Cover & Diagrams

Bad Blood Book Summary preview
Bad Blood - Book Cover Chapter preview
chevron_right
chevron_left

Download, customize, and translate hundreds of business templates for free

Start for free ⬇️

Go to dashboard to download stunning templates

Download

Synopsis

The story of Theranos is the Silicon Valley equivalent of the Enron scandal replete with bold claims, high valuations, defrauding of investors and terrible corporate governance. Theranos promised to revolutionize healthcare by painlessly performing hundreds of tests on a single drop of blood.

In 2015, Theranos was a unicorn valued at $9 billion. By 2018, the company shut down and Elizabeth faced a ten-year ban from serving as an officer of a public company. Theranos serves as a cautionary tale of what can go wrong with a 'fake it till you make it' approach to building a company. Find out what happened behind the facade of promises in Bad Blood.

stars icon
Questions and answers
info icon

Small businesses can learn from the Theranos story by avoiding the "fake it till you make it" approach. Transparency and honesty are crucial in business. Making bold claims without substantial proof can lead to loss of trust and eventual downfall. It's also important to have good corporate governance and not defraud investors. Lastly, businesses should not overvalue themselves without concrete results to back up their valuation.

The "fake it till you make it" approach, as exemplified by Theranos, challenged existing business practices by promoting the idea of making bold claims and promises before having a solid product or service to back them up. This approach can lead to high valuations and investor interest, but it also carries significant risks. If the company fails to deliver on its promises, it can result in loss of trust, legal issues, and ultimately, company failure. This was the case with Theranos, which went from a $9 billion valuation to shutting down within a few years due to its inability to deliver on its promises.

View all questions
stars icon Ask follow up

Top 20 insights

  1. At the age of ten, Elizabeth Holmes was determined to become a billionaire entrepreneur, an ambition her parents strongly encouraged. To achieve this, she dreamt of designing technology that changed the lives of people.
  2. Elizabeth dropped out of Stanford to start Theranos. The vision was to build a portable device that would painlessly perform hundreds of tests on a few drops of blood.
  3. Steve Jobs was a huge inspiration for Elizabeth who called Theranos "the iPod of healthcare." She began to imitate Jobs in her management style and even in wearing black turtlenecks every day to work. "Like her idol Steve Jobs, she emitted a reality distortion field that forced people to momentarily suspend disbelief."
  4. Avie Tevanian, a board member, grew suspicious about Theranos. Revenue projections never materialized, documents for deals with pharma giants were not shown and there were consistent product delays. When Avie raised this with the board, Theranos threatened him with lawsuits and forced him to quit.
  5. When the board again received similar complaints, Elizabeth was asked to step down. However, she managed to win the board back, a difficult feat even for seasoned CEO's. "When you strike at the king, you must kill him." In this case, the queen survived and the complainant was fired next week.
  6. Toxic Culture: Elizabeth indulged in nepotism by hiring her romantic partner Sunny Balwani as the Executive Vice Chairman, a vaguely defined role with sweeping powers. The Board was not informed about their relationship and the vast scope of Sunny's role. Elizabeth also hired her brother Christian and his friends, none of whom had any relevant background.
  7. Toxic Culture: Theranos blocked online communication and spied on employee conversations and social media posts. Sunny used a fear and intimidation-based approach harassing employees he disliked. Employees suspected of not being 'loyal enough' were fired on some pretense.
  8. Red Flag: Elizabeth managed to convince Pfizer to use Theranos devices in a patient trial. However, the collaboration soon came to an end as the devices had frequent mechanical failures, wireless transmission errors and poor temperature tolerance. There were issues with test results as well.
  9. Turning Point: Theranos landed mega-deals with Walgreens, a massive pharmacy store chain and Safeway, one of America's largest supermarket chains. Both companies bet big on this collaboration. However, the partnership was marked by Theranos missing deadline after deadline.
  10. Red Flag: Theranos promised its devices could perform 192 different tests while they could barely do a dozen. To meet the Walgreens deadline, Theranos hacked commercially available blood testing devices and used them for testing. The test results had dangerously high error rates.
  11. Turning point: Theranos's stellar board, the Walgreens and Safeway deals, a potential defense contract and highly inflated revenue projections raised investor expectations. A new fundraising round made Theranos a unicorn, valued at an astonishing $9 billion. Elizabeth, now worth $5 billion, became Silicon Valley royalty.
  12. John Carreyrou, Wall Street Journal journalist and the book's author, discovered that Theranos's performed its tests on hacked commercial machines. Doctors shared horror stories of faulty test results creating health scares and needless suffering for many patients. "The way Theranos is operating is like trying to build a bus while you're driving the bus. Someone is going to get killed."
  13. Theranos tried to scuttle John's investigation by sending legal notices and threatening emails to his sources and Wall Street Journal. Elizabeth convinced Rupert Murdoch, the owner of Wall Street Journal, to invest $125 million in Theranos. Using this, she tried to get him to kill John's story, but Murdoch refused.
  14. John wanted to publish quickly. But the paper's editor advised patience. He likened investigative journalism to la mattanza, a Sicilian ritual where fishermen with spears would stand in the water for hours. When the fish grew comfortable and carelessly swam close, they would swiftly go for the kill.
  15. Turning Point: The Wall Street Journal carried John's articles exposing how Theranos ran tests on hacked devices. Subsequent pieces revealed that Walgreens and Safeway had terminated their partnership with Theranos. Throughout all this, Elizabeth played the wronged visionary, claiming false allegations were the price she had to pay for being a pioneer.
  16. An investigation by Centers for Medicare & Medicaid Services (CMS) confirmed that Theranos used hacked devices and test results were highly unreliable. Theranos was forced to void over a million test results paying $4.65 million in reimbursements. What is unimaginable, however, is the damage that could have been caused had Theranos rolled out nationwide.
  17. Investors sued Theranos, Elizabeth and Sunny for deceit. Walgreens filed a lawsuit for violation of basic quality standards and legal requirements. The Securities Exchange Commission charged Theranos with fraud and barred Elizabeth from holding office in public companies for ten years. She was forced to give up voting control and most of her shares in Theranos.
  18. Red Flag: "Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry." However, in healthcare the costs were far higher. Millions of lives were at risk as treatment decisions are made based on lab results.
  19. Culture Alert: Elizabeth knew exactly what she was doing and systematically manipulated people. Her ambition would not admit setbacks. She made disastrous decisions that cost Theranos, the investors and the general public dearly.
  20. The story of Theranos is a cautionary tale. Watch out for similar warning signs in your organization and the companies you work with. Your career or business might be at stake.

