like how refined sugar influences us so much that it ends up in most processed foods. Or how refining the coca leaf produces addicts.
My theory with sociopaths is that giving no fucks what others think allows them to be unnaturally confident. Since we often evaluate others by how confident they are, we are easily taken in by people with supernormal confidence. That gives us the reality distortion field (as social primates, our main reality is social) and "drinking the kool-aid". Which is a metaphor Jobs used for how he wanted people to react to the Mac, but the metaphor is about a cult whose charismatic leaders led them to mass suicide. [1]
Wow. That is by far the most realistic and rational hypothesis for this phenomenon I've heard. It's simple, elegant, and seems testable. Thanks!
I think this may also offer some explanation for the appeal of the utterly absurd, like flat Earth or galactic emperor Xenu. Its supernormally ridiculous, which invokes a sense of fascination.
In any case if this is true I think this effect is being weaponized today to an unprecedented degree.
High profile sociopaths are extreme outliers, as most sociopaths burn through their social connections well before becoming competent enough at social manipulation and finding enough people that are well-off enough to maintain a parasitic life.
Also as a side note, within Scientology you don't actually learn about the Xenu shit until you're way too deep, financially and/or time commitment-wise, to pull out.
> Also as a side note, within Scientology you don't actually learn about the Xenu shit until you're way too deep, financially and/or time commitment-wise, to pull out.
It seems they’ve taken a page out of Masonry or mystery religions. Only higher level “initiates” receive the real wisdom.
The question is, are the high level initiates plain psychopaths?
Or are they just addicted to the free pussy (or dick), drugs, and money that comes with forcing others to join the cult?
Sometimes I wonder if it's better for a religion to have strange beliefs:
1a) It's a better show of commitment to the group if you are willing to stand up and say the absurd on behalf of the group. It's saying that membership in the group matters more to you than the potential loss of face. You could expect to be able to rely on such a person to be loyal to the group.
1b) It's also a better show of group commitment if someone is motivated enough to try to convince themselves of something very difficult to believe.
2) Groups espousing weird beliefs will face ostracism, and that will bind them more to each other. They will spend more time with each other away from outsiders, developing their belief system further with even less sanity checking from the outside.
Yeah. If I were to cast it into this framework, you could look at fundamentalist systems of thought as delivering a supernormal sense of understanding. Which causes supernormal confidence, making their views easier to spread.
An actual universe doesn't pack well into the 3 pounds of meat we use for thinking. A system of thought that lets us discard most natural ambiguity and nuance would be unnaturally comfortable. I think this is true both for obvious fundamentalism (e.g., Bible thumpers) and for single-explanation frameworks of thought. Freudianism, Marxism, and capitalism all have groups that are effectively fundamentalist adherents. And I think there's a species of Bitcoin fanatic that is also effectively fundamentalist.
I guess I shouldn't be surprised that this appears to be on the rise at the same time the Internet has brought us into contact with all the information and all the people.
I don't know about Holmes (other than having read Carreyrou's book) but I've been around pathological, charismatic narcissists enough to be as fascinated as you at their ability to lie to the face of very accomplished people and be completely believed. It's almost like executives need a training course in spotting and dealing with them.
my outsiders view of management training is that they work so hard at cultivating confidence that they start thinking that confidence, not competence, is what they need to select for in roles outside of leadership.
As far as I can tell, "leader types" are far more vulnerable to confident people than the rest of us because of this.
I also think falling for this is implicit in the notion of the MBA. Previously, management was mainly company founders, founder families, and people who had come up through the ranks. That is, all people who spent years learning the specifics of the business. But the theory of the MBA is there's some universal set of "business skills" that makes actually understanding the business domain irrelevant.
In practice, I think this means falling back on a limited sort of finance understanding and some generic notions of top-down business process. There's not much there, so they make up for it by leaning hard into their human instincts and skills.
Unfortunately, that leads to many problems, including over-trusting people who present well and seem confident.
The MBA is the Western version of the Soviet "apparatchik." This term denoted a party functionary educated in party ideology who was promoted and transferred around to different posts where they would lead things they did not actually understand.
I personally think the MBA system is a big step up from just choosing leaders based on how closely related to a powerful person they are. (I mean, I understand there is a lot of overlap between the two... I'm just saying that the MBA system is a step forward, not that it's good)
Unfortunately I think the MBA enables a power-and-politics system. If people have to work their way up and learn an industry, competence and a long-term focus are more rewarded than if a credential makes you a supposedly universal expert.
