Theranos as a Cautionary Tale | FREE WHITEWATER
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Theranos as a Cautionary Tale

Theranos is a much-hyped biomedical start-up that’s fallen in valuation and reputation (not always the same thing) following published doubts (e.g., @ Wall Street Journal, Fortune) about its supposedly revolutionary technology.

Here’s the meaning of this story for Whitewater: Theranos had the participation (and attention) of some of the most gifted men and women in America, yet its (likely exaggerated) claims escaped serious scrutiny for years.

When Whitewater’s city government, Community Development Authority, and local university administration receive fawning stories from the Daily Union, Gazette, Register, Banner, or whatever, does anyone believe that those economic development gurus are receiving anything like the scrutiny Theranos or any American project should receive?

Theranos’s problems have not been for lack of talent (CEO Elizabeth Holmes, is undeniably intelligent, persuasive).

And yet, and yet, intelligent and persuasive do not assure successful new technologies. Doubt not how very much I and others would wish the Theranos story to have a successful outcome: a new & powerful blood-test technology, that would save lives, time, and money from a compelling American entrepreneur would be to humanity’s benefit.

Prof. of Finance Aswath Damodaran of NYU’s Stern School writes about the problems of Theranos – in part problems that are ours for believing so much in the company’s tales – in a post entitled, Runaway Stories and Fairy Tale Endings: The Cautionary Tale of Theranos @ his Musings on Markets Blog.

Here’s Prof. Damodaran:

I can offer three possible reasons that should operate as red flags on future young company narratives:
  1. The Runaway Story: If Aaron Sorkin were writing a movie about a young start up, it would be almost impossible for him to come up with one as gripping as the Theranos story: a nineteen-year old woman (that already makes it different from the typical start up founder), drops out of Stanford (the new Harvard) and disrupts a business that makes us go through a health ritual that we all dislike. Who amongst us has not sat for hours at a lab for a blood test, subjected ourselves to multiple syringe shots as the technician draw large vials of blood, waited for days to get the test back and then blanched at the bill for $1,500 for the tests? To add to its allure, the story had a missionary component to it, of a product that would change health care around the world by bringing cheap and speedy blood testing to the vast multitudes that cannot afford the status quo….
  2. The Black Turtleneck: I must confess that the one aspect of this story that has always bothered me (and I am probably being petty) is the black turtleneck that has become Ms. Holmes’s uniform. She has boasted of having dozens of black turtlenecks in her closet and while there is mention that her original model for the outfit was Sharon Stone, and that Ms. Holmes does this because it saves her time, she has never tamped down the predictable comparisons that people made to Steve Jobs. If a central ingredient of a credible narrative is authenticity, and I think it is, trying to dress like someone else (Steve Jobs, Warren Buffett or the Dalai Lama) undercuts that quality.
  3. Governance matters (even at private businesses):… Theranos illustrates the limitations of these built in governance mechanisms [that is, the desire of founders and venture capitalists to protect their investment in a way managers might not], with a board of directors in August 2015 had twelve members:
Board Member Designation Age
Henry Kissinger Former Secretary of State 92
Bill Perry Former Secretary of Defense 88
George Schultz Former Secretary of State 94
Bill Frist Former Senate Majority Leader 63
Sam Nunn Former Senator 77
Gary Roughead Former Navy Admiral 64
James Mattis Former Marine Corps General 65
Dick Kovocovich Former CEO of Wells Fargo 72
Riley Bechtel Former CEO of Bechtel 63
William Foege Epidemologist 79
Elizabeth Holmes Founder & CEO, Theranos 31
Sunny Balwani President & COO, Theranos NA
I apologize if I am hurting anyone’s feelings, but my first reaction as I was reading through the list was “Really? He is still alive?”, followed by the suspicion that Theranos was in the process of developing a biological weapon of some sort. This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business….

So-called ‘Whitewater Advocacy’ has done a huge disservice to Whitewater by flacking wasteful ideas that have only diverted time and money from higher priorities.

It can’t last, of course, just as the outcomes of similar schemes elsewhere show.

The real question for Whitewater is who runs dry first: public schemes that divert resources to cronies’ projects or the local press that touts these projects?

They’re both destined for the ash can, but I’m not sure which one will arrive first.  As it is, I’d say it’s likely to be a close race between the two.

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