Summary

At the age of ten, Elizabeth Holmes was determined to become a billionaire entrepreneur, an ambition her parents strongly encouraged. To achieve this, she was convinced she had to create technology that changed the lives of people. Stanford became an obvious choice for a bright student with entrepreneurial dreams. With her track record of academic excellence, Elizabeth was admitted to Stanford as a President's Scholar. At Stanford, she took a special interest in Channing Robertson's courses in Chemical Engineering and controlled drug-delivery devices. She also started working at his lab under Shaunak Roy, a Ph.D student of Robertson's.

stars icon
Questions and answers
info icon

'Bad Blood' provides a deep insight into the challenges of creating life-changing technology in Silicon Valley. It tells the story of Elizabeth Holmes, a Stanford student with a dream of becoming a billionaire entrepreneur by creating technology that would change lives. However, her ambition led to the creation of Theranos, a company that made bold claims about revolutionary blood testing technology. Despite high valuations and significant investor interest, the company's technology was ultimately found to be fraudulent. This led to a rapid downfall, turning Theranos into a cautionary tale about the dangers of unchecked ambition, lack of transparency, and poor corporate governance in the tech industry.

The corporate governance failures at Theranos had a significant impact on its investors. The company's lack of transparency, coupled with the overstatement of its technology's capabilities, led to a loss of trust. When the truth about the company's fraudulent practices came to light, the value of the company plummeted, resulting in substantial financial losses for investors. The scandal also served as a stark reminder of the importance of due diligence and the potential risks of investing in startups with unproven technology.