A lot of communication is non-verbal. A person evaluating a statement in context and expecting to find some physical and culturally-instilled signs of self-doubt in their interlocutor may unconsciously be strongly pushed to conclude that the person is telling the truth when not finding those signs, even if the reason that those aspects of communication are absent is because the person is incapable of producing them.
Psychopaths are parasites - one could make the argument that most of human culture, including our marriage traditions, religions, moral codes of conduct, sense of humor, and even fashion, are evolutionary attempts to thwart them.
Yeah, exactly. Psychopaths don't empathize, so they don't understand why social conventions exist, so they sometimes get it wrong and something seems "off". When someone seems "off" you don't trust them.
Unfortunately, what you described applies to people on the spectrum too.
But I think the key is the difference between sociopaths and psychopaths. Sociopaths are usually really good at using their charisma to move up:
>Psychopaths are dangerous. They’re violent and cruel, and oftentimes downright sinister. They show no remorse for their actions, usually because of a lesion on a part of their brain responsible for fear and judgment, known as the amygdala. Psychopaths commit crimes in cold blood. They crave control and impulsivity, possess a predatory instinct, and attack proactively rather than as a reaction to confrontation: A 2002 study found that 93.3 percent of the psychopathic homicides were instrumental in nature (meaning they were more or less planned), compared with 48.4 percent of the homicides by people who weren’t psychopaths.
>Sociopaths are a different breed. They, too, may suffer from their mental illness as a result of lesioned brain regions. Upbringing may also play a larger role in a child becoming a sociopath versus those that are diagnosed as psychopaths, or the slide into dementia on the other end of the spectrum. Sociopathic behavior is manifested as conniving and deceitful, despite an outward appearance of trustworthiness or sincerity. Sociopaths are often pathological liars. They are manipulative and lack the ability to judge the morality of a situation, but not because they lack a moral compass; rather, their existing moral compass is greatly (yet not always dangerously) skewed. Pemment, for one, says this could point to both a social and neurological component.
Yeah, and that's a big part of why (high functioning)autism is such a serious disability in the first place. I'm really glad that society is starting to recognize and be aware of it so that autistic individuals can get a pass in this area.
You make an interesting observation. I wonder if there are any doomsday stories of an AI that conquers humanity via psychopathic persuasion rather than conventional weapons.
I remember reading that a lot of CEOs and generally people in leadership positions have psychopathic traits. This probably is an asset if it's balanced by other traits.
I'd take those articles with a huge grain of salt. How could you distinguish a CEO with the courage to make an unpopular choice (e.g. layoff 1/3 of the workforce to save the company) -vs- a psychopath who does it to inflict suffering on others or to just establish dominance? How do you even measure psychopathic traits without defining exactly what "psychopathy" means and a rational ethic by which to judge the non-psychopaths (i.e. the "control group" or standard of normal)? Moreover, motive is not irrelevant to the question and not only is it not measurable by researchers, most people don't even know their own subconscious motives.
I'd bet if you dug into the research what you'd find is the research really shows that psychologists who study such things do not have the character/psychology of those who become CEOs, not that they are psychopaths.
Because you can't define pathology (deviation from a norm) without defining the norm. Modern psychologists dodge this question and implicitly assume various generally accepted moral standards and tenents (a form of circular reasoning) by which they condemn those who don't follow it. It is not science and to make it a science the psychologists should be seeking a rational basis to define ethics. Nobody has done this and until they do psychology will remain a pre-science like alchemy.
In addition, it would also be supremely discriminating if the "Psychopath exam" would, for example, consistently score Asians lower.
That is, a psychological or culturally acquired trait should not be used against an individual without a proof that it actually affects his behavior. You are in essence denying that the person has any agency and it's utterly incapable of learning and acting on society's moral code, which I bet is false for the vast majority of people with sociopathic tendencies.
There's salesmanship and then there's lying. It might feel like a thin line but I think it's important not to conflate the two. Criminal behavior is not just "reality distortion".
Except, unlike Jobs, she couldn’t actually execute. The Jobs distortion field wasn’t a parlor trick, he was able to actually create the reality. Holmes was unlike Jobs in every way other than in her own mind. Look at all of the products that came from Jobs’s distortion field. Look at the wasteland of false promises resulting from Theranos. She was selling lemonade and calling it vodka.
I am assuming they had some of the best people in the field working on these. Makes me wonder how much the employees were aware of the company's situation, and the infeasibility of some of these goals.
Very aware, but information was strictly compartmentalized inside the company so individual employees had to figure out that things were badly wrong in different ways, depending on what their roles were and when in the lifecycle of the company they were there. Overall, though, the employee turnover was insane.
