Elizabeth Holmes’ company had a disruptive technology that promised a simpler, less panic-inducing and less costly way to draw blood tests.
Elizabeth Holmes used to be a media darling. At 31, Holmes is the world’s youngest female self-made billionaire, a Stanford dropout Silicon Valley entrepreneur complete with a classic Steve Jobs turtleneck look, though she says it was actually inspired by Sharon Stone (even better).
Holmes founded Theranos in 2003 at age 19 to develop a blood test that pricks a couple of drops of blood from your finger, purportedly inspired by her own fear of the traditional syringe drawing blood from your arm.
But the payoff goes beyond the appeal to those with a fear of needles—the Theranos test can be performed at a local pharmacy outlet rather than a doctor’s office and is not only quicker and more convenient, but considerably less expensive.
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The company, currently valued at around $9 billion, claims the test can cost less than the co-pay for those who have insurance, while boasting that it brings transparency and quality to both the testing process and pricing.
The trouble is that the company’s transparency got tested and the results came up a little cloudy.
Last October, The Wall Street Journal investigative reporter John Carreyrou challenged whether the disruptive technology Theranos advertised was actually being used in most of its testing. The article alleged that rather than being capable of conducting a host of diagnostic tests from a single blood sample using its proprietary technology, Theranos was actually diluting the blood in order to run it on the very same conventional machines used by other diagnostic testing companies.
Then The New York Times reported on two Food and Drug Administration (FDA) findings that the Theranos tiny blood collection device, called a “nanotainer” was an unapproved medical device. Moreover, the company acknowledged it was only using its finger-prick device on a relatively simple test for herpes, relying on conventional techniques for all its other testing.
Perhaps more damaging than general media reports are medical journal reviews such as those by Eleftherios Diamandis, head of clinical chemistry at Mount Sinai Hospital in Toronto, that find “most of the company’s claims are greatly exaggerated.”
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Theranos has vigorously defended itself, with a point by point rebuttal of The Wall Street Journalpiece, going so far as to say:
From his very first interactions with Theranos, the reporter made abundantly clear that he considered Theranos to be a target to be taken down, and not simply the subject of an objective news story. The articles that appeared last week are the inevitable product of that approach.
Holmes herself has appeared in a number of media outlets, including a conference sponsored by The Wall Street Journal, to defend herself and her company.
How’s that working out for her? And what lessons can other entrepreneurs about handling the fallout from bad publicity?
Get Out in Front of the News Cycle
Theranos, in addition to direct responses to the press, released volumes of data about its practices that, as a private company, it didn’t have to. This supported its claim to be transparent about what it does and how it does it.
As attorney Jayne E. Juvan notes in Corporate Compliance Insights, “Publishing data that proves the claims the company is making can go a long way in silencing critics and can help the company reclaim its narrative.” The company has also invited the Cleveland Clinic, a nonprofit academic medical center, to test and validate its technology.
Don’t Pretend to Be What You Aren’t
The problem is that releasing data isn’t the same as owning up to what you are actually doing (see Nixon, Richard, The Watergate Tapes). The good press generated about Theranos covered the fact that it had invented this revolutionary technology. Maybe it has, but the company hasn’t proven that yet. Theranos could get away with that because before The Wall Street Journal report hit (other than some technical papers not widely known), it had never released data about how it conducted its tests, claiming the need to protect intellectual property.
In fact, as Wired points out, the company is regulated by a special set of rules that let clinical labs police their own testing, rules that were set up specifically to encourage lab innovation. Theranos was doing the testing, but not using any radical new invention other than better lab efficiencies. And Theranos continues not to share data about its actual testing practices as it continue to claim that just because most of its tests aren’t conducted using its proprietary technology doesn’t mean they couldn’t be.
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You’re Not Steve Jobs: No One Is
Steve Jobs is the mythological archetype of Silicon Valley and disruptive innovation. Don’t confuse yourself with him, no matter how flattering it may be for your ego. If you are going to get a lot of media attention that is more about you than your company, as Holmes did (high-profile feature stories not only in business publications but also Vanity Fair), you can expect some blowback. Some reporter out there is going to start wondering if you’re all that you’re made out to be.
For now, it’s debatable whether Theranos actually did anything ethically wrong, let alone illegal. But it does appear that it allowed some conclusions to be drawn that maybe it shouldn’t have. Had it kept a lower profile, perhaps it could have chugged along until it actually could demonstrate the capabilities it was prematurely lauded for.
Is There Really No Such Thing as Bad Publicity
Bloomberg reports a claim from Holmes that all this negative publicity has actually been good for business, free advertising that has increased walk-ins at Theranos wellness centers in Arizona. She is quoted as saying, “I mean, is it incredibly painful to see people say this kind of stuff about us? Of course it is. But is it a crisis? No. We’ve built something that incredible, and we have now the opportunity to showcase it.”
Of course, that is something she would say. So far it’s still too early to tell. Other so-called unicorns—start-ups with valuations in excess of a billion dollars—such as Uber and Airbnb have managed to survive their own rough spots. However, it’s one thing to have problems in service industries and another in healthcare where the well-being of customers and full disclosure is literally the issue.