View all questions
stars icon Ask follow up

Starting up

Elizabeth spent the summer of 2003 interning at the Genomics Institute of Singapore. While using syringes and nasal swabs to test patients for the SARS epidemic, she was convinced there had to be a better way. On her return, she worked non-stop for five days to come up with a patent application for an arm patch that could detect medical conditions and administer suitable drug dosages. When Channing Robertson saw it, he was impressed with her drive and inventiveness in synthesizing different pieces of science and engineering. He encouraged her to drop out and start a new venture. Elizabeth incorporated her startup as Real-Time Cures, which she later changed to Theranos. Channing Robertson joined the board and Shaunak Roy became the first employee. Tim Draper, the famous venture capitalist, invested $1 million. To investors, she pitched the idea of a Therapatch, a sort of a band-aid that would draw blood painlessly, analyze it and deliver a suitable drug dosage. The readings would be instantly sent to the doctor. By 2004, Theranos had raised $6 million.

stars icon
Questions and answers
info icon

Startups can learn several lessons from the story of Theranos. Firstly, they should ensure transparency in their operations and avoid making exaggerated claims about their products or services. Secondly, they should prioritize good corporate governance and ethical practices. Thirdly, they should not rush to market without thoroughly testing their products to ensure they meet the promised standards. Lastly, they should maintain open and honest communication with their investors and stakeholders.

'Bad Blood' challenges the existing paradigms of startup culture and venture capitalism by highlighting the dangers of unchecked ambition, lack of transparency, and unethical practices. It shows how the obsession with disruptive innovation and high valuations can lead to a disregard for due diligence, proper governance, and ethical standards. The book serves as a cautionary tale for startups and venture capitalists, emphasizing the importance of integrity, transparency, and accountability in business.

View all questions
stars icon Ask follow up

Theranos 1.0

Shaunak quickly realized that making such a patch was nearly impossible due to the engineering challenges it presented. They abandoned the idea for a cartridge and reader system. The blood sample would be drawn in a card-shaped cartridge and placed in a reader would analyze the blood and produce test results. Test results would be beamed to doctors who could prescribe modified dosages. This would sharply reduce the time needed to make changes to drug doses. Elizabeth dreamed of putting them in the houses of patients. However, engineering this pared-down version was still extremely difficult. After 18 months, Shaunak managed to make a prototype which was named Theranos 1.0.

stars icon
Questions and answers
info icon

The Theranos case is a prime example of corporate fraud and governance issues in the modern era. It highlights the dangers of unchecked ambition, lack of transparency, and the absence of proper checks and balances in corporate governance. The company's founder, Elizabeth Holmes, was able to deceive investors, patients, and the public about the capabilities of their technology, leading to a valuation of $9 billion. However, when the truth about the technology's shortcomings was revealed, the company quickly collapsed. This case has sparked debates about the need for stricter regulations and oversight in the tech and healthcare industries to prevent such frauds in the future.

Several real-world scenarios could have potentially prevented the Theranos scandal. Firstly, stricter regulatory oversight could have identified the issues with the company's technology earlier. Secondly, if investors and board members had demanded more transparency and proof of the technology's effectiveness, the company might have been forced to address its problems sooner. Thirdly, if employees who were aware of the issues had been more vocal or had more avenues to express their concerns, the scandal might have been avoided. Lastly, if the media and public had been more skeptical and less willing to accept the company's claims at face value, the company might have been held accountable earlier.

View all questions
stars icon Ask follow up

Edmond Ku was hired to engineer the Theranos 1.0 prototype into commercializable product. Elizabeth insisted on using only a drop of patient blood to perform tests and wanted the cartridge to fit in the patient's palm. This emphasis on miniaturization caused serious technical challenges. Ed's problems were complicated by the fact that Theranos's culture of information secrecy discouraged the engineering team and the chemistry team from communicating. He was never sure if the errors were caused by faulty chemistry work or faulty device design.

stars icon
Questions and answers
info icon

Yes, there are several companies that have successfully implemented the practice of miniaturizing medical devices. For instance, Medtronic is a pioneer in the field of miniaturized medical devices, with products like the Micra Transcatheter Pacing System, which is the world's smallest pacemaker. Another example is Boston Scientific, which has developed miniaturized devices for interventional cardiology. Abbott Laboratories is also known for its miniaturized glucose monitoring system, FreeStyle Libre. These companies have managed to overcome the technical challenges associated with miniaturization, and their products have been commercialized successfully.

A company in the medical sector can learn from Theranos's failure by ensuring transparency in their operations and communication. It's crucial to avoid overpromising and underdelivering, as Theranos did with their blood testing technology. Companies should also foster a culture of open communication between different teams to avoid technical issues. Lastly, maintaining good corporate governance and ethical practices is essential to avoid legal issues and maintain trust with investors and customers.