As someone who has spent a lot of time around startups, the amount of employee turnover was one of the craziest -- indicative in hindsight -- things in John Carreyrou's extremely well-reported book, "Bad Blood." Most startup boards would have looked at that level of employee turnover and realized that there was something much worse going on than a young founder without much management experience doing a poor job at hiring and retention. But the board apparently didn't get very much information about the actual operation of company, didn't push for more, and didn't question or dig into what they did get.
What I found most appalling about the behavior described in the book, and maybe among the most probative in the criminal case, is the heavy handed use of legal threats to stop employees from talking and negative reporting.
I'm willing to forgive quite a bit of "fake it till you make it" flim-flam, but anybody who uses such strong-arm tactics deserves having the book thrown at them.
According to the John Carreyrou book, not so much her parents, but an early and enthusiastic sponsorship from an influential Stanford professor, combined with a truly outlier ability to network with and impress powerful people. She accumulated an amazing amount of social proof, which she used to stockpile more social proof, ad infinitum.
Didn’t Carryrou’s WSJ stories say that her parents’ govt connections pulled in Schultz and got her connected to the military? I remember his reporting implying that a lot of the money Theranos raised seemed like it came in expecting military applications and thus military contracts. Which the military board (that her parents connected her with initially) would have helped with.
I believe that Carreyrou's book says Holmes built a relationship with George Shultz, then Henry Kissinger, William Perry, and Sam Nunn, through Stanford's Hoover Institution. They were all fellows at Hoover. I'm looking at page 181 in the hardcover edition. The book doesn't mention any family connections to Shultz. The military interest originally came from James Mattis, then head of US Central Command. The book says that Holmes met him "at the Marines' Memorial Club in San Francisco," but doesn't say more about that first meeting.
My suspicion: Holmes heard about microfluidics at school, misjudged its position in the hype cycle (it's a red ocean, not a blue ocean), sold herself as an expert, raised money from people who didn't know better, and let the success get to her head because at some point she would have hired actual experts and they would probably have tried to steer her away from the known-hard problem she was trying to tackle and towards prospects that weren't as high-tech-disruptive but at least had a fighting chance of actually working.
It seems like a typical SV case of "fake it til you make it", except instead of risking a down website or burned investor, they risked harm and death of patients.
She clearly had some knowledge and strategy about the technology and likely fully intended for it to be successful, but responded to delays and difficulties with deception rather than just admitting it was harder than they expected.
"If we just get over this hurdle, we'll revolutionize medical testing and become legends." Not unlike Ponzi schemes which start out as legitimate investment ventures, do very poorly, and then just make up the return numbers. Martin Shkreli arguably pulled that fraud off "successfully" and actually got over the hurdle, but of course it came back to bite him.
They did start with legitimate attempts at implementing th technology needed to microfluidics (though apparently Holmes knew nothing about the field and didn't even know anything about existing players such as Abaxis, who actually had working machines).
However, they could not get the technology to work and abandoned several development paths in favour of a less ambitious approach that, among other things, involved doing blood analysis the old-fashioned way (manually in the lab), and only pretending to be using new tech they'd invented. They knew it didn't work, but kept selling it anyway, which is where it went from just faking it to outright fraud.
Most of their money was raised after they failed to develop their blood analysis technology, but to the investors, to the press and to their clients (such as Walgreens), they were still claiming to be using their proprietary technology [1].
>They knew it didn't work, but kept selling it anyway, which is where it went from just faking it to outright fraud.
I'm playing Devil's advocate and not justifying or defending their fraud and the physical harm they caused, but if we were to look at Holmes' intentions, I'm suspecting it was something like "we just need to do this for a few months/years until our technology works", rather than "let's just run this scam forever and get rich". As for how close they actually were to developing that technology (and assuming most of their talent didn't leave) or if it was even possible for them, who knows. And of course, regardless, they still intended to commit fraud and should pay the price.
It's easy to fall prey for psychopaths trying to second guess their intentions. "This can't be staged, that would be an unnecessary risk. Had they wanted to get rich quick they would have lied about this other thing instead". True intentions are illogical to other people, because they are the result of a limited, narcissistic and self centered world view.
(Not making any real life connections here, I am absolutely not qualified to call anyone medical terms, but in the subthead about clinical psychopathy it seemed important to point out.)
You're right. I can't make assumptions about her true intentions. But I don't think you or anyone else can either. It'll be interesting to see if anything new regarding that comes to light at trial. Maybe she's a pure sociopath, maybe she's a college dropout who was in way over her head and dug the company into a hole it couldn't escape, maybe neither, maybe both.
