What the downfall of Elizabeth Holmes tells us

The story of her start-up Theranos is a cautionary tale not just for investors

FILE PHOTO:    Elizabeth Holmes, CEO of Theranos, attends a panel discussion during the Clinton Global Initiative's annual meeting in New York, September 29, 2015.  REUTERS/Brendan McDermid/File Photo
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A brief segment in the documentary about Elizabeth Holmes called The Inventor: Out for Blood in Silicon Valley features former US president Bill Clinton, as he moderates a conversation with Holmes, the 37-year-old founder of the now-dissolved company, Theranos. The conversation was from 2015, on the future of equality and opportunity.

In it, Mr Clinton says to Holmes: "You founded this company 12 years ago, right? Tell them how old you were." Holmes replies: "I was 19." There is applause in the forum, rightfully so – also from the billionaire founder of Alibaba, Jack Ma, who was on the panel – for here was a promising young entrepreneur who had set about revolutionising blood testing technology with the aim of delivering affordable blood tests to American households.

Holmes's stated ambition was to make detecting ailments accessible, inexpensive and to improve the chances of illnesses being curable, because of the easy and early diagnosing. Her dream was to install a boxy device, about the size of an office printer, called the Edison, in every home. The device held the unparalleled promise of being able to carry out multiple blood tests, thereby circumventing the need to go to expensive doctors or laboratories or worry about insurance. All this would be done with just a few drops of blood, she claimed. But this was a scam. The device didn't work and the blood tests spewed wrong diagnoses. Holmes was convicted yesterday on four out of 11 charges of fraud and conspiracy. She could face 20 years in jail for each charge.

To be sure, the promise of her idea was immense. If the blood testing devices actually worked – and were not fraudulent and ultimately dangerous, as proven – they could have revolutionised health care and saved lives. Indeed, in the future if and when efficient diagnostics do work, lifespans and the quality of life could vastly improve.

The promise and potential of this idea is what the savvy coterie of high-profile investors are said to have seen in Holmes' pitch. The story of Theranos – an amalgam of the words therapy and diagnostics, as Holmes explains in the film – gripped imaginations and understandably so, even if the claims were too readily believed, without adequate scientific proof. But a medical start-up with such potential and a charismatic young founder, quickly drew in powerful backers that included US senators.

But in the face of mounting legal troubles and claims that Theranos was a scam, the company that was founded in 2003 by a 19-year-old, who discontinued her education at Stanford – dropping out of college like her idol, Apple's founder Steve Jobs – dissolved in 2018, ending a dangerous untested technology being unleashed on unsuspecting Americans who simply wanted a blood test.

There are several lessons to be drawn from this Icarian tale of Silicon Valley's youngest self-made female billionaire in a male-dominated environment, whose company was valued at $9 billion at its peak.

A perhaps universal culture of cheering on start-ups – particularly those that make revolutionary claims in the field such as medicine – ought to be tempered with scepticism, at least until claims that the company makes pass the stringent tests of regulatory authorities.

A healthy appetite for risk in investors is fitting. Indeed, many successful CEOs might deem it necessary. But the message to heed is not just for start-ups or investors, nor merely for students studying management and finance.

Several facets of Theranos's downfall deserve scrutiny and reflection. The lessons we derive from the story of Holmes's deluded and dangerous fiction can help refine our outlook to life, the choices we make, the people we believe and trust – not just in business. The lessons are bound to impart value to entrepreneurs, regulators, businessmen and women all over the world. More broadly, however, there is a chapter on integrity and what constitutes character. Pondering those questions is not just for young executives. It is an informative and cautionary tale for everyone.

Published: January 04, 2022, 1:03 PM