View all questions
stars icon Ask follow up

As months went by, Elizabeth grew frustrated with the slow pace and wanted to run the engineering teams twenty hours and seven days a week. Ed felt this would overburden his already stressed team and refused to comply. Over the next few months, he saw new engineers being hired who did not report to him. A parallel engineering team was being formed to make both teams compete with each other.

stars icon
Questions and answers
info icon

The downfall of Theranos was largely due to poor corporate governance. The company's leadership, particularly its CEO Elizabeth Holmes, made bold claims about the company's technology without providing evidence to back them up. This lack of transparency led to a loss of trust among investors and the public. Additionally, the company's decision to form parallel engineering teams to compete with each other, rather than collaborating towards a common goal, created a toxic work environment and further hindered the company's progress. Ultimately, these factors contributed to the company's rapid decline and eventual dissolution.

Companies trying to implement a high-pressure work environment like Theranos might face several obstacles. Firstly, such an environment can lead to employee burnout, affecting their physical and mental health, which in turn can lead to decreased productivity. Secondly, it can create a toxic work culture, leading to high employee turnover rates. Thirdly, it can lead to unethical practices as employees might feel pressured to achieve results at any cost. Lastly, it can negatively impact the company's reputation, making it difficult to attract and retain talent.

View all questions
stars icon Ask follow up

Elizabeth successfully convinced Pfizer to use the Theranos system in one of their patient trials at Tennessee. Patients would have the Theranos 1.0 device in their homes and take blood tests daily. The results would be shared with Pfizer. The day before Elizabeth was to train the patients and doctors, the cartridges and readers were not working properly. Ed spent the night fixing them. When he came to know the study involved patients suffering from terminal cancer, he felt that the device was too unreliable to be used in a serious study.

stars icon
Questions and answers
info icon

The Theranos 1.0 device was a blood testing system developed by Theranos, a now-defunct health technology company. In the Pfizer patient trials, as described in the book 'Bad Blood', the device was used for daily blood tests by patients at their homes. The results were then shared with Pfizer for their study. However, the device faced reliability issues, especially when it was discovered that the study involved patients suffering from terminal cancer. Despite these issues, Elizabeth Holmes, the CEO of Theranos, managed to convince Pfizer to use the Theranos system in their patient trials.

The Theranos scandal is a prime example of the issues and debates in corporate governance. It highlights the importance of transparency, accountability, and ethical leadership in a corporation. The company's founder, Elizabeth Holmes, was accused of misleading investors and patients about the company's health technology. This lack of honesty and transparency led to a loss of trust and ultimately, the company's downfall. The scandal also raises questions about the role of a company's board in overseeing its operations and the need for them to be independent and capable of challenging the management. Furthermore, it underscores the need for robust internal controls and risk management systems.

View all questions
stars icon Ask follow up

The Edison

At Theranos, the competition between engineering teams increased. The other team headed by Tony Nugent decided to abandon the existing approach in favor of a robotic mechanical arm which mimicked the steps a chemist would perform. Instead of building it from scratch, Tony re-engineered a commercially available glue-dispensing robot. The new device was the size of a desktop computer, but could still be installed at patient homes. Elizabeth christened this the Edison and this became the new direction for Theranos. Immediately, she started giving demos with the new system. This made Tony uneasy as the system had hardly been tested. Ed Ku and his entire team were fired. Shaunak Roy grew disillusioned with the new direction which was a far cry from the initial vision. He decided to move on.

stars icon
Questions and answers
info icon

Companies trying to innovate like Theranos might face several obstacles. Firstly, they might struggle with unrealistic expectations and pressure to deliver quick results, which can lead to unethical practices and shortcuts. Secondly, they might face technical challenges in developing new technologies. Thirdly, they might face regulatory hurdles, especially in sectors like healthcare. To overcome these obstacles, companies should foster a culture of transparency and ethical conduct, invest in robust R&D, and engage with regulators proactively.

Yes, there are several companies that have successfully avoided the pitfalls encountered by Theranos. One such example is Illumina, a company that specializes in DNA sequencing and array-based technologies. They have consistently focused on rigorous scientific validation and transparency, which has helped them avoid the issues faced by Theranos. Another example is Genomic Health, a company that has developed and commercialized genomic-based clinical diagnostic tests for cancer. They have also emphasized the importance of clinical validation and have worked closely with regulatory bodies to ensure their tests are reliable and accurate.