Also known as "Fake it while awaiting unknown outcome." It's not like faking it guarantees making it. And since "unknown outcome" is kind of the default always, the most concise statement of this approach is really just "Fake it." Which is the problem. "Fake it" is so bad, that even if you later "make it" (like Shkreli for example), you still don't get forgiven.
Fake it until you make it is just a nice way of saying fraud. People that do that are being deceitful and should be publicly shamed and face criminal prosecution in some cases. They are scam artists, not honest entrepreneurs.
Reddit is an interesting case, but I'd say there's a categorical difference between faking that you are able to do something you can't (Theranos) and pre-filling a functioning site with content (I assume that's what you are referring to?).
It's especially relevant if the difference actually matters for whom you are tricking: If the results had been accurate (which from what I understand they weren't) and absent any other specific claims of superiority Theranos end-users wouldn't care about what tech they use, but for investors relying on claims that they can do something others can't to establish their value it obviously does matter.
Which in the case of reddit I guess makes the question: does it make a material difference for users if the site they enjoy is entirely fed by an organic community, or is the most important thing that the site is enjoyable regardless of origin? I guess you could argue that faking a community is also "faking that you are able to do something you can't".
I would absolutely say that to them. It's doubtful they actually committed a crime but it shows a lack of character and constituition to say the least and potentially fraud to their investors. Fake it until you make it makes you a scam artist, con man, flim flan man etc... People that embrace that philosophy are frauds and cheats that should not be trusted.
Seeding a community where pseudo-anonymous users submit image/link content with images and links might be fraud by some semantic and technical definition (certainly not a legal one), but 1) it's pretty much necessary to get something like that off the ground, 2) no one is really being deceived or misled in a significant way. I'd say it's pretty harmless.
My understanding is reddit did this at the very start of the site's existence and stopped pretty early. They probably would've died quickly if they didn't seed some content.
I do, and the "fake it until you make it" doesn't fly very well in Europe; its generally frowned upon. Which also explains why there isn't much of a "startup culture" in Europe.
This sound like she started with good intentions but when it was clear she was failing she didn't quit but started lying until the lies got bigger and bigger. Sounds a little like Madoff.
In point of fact, that's not what happened in Madoff. There never were any investments made by Madoff's fund - his wealth management business was a fraud from the 1980s onwards.
I understand this to mean that the blue ocean opportunity is one where competition is scarce while a red ocean opportunity is one where competition is fierce and margins are tight [1].
They had a good idea of what they wanted to do (blood tests using very thin needles) but never successfully figured out how to accomplish that with the level of accuracy required.
Most Medical professionals believe that what they wanted to do was simply impossible from a biological perspective due to the natural variations of blood content. It would have been like trying to determine traffic on a freeway by taking a brief glance through a tiny slit in a piece of paper.(This is why they draw so much blood for testing, to try and get a fairly representative sample.)
Well stated. I'm a retired neurosurgical anesthesiologist who relied on accurate blood test results to manage major intracranial procedures. No way would I accept a finger-stick hemoglobin/hematocrit as the basis on which to decide on the need for blood transfusion.
Why? Because as a medical intern I did them routinely, because I had to get a number to present at morning rounds and even our excellent STAT Lab (LAC-USC Medical Center in Los Angeles) sometimes couldn't turn around a properly drawn venous sample in time.
Because it was often difficult to get sufficient blood volume from a finger-stick to fill even the tiny glass capillary tubes we used to "spin a 'crit" in a centrifuge, I would occasionally squeeze a patient's fingertip to enhance blood flow. Those results were sometimes wildly at variance with later venous samples from the same patient.
Why? Because they were diluted with interstitial fluid along with capillary blood, the result of my manual pressure on the fingertip.
This is the first explanation I've ever heard in 30 years over dozens of physicians/nurses for why a blood draw needs so much sample. And I wonder if young med students/nurses are taught that little fact about squeezing a fingerstick...
>determine traffic on a freeway by taking a brief glance through a tiny slit in a piece of paper.
taking 10 such brief glances may allow for some good enough probabilistic estimate though. Upon hearing first time about Theranos in 2013 i thought that they would do something like it, i.e. statistical approach based on some data mining as they would collect large number of samples, etc. - a typical SV tech based approach. One look at Holmes' black turtleneck photo and Glassdoors reviews mostly talking about Ballwani, and i remember immediately thinking - any even minimally advanced R&D is just not possible there.
In the tech industry, if it's worn as a uniform, it's probably a dead give-away that the person should be avoided (especially if there's any other supporting evidence related to negative behavior). It's a Jobsian mimic. There was one Steve Jobs, he was extraordinary in some ways, and he wasn't very nice. There isn't going to be another, he was the product of a unique circumstance. The next great person/s will be their own composition made up of the time and place.
