5 Takeaways from Bad Blood

Summary

Most entrepreneurs would love to build a company with a $10 billion valuation. But how many would resort to fraud to do it?

Bad Blood: Secrets and Lies in a Silicon Valley Startup tells the story of Theranos, a biotech firm that claimed it had developed revolutionary technology to test blood samples faster and easier.

However, Theranos’s technology never actually worked. The company used deceit and investors’ own irrational exuberance to get a valuation of almost $10 billion before they were exposed. Theranos founder and CEO Elizabeth Holmes and her partner Sunny Balwani carried out most of the harm.

Bad Blood was written by John Carryrou, the Wall Street Journal investigative reporter that exposed the fraud.

5 Takeaways from Bad Blood:

1. Raising capital ≠ having a good business. Theranos raised several hundred million dollars over several capital raises.  All without a functional product. Sometimes bad businesses get funding and good ones don’t.

2. Theranos’s culture involved secrecy, paranoia, screaming, and constant firings. Does that sound like a place you’d like to work? For an example of good culture, check out Trillion Dollar Coach.

3.  Long hours in the office ≠ productivity. Holmes and Balwani would walk around the office or send out emails in the evenings to see who was still working. Dinner would be catered, but it wouldn’t show up until after 8 PM. Yet what did all these hours accomplish? If the technology isn’t feasible, throwing more hours at it won’t make it so.

4. A lack of separation of duties continues to be a major risk. Elizabeth and Sunny created a highly compartmentalized company. They were the only ones with full knowledge of company operations. Most employees and even the Board of Directors were unaware of the full extent of the company’s problems.  Be wary of possessive people.

5. People believe what they want to believe. Signs of problems abounded–failed technology demonstrations, continued delays of product launches, refusals to let investors or inspectors see testing labs or equipment. But people rejected these warning signs in favor of the dream Theranos represented: disruptive technology, profits, and turning Elizabeth Holmes into the next Steve Jobs. Investors, business partners, and the company’s Board were happy to go along for the ride.

Bonus Takeaway: If someone can’t or won’t give you a successful product demo, be skeptical before investing in that company!