View all questions
stars icon Ask follow up

Toxic work culture

Steve Jobs was a huge inspiration for Elizabeth who called Theranos "the iPod of healthcare". In 2007, she recruited some Apple employees including Ana Arriola, who had worked on the iPhone's design. Elizabeth wanted the Edison to have Apple design elements including a touchscreen similar to the iPhone and an outer case resembling the iMac. Ana soon began to have problems with the suffocating culture at Theranos. Elizabeth's paranoia about information secrecy made Theranos block online communication across teams leading to huge productivity losses. Employees suspected that Theranos spied on their conversations and social media posts. Arrival and departure timings were strictly monitored. When board meetings were convened, employees were told to avoid eye contact with Board members. Elizabeth demanded unconditional loyalty from her employees and fired those she felt were not loyal enough. Within two years, over thirty people were fired not counting the twenty odd members of Ed Ku's engineering team.

stars icon
Questions and answers
info icon

Companies can avoid the pitfalls experienced by Theranos in their corporate governance by implementing several strategies. First, they should foster a culture of transparency and open communication. This includes not blocking online communication across teams and not spying on employees' conversations and social media posts. Second, they should avoid demanding unconditional loyalty from employees and instead encourage critical thinking and questioning. Third, they should ensure that board meetings are open and inclusive, with employees encouraged to engage with board members. Finally, they should avoid firing employees without just cause, as this can lead to a culture of fear and mistrust.

The information secrecy policy at Theranos led to a suffocating culture and huge productivity losses. The company blocked online communication across teams, leading to inefficiencies. Employees suspected that their conversations and social media posts were being monitored. Strict monitoring of arrival and departure timings created a tense environment. The policy also led to a high turnover rate, with over thirty people being fired within two years for perceived lack of loyalty. This policy, coupled with poor corporate governance, eventually contributed to the downfall of the company.

View all questions
stars icon Ask follow up

Boardroom manoeuvres

When Ana heard about the Pfizer trials, she asked Elizabeth to pause the trials until the problems in the Theranos system were fixed. Elizabeth refused. Anna shared her concerns with Avie Tevanian, who was on the board of Theranos. Avie by then had begun harboring concerns of his own about Theranos. The optimistic revenue projections Elizabeth shared at board meetings never materialized. Every time he asked for details about pharmaceutical deals, he was told they were under legal review. There were consistent delays in making the devices production-ready. When Elizabeth wanted to set up a foundation for tax purposes and sought board approval for a special grant of stock, Avie felt this was not good corporate governance. Elizabeth would control the foundation, increasing her voting share. Upset with Avie's criticisms, Elizabeth wanted him to resign from the board.

stars icon
Questions and answers
info icon

The Theranos story challenges existing paradigms of startup valuations and investor trust by highlighting the dangers of over-reliance on founder narratives and the need for due diligence. Despite the high valuation and bold claims, Theranos was unable to deliver on its promises, leading to a loss of investor trust and ultimately, the company's downfall. This serves as a cautionary tale for investors to thoroughly vet startups and their claims before investing, and for startups to maintain transparency and good corporate governance.

The Theranos scandal has significant implications for the Silicon Valley startup culture. It serves as a cautionary tale about the dangers of overhyping a product and misleading investors, which can lead to catastrophic consequences. It underscores the importance of transparency, proper corporate governance, and the need for startups to deliver on their promises. It also highlights the need for rigorous due diligence by investors and the media. The scandal has led to increased skepticism and scrutiny of startups, particularly in the health tech sector.

View all questions
stars icon Ask follow up

This incident shocked Avie and he began to review the Theranos documents he had. He found glaring inconsistencies and constant staff turnover. When Avie took it up with Don, the board Chairman, Don told him to consider resigning. Shaunak Roy was planning to sell his founder's shares back to Elizabeth. Avie realized that the shares were being sold at an 82 percent discount compared to the last fundraising round. He decided to buy them. Soon, Theranos threatened Avie with a lawsuit. On second thought, Avie decided he did not want to own more of the company given what he knew about it. He wrote one last letter to Don urging him to tell the other board members about the issues with Theranos and resigned.

stars icon
Questions and answers
info icon

Startups can learn several lessons from the downfall of Theranos. Firstly, honesty and transparency are crucial. Theranos was heavily criticized for misleading investors and the public about their product's capabilities. Secondly, corporate governance and oversight are essential to prevent unethical practices. Theranos' board was criticized for not having enough members with a medical or scientific background who could have questioned the company's claims. Lastly, startups should ensure their products meet industry standards and regulations before they go to market. Theranos' downfall was largely due to the fact that their blood testing technology was not as reliable or accurate as they claimed.