Her fake voice is a lot more indicative than the black turtleneck though.
Ah. I read that she picked the black turtleneck as a compromise between being professional and not drawing too much attention to herself or dressing "too feminine" -- though who knows how true that is.
Because invariably whoever is mimicking Jobs' outerwear didn't go through the same process that Jobs did, nor develop the same philosophy that led to making that process even possible or an opportunity to spot, to arrive at that turtleneck. The turtleneck is a representation of Jobs' ideals and thinking around focus, quality, grace, craftsmanship, teamwork and many other attributes he admired. Even those people who go to the trouble to get the same kind of turtleneck from the same Japanese maker that Jobs did, I can practically guarantee they have only the vaguest clue why Jobs arrived at that turtleneck.
It is far more enlightening and satisfying for those people to develop their own sensibilities, find personal ways to express them, and through their force of will and drive, imbue their own meaning into their own habits.
Holmes and Balwani had some experience with microfluidics (IIRC), which is certainly sufficient chemical background to give them a credible belief that they could do what they wanted to do (run blood tests on smaller sample sizes). The ultimate problem with their goal is that when you do a finger prick, a large fraction of the sample is not blood but interstitial fluid and skin layers, which makes the results noisy at best and irrelevant at worst.
So the original genesis of Theranos probably wasn't fraudulent, but when things didn't work out and they started faking it instead, that was outright fraud.
My recollection was that there was someone involved early on who had substantial experience with microfluidics, but I'm having trouble pinning down who exactly it was.
She convinced her chemical engineering professor to be an advisor early on.
But the project she sold him on was based on her idea for some kind of wearable. From reading interviews I got the idea that he was more impressed with the wireless, wearable aspect (technologies he didn't have experience with presumably).
She certainly is not a good person but a lot of blame should be put on the VCs and board members. They could have figured things out if they had bothered to look.
That's true, but Elizabeth owned more than 90% of the voting shares in the company. The board was basically a formality because they had no power to make decisions whatsoever.
But that's also a big part of the board's fault here! They aided and abetted that. I'm reading through _Bad Blood_ (coincidentally, before the indictment was announced), and one of Carreyou's running themes is how Holmes acquired all those shares: she wasn't the Theranos founder, she was a co-founder, in essence. The other guy (Shaunak Roy) left early on. The board approved selling his stake to her at a heavily discounted price which made one of the directors unhappy and he tried to buy a fraction as he was contractually allowed to do, so they told to resign and threatened to sue him. She also tried to get a block of stock alloted to a nonprofit foundation (controlled by her, of course). Then, as employees turned over, they would regularly seek pretext to clawback all their options or shares in any way they could, like when they fired the financial officer for getting upset about faked demos, and discovered after firing him that he happened to have browsed some porn on his work laptop, which provided the necessary excuse. At one point in March 2008, the board actually decided to fire her, but she spent two hours talking them out of it. Some point after that, they passed the even horizon... That Holmes ended up with so much voting control was no accident.
> which made one of the directors unhappy and he tried to buy a fraction as he was contractually allowed to do
Point of interest: That director was Avie Tevanian, who designed Mach, NextStep, and OSX. Holmes wanted him on the board because of his connection to Jobs. He resigned from the Theranos board over this incident. (Carreyrou's book discusses this.)
Balwani knew nothing about microfluidics or blood work. He was a software guy who had gotten rich in B2B ecommerce during the first dotcom boom. And as Carreyrou points out, he had a reputation in the company for trying to sound smart by mimicing buzzwords.
It was all ideas and plans. They built machines that performed significantly worse than standard tests. Their idea was one machine to run virtually all blood tests with a few drops of blood, their final machine only ran a handful of tests and was so inaccurate that only reason the FDA did not shut them down instantly is they used a loophole to claim it was not a testing machine but just in house lab equipment to assist with testing or some nonsense that meant they did not need FDA to sign off on the machine. Holmes was just a smooth talker and convinced everyone, it also helped that she had major players on her board and even Bill Clinton was supporting her.
The one really weird thing i noticed about her is she never blinks. Watch her give talks and it is like a robot never blinking
After the company launched professionals in the medical testing said it was impossible. I believe it was even posted to HN. They stated it was impossible to get the results they would get from the amount of blood given.
Interesting. Skinming through the comments, very little criticism, everyone in awe. Only way down there is someone stating how hard it is to get regulatory approval.
I guess that‘s HN still in full fanboy mode, before all those startups started to display their dark sides.
I don't see any fanboyism; I see interest, and surprise at the composition of the board. A bit down, I see strong criticism by medman77, who hasn't been downvoted.
An interesting observation is that medman77 would seem to be particular about FDA clearance vs approval, which is one sign of someone who does know what they’re talking about.
We don't know that. You can only downvote comments for a day(?).. but you can upvote forever. Considering it's been 5 years, and people keep linking to his comment... it's hard to say if he gained those points that day or years later after theranos was found to be a fraud.
Check out the top comment to April 2015: Scientists skeptical about Theranos blood test (businessinsider.com): [1]
> What stops the skeptics from doing their own tests by walking into a service center and having their blood analyzed for all tests possible and doing the same with their blood for conventional tests? Or an even large scale test?
> If their concern is genuine (rather than a way to get a look under the hood of a competitor for the current sellers of such services) there are multiple ways in which they could get their verification without inside information on how Theranos does its thing.
And for everyone one of those I can find about a thousand HN comments telling you to push on even if you're unsure about whether you can deliver.
Edit: For that reason, most of this "I told you so" sounds like hindsight bias if it comes from someone who would normally take the attitude of "fake it till you make it", "don't wait until you're sure you have a working product".
I was incredibly sceptical about a 19 year old with no experience starting a biotech company. All of my comments had a large number of upvotes (for 2015), while many of the people disagreeing with me were downvoted into the negatives.
The hard part is to do it in a way consistent with the rhetoric about “fake it till you make it”/“it’ll all work out”/“all self doubt is impostor syndrome”.
No. There's a sizeable contingent of people who will call out specific ideas as being "obviously BS", but who lack the insight to realize the dissonance with their mentality of "fake it till you make it". People who actually have a general answer for "when not to fake it, and give up instead" are the extreme exception.
If you can find even one such comment that also offers a heuristic for when your self-doubt is justified and you should therefore quit, I will be surprised.
Theranos was tight lipped on the tech. An alternative interpretation is that there was insufficient information on the tech at that moment for knowledgeable people to weigh in on, other than to observe that this is a difficult problem and a “red ocean” in a regulated industry, and it is hardly worth stating something so obvious.
It’s probably also a reflection of the fact that the flaw in Theranos’ goal was a medical issue, namely uniformity of sampled blood, and this isn’t a site of mostly MD’s. Part of it may well have been fanboyism, but it may just have been that most here lacked the requisite background to see the flaw.
I find the self-driving, or near-future Mars colony fanboyism here a little harder to take, because a much larger segment of the user base should know better.
If you read the book, it’s very apparent it was a case of fanboyism from a very specific demographic: older males in positions of power (WalGreens CEO, Safeway CEO, mulplitude of investors like Murdoch, Larry Ellison, politicians like Schultz and Mathis.) Many of these individuals had very educated voices on their team that constantly sounded the alarm bells only to be ignored and chastised because those in power were completely smitten and couldn’t fathom re-evaluating their positions. In one instance, Safeway staffers even half-joked that Safeway CEO saw in Holmes the daughter he never had.
I suspect you're right, but that also highlights a broad problem that we have in tech. In the face of missing expertise, most people assumed, or at least were willing to believe, that it was more likely that a tech company would be able to completely disrupt the way blood tests have been done, rather than question why something as simple as "use less blood" hadn't been done already if it were feasible.
Any citations on that? In all the hullabaloo about Theranos I haven't heard that there were serious theoretical difficulties with what they were trying to do.
It would make me feel somewhat better about the whole mess to know this was the case. A successful Theranos would have been the best thing to come out of SV since the Apple II. It was sad to see it fail because of executives' delusions.
The major medical diagnostic companies had been working on microfluidic assays for a couple of decades before Holmes came along. It's a very difficult subject especially when it comes to immunoassays. This wasn't a blue sky field by any means.
There were numerous research papers on the topic, and some time spent with experts in the field would have also pointed her in the direction of the current research.
Almost too late she hired an expert from Abbott Diagnostics (who headed up a number of successful system projects for them), and he walked away after 6 months.
I am no expert, but it's my understanding that blood in the capillaries (fingertip) is not exactly the same as blood in the veins.
> In addition, the small volumes involved and the variability in sample quality based on puncture site and technique make capillary sampling particularly susceptible to errors during the pre-preanalytical phase, which are beyond the control of clinical laboratory personnel
I'm not sure if there were "experts" of the same caliber calling the iPhone impossible. In fact, I don't recall anybody saying it was impossible, but would like to find out more.
I remember a ton of doubt, after launch, that it would be successful, but those people weren't really experts.