Avie, after reviewing the Theranos documents, found glaring inconsistencies and a constant staff turnover. He also discovered that the shares were being sold at an 82 percent discount compared to the last fundraising round. These issues, along with the threat of a lawsuit from Theranos, led Avie to urge Don to share these problems with the other board members.

View all questions
stars icon Ask follow up

Todd Surdey, a Theranos sales executive, realized that the company's revenue projections were wildly optimistic. Each contract with a pharmaceutical company was contingent on Theranos proving that its blood analysis system worked. Worse, the devices often malfunctioned. During a demo for Novartis, all three Edison readers displayed error messages. He took his concerns to Don Lucas saying that the revenue projections were vastly exaggerated given the unreliable state of the Theranos product. This time Don took the complaint seriously. He convened an emergency meeting and Elizabeth was asked to wait outside. The board decided that Elizabeth was too inexperienced to head the company and decided to make her step down. When Elizabeth was called in to be informed, she agreed that there were shortcomings and promised to correct them. In the course of the next two hours, she managed to win back the confidence of the board, in a manner that even experienced CEOs would have found hard to pull off. One of the board members was reminded of the saying that "When you strike at the king, you must kill him". In this case, the queen survived. Todd was fired next week.

stars icon
Questions and answers
info icon

To prevent similar corporate scandals, the lessons from "Bad Blood" can be implemented in several ways. Firstly, companies should ensure transparency in their operations and maintain open communication with their stakeholders. Secondly, they should have robust internal controls and governance structures to detect and prevent fraudulent activities. Thirdly, companies should foster a culture of ethical behavior and integrity. Lastly, they should not over-promise and under-deliver, as this can lead to unrealistic expectations and eventual downfall.

The story of Theranos has had a significant impact on corporate strategies and business models in Silicon Valley. It served as a cautionary tale about the dangers of overhyping a product and misleading investors, which has led to increased scrutiny and skepticism towards startups with bold claims. It has also highlighted the importance of corporate governance, transparency, and the need for companies to have a viable, tested product before going public. This has resulted in a shift towards more responsible and sustainable business practices in the tech industry.

View all questions
stars icon Ask follow up

Nepotism at work

In 2009, Ramesh "Sunny" Balwani joined Theranos as Executive Vice Chairman, a vaguely defined role with sweeping powers. Sunny made his fortune when CommerceBid.com, the startup he worked with, was acquired by a competitor for $232 million. As the Chief Technology Officer, Sunny had made $40 million. When Elizabeth had met Sunny during her impressionable Stanford days, she saw in him a successful entrepreneur. Soon they had become romantically involved and Elizabeth moved into his house in 2005. Sunny had a habit of flaunting his wealth by driving Porsches and wearing expensive clothes.

stars icon
Questions and answers
info icon

Companies might face several obstacles when trying to prevent situations similar to the Theranos scandal. These include a lack of transparency, unchecked power of executives, and a culture that discourages questioning or dissent. To overcome these, companies can implement robust corporate governance structures, encourage a culture of openness and questioning, and ensure that all claims made by the company are backed by solid evidence. Regular audits and checks can also help in early detection of any discrepancies.

The story of Theranos is a prime example of the issues of high valuations and bold claims in the startup industry. The company was valued at $9 billion at its peak, largely based on bold claims about its revolutionary blood-testing technology. However, these claims turned out to be false, leading to a rapid devaluation and the eventual collapse of the company. This highlights the risks associated with high valuations based on unproven technology and the importance of due diligence in the startup industry.

View all questions
stars icon Ask follow up

While Elizabeth had informed the board of hiring him, she had hidden their relationship and underplayed the scope of his role. Sunny used a fear and intimidation-based approach to management. Employees found him arrogant, rude and condescending. Often he would remind people that he was doing a favor to them by working at Theranos when he did not need the money. Employees he disliked faced frequent harassment and yelling. Eventually, he would "disappear them", a phrase that employees coined for Sunny's frequent firings.

stars icon
Questions and answers
info icon

The term "disappear them" in the context of Theranos refers to the practice of abruptly firing employees. This phrase was coined by the employees to describe the frequent firings conducted by Sunny Balwani, who was a top executive at Theranos. He would often harass and yell at employees he disliked, and eventually, he would fire them, making them "disappear" from the company.