Here’s one example. Apparently RIM’s employees collectively thought it was impossible (to achieve the stated battery life); I think they count as experts:
> RIM had a complete internal panic when Apple unveiled the iPhone in 2007, a former employee revealed this weekend. The BlackBerry maker is now known to have held multiple all-hands meetings on January 10 that year, a day after the iPhone was on stage, and to have made outlandish claims about its features. Apple was effectively accused of lying as it was supposedly impossible that a device could have such a large touchscreen but still get a usable lifespan away from a power outlet.
The comments summarized in that article seem to no longer be available, but I have a hard time believing the summary is accurate. When the iPhone was released, there were already PDAs on the market with screens the same size or bigger.
The devices at the time with larger screens were larger, heavier devices that had shorter battery life. Nobody made a pocketable device with a screen that size.
I had an iPaq at the time, had maybe 4 hours battery life, and that was with wifi used sparingly. No 2g or 3g was possible. Slow processor. Crappy screen.
I definitely remember one supposed LCD expert who said Apple was lying about the iPad battery life. Said there was no way it would last more than 3 hours.
Sure. And while certainly "possible", how likely is it that a 19yo college dropout (who wasn't studying medical sciences) was able to discover a technique that did so, after forty years of multiple multi-billion dollar companies researching the same (after all, the brave new world offered by her dream was hardly new or unpalatable to other players in her field).
And her actions demonstrated she had done no such thing. Buying, hiding, deceiving around traditional venipuncture machines, etc.
This is someone who "had a dream", had connections, and was determined and stubborn, in a bad way. Even now she, and one or two of investors, still believe she has been robbed and wronged, and that the world is worse off without Theranos.
For anyone wanting to dig deeper into this the recently released Bad Blood book is pretty awesome. The author, the WSJ jornalist above who early on raised serious doubts about Theranos, reconstructs the startup history in a thriller-ish style, but fully based on actual facts/research. Highly recommended.
I have a book called "The Creator's Code" [2015] that praises Elizabeth Holmes right along side other successful SV entrepreneurs like Musk, Hoffman, Thiel and others, diving deep into their story of how they became successful.
Back in 2015, it was the same story they told investors: We can do an expensive blood test for a fraction of the cost in a fraction of the time with better accuracy.
Unfortunately, it sounds like they defrauded investors with false claims, which is why they were able to get so much funding without a real, viable product.
>From what I have heard in interviews they started with the thought "Doing xxx would be super useful" but didn't have an approach for accomplishing this but instead took in money and tried to figure it out.
Sure. That part wasn't even illegal. The early investors were honestly told that Theranos was trying to invent a microfluidics solution.
It crossed over into serious fraud when they stopped taking money to develop an approach, and started taking money on the pretence that they had developed an approach, when in fact they were just lying and performing the tests on commercial equipment they'd quietly bought elsewhere and hacked to use smaller samples (with resulting extremely poor accuracy).
And then they really fucked up when they doubled-down on this fraud by showing FDA inspectors a sham microfluidics lab instead of the actual working lab that just used standard equipment they'd quietly bought through various shells.
I've been involved with many vc funded startups and have never encountered a situation where nobody knows how to achieve the core product vision. Nobody knows how to achieve profitability...sure.
As a data point, GV decided twice not to invest in Theranos, due to lack of transparency, a peculiar board mix and a sketchy experience in the field. They actually sent someone to a Walgreens.
Later they happily poured lots of millions into Magic Leap.
>Nobody knows how to achieve profitability...sure.
Yeah, I was referring to profitability, which, for a for profit company (and one that wants to attract investments), should be part of the core vision, and without which there's no product (just something akin to "selling" $10 bills for $5).
That said, wouldn't all the "pivoting" companies prove that nobody there knew how to achieve their core product vision?
Keep in mind the actual fraud is NOT saying “we will try to do impossible task X” and failing. The fraud is going to extreme lengths to cook up results to drum up sales and investments.
UBeam might very well flameout but I think if you are evaluating a company for fraud potential, there’s no evidence of UBeam making up complete BS to raise investments. In that case, even if their tech doesn’t pan out, as long as they weren’t massively deceiving investors, it would be a failed startup, not a fraudulent one. They are not the same thing.
Vast majority of VC flameouts don’t put tens of thousands of lives at risk. Theranos had to void blood tests of 76,000 people just in Arizona. If Holmes had her way, that number would be millions.
Abbott sells microfluidic hand-held blood test machines right now.[1] "Just two drops of blood". These have been around since 2006. So it's possible to do this.
I'm reading the book Bad Blood at the moment. It's a cracker. Assuming it's true, the level of wilful negligence and fraud is astounding. What is unbelievable is how they got away with it for so long.
> It's like me saying "An antimatter drive would revolutionize space exploration" and starting to collect money but without even the faintest idea how to produce one
In America, it's perfectly legal to say "I'm going to make an antimatter drive; give me a million dollars." It's illegal to say "I have a working antimatter drive prototype; give me a million dollars." Holmes and Balwani did the latter.
Their malfeasance was worse than that. Their "invention" gave people wrong information about their health, which in some cases put their lives in jeopardy. And they operated in a highly-regulated marketplace and tried to evade government oversight. These two aspects of Theranos put their fraud into a much more serious category than that of a typical narcissist-led SV vaporware company.
Based upon what you said, there is just one flaw in your pmm. I know how to fix it. Unfortunately, I can't tell you. The secret is proprietary, and I need to make sure that it doesn't get corrupted, so everyone can use it for free.
> Did they have a prototype or at least a concept?
Not one that could do what they promised.
"The indictment alleges that the defendants used a combination of direct communications, marketing materials, statements to the media, financial statements, models, and other information to defraud potential investors. Specifically, the defendants claimed that Theranos developed a revolutionary and proprietary analyzer that the defendants referred to by various names, including as the TSPU, Edison, or minilab. The defendants claimed the analyzer was able to perform a full range of clinical tests using small blood samples drawn from a finger stick. The defendants also represented that the analyzer could produce results that were more accurate and reliable than those yielded by conventional methods—all at a faster speed than previously possible.
The indictment further alleges that Holmes and Balwani knew that many of their representations about the analyzer were false. For example, allegedly, Holmes and Balwani knew that the analyzer, in truth, had accuracy and reliability problems, performed a limited number of tests, was slower than some competing devices, and, in some respects, could not compete with existing, more conventional machines."
They did. They had two devices, the "Edison" and the "MiniLab".
The Edison was intended to run a full panel of blood tests, both chemical and immunological assays, off a finger stick of blood. It was also intended to allow Theranos to function as its own lab.
The Minilab was intended to run a full panel of blood tests I believe off a larger venous sample, and was expected to be marketed to existing labs (at this point, Theranos had been forbidden from operating its own labs).
In its own labs, Theranos made minimal use of the Edison, which was unreliable and supported only a few tests. Rather, they're accused of taking finger-stick draws, diluting them, and then feeding them into hacked-up adapters for COTS lab machines.
Do you believe Theranos could have beee successful company with less delusional management? (Honest question for a HN colleague for whom I have tremendous respect.)
I don't know anything about this space; all I know comes from Carreyrou's book. Somewhere towards the middle, one of his sources observes that it's particularly hard to get a good sample from a finger stick --- something about damaged blood cells --- and you can find recent journal articles online suggesting that finger stick samples are inherently a lot less reliable than venous draws.
Not an expert in this field, but it seems like they could have pivoted to do a smaller sub-set of blood tests, like the immunoassays. Part of the failure was their insistence that they were going to do ALL blood tests through a finger stick. Once they had raised tens of millions of dollars based on taking the entire market, it was probably too late to de-scope the vision without losing their investors.
Could they have successfully run tests on smaller sample sizes? Possibly, but the target market size is small (needing less blood isn't particularly advantageous unless you're dealing with children or babies without much blood in the first place).
The finger-prick-testing was always very likely to fail; the biology just doesn't work out in your favor. However, getting finger-pricks working was the entire basis of their strategy, not the "test using less blood" idea.
Not a domain expert, but as I recall most of the things they want to test for aren't present at a sufficient level in the blood stream to get a statistically significant sample from a few drops.
Blood sugar is a relatively high percentage of your blood stream, which is why strip-based glucose monitors work.
Yes, they did. Which involved humans walking over the blood sample to a regular lab setup where they would dilute it and use regular machines to output wrong results. Now all they had to do was find a solution to replace the humans, not having to dilute the sample and output correct results. But pesky investigations got in the way.
From "Bad Blood": they had a prototype called Gluebot which used a robot arm to do standard tests involving a pipette autonomously. However, their tests (using blood collected at Walgreens) were done on "hacked" (altered to cope with much smaller amounts of blood -- by increasing dilution) Siemens blood-testing machines.
Those kinds of business plans were typical of that era and venture capitalists were accustomed to investing in lofty dreams. Naturally, it didn't pan out most of the time and they've gotten smarter. Theranos managed to outlive most of their peers, it seems by turning to deception instead. From my reading, it seems that the failures are old but the crimes are recent.
My understanding is that they could measure ~95% of what they wanted, but the remaining 5% needed for full accuracy certification was out of reach with the limited tests they were performing. And that this was the difference between their tests and more expensive tests.
Does anyone know? Did Holmes have any insight that caused her and the investors to believe she could do the blood tests?