The broader implications of the disappearing management style used at Theranos are quite negative. This style, characterized by fear, intimidation, and frequent firings, can lead to a toxic work environment. It can result in low employee morale, high turnover rates, and a lack of trust within the organization. Furthermore, it can hinder open communication and innovation, which are crucial for a company's success, especially in the tech industry. In the case of Theranos, this management style contributed to its downfall by fostering a culture of secrecy and deception.

View all questions
stars icon Ask follow up

Elizabeth took nepotism one step further by hiring her brother Christian, an analyst with no background in medical diagnostics. Christian, in turn, recruited four of his former fraternity mates, who soon became known as the "Frat Pack". None of them had previous experience in medical devices. However, they won Elizabeth and Sunny's confidence by spending long hours in the office and willingly doing everything that was asked of them. Sunny saw these as indicators of hard work and "loyalty". Soon, they were called into meetings that other senior employees were not invited to.

stars icon
Questions and answers
info icon

Potential obstacles companies might face when hiring inexperienced but loyal employees include lack of technical skills, lack of industry knowledge, and potential for mistakes due to inexperience. These employees may require more training and supervision, which can be time-consuming and costly. However, their loyalty and willingness to learn can be a significant asset. Companies can overcome these obstacles by providing comprehensive training programs, mentorship, and opportunities for professional development. Regular feedback and performance evaluations can also help these employees improve their skills and adapt to the company's needs.

In the book 'Bad Blood', the concept of loyalty is portrayed through the actions of Elizabeth Holmes and her brother Christian. Despite Christian and his friends, known as the 'Frat Pack', having no background in medical diagnostics, they were given significant roles within the company Theranos. This was due to their willingness to work long hours and do everything that was asked of them, which was seen as a sign of loyalty by Elizabeth and Sunny. This loyalty, however, was misguided and led to poor corporate governance and ultimately the downfall of the company.

View all questions
stars icon Ask follow up

Predicting epidemic outbreaks

The Pfizer collaboration came to an end as the company was unimpressed with the results from the validation study. Theranos devices had frequent mechanical failures, wireless transmission errors and poor temperature tolerance. Further, there were issues with test results as well.

The outbreak of Swine flu at Mexico was seen by Elizabeth and Sunny as the perfect opportunity to demonstrate Edison's usefulness. The Chief Scientific Officer at Theranos proposed creating mathematical models from blood-test results of recently infected patients to predict where the virus would spread next. Elizabeth used her Stanford batch connections in Mexico to ship two dozen Edison readers to Mexico City hospital. Sunny and another colleague flew down to Mexico to test patients for Swine Flu. The Edisons functioned unreliably and produced frequent error messages and wrong results. Sunny also traveled to Thailand, which had a massive Swine Flu outbreak, to set up Edisons for testing. There were rumors this was not done by the book. As the epidemic came under control, both the Mexico and Thailand projects slowly lost momentum. Theranos pivoted yet again, this time from predictive modeling to consumer testing i.e performing doctor prescribed blood tests for patients

stars icon
Questions and answers
info icon

Theranos faced several challenges in implementing its predictive modeling strategy during the Swine Flu outbreak. Firstly, the Edison machines, which were supposed to create mathematical models from blood-test results, functioned unreliably and produced frequent error messages and incorrect results. This severely hampered their ability to accurately predict where the virus would spread next. Secondly, there were rumors that the deployment of the Edison machines in Thailand, which was experiencing a massive Swine Flu outbreak, was not done properly. Finally, as the epidemic came under control, the projects in both Mexico and Thailand lost momentum, forcing Theranos to pivot from predictive modeling to consumer testing.

Theranos, under the leadership of Elizabeth Holmes, used its connections to implement its predictive modeling strategy in Mexico during the Swine flu outbreak. Elizabeth used her Stanford batch connections to ship two dozen Edison readers to a hospital in Mexico City. The idea was to create mathematical models from blood-test results of recently infected patients to predict where the virus would spread next. However, the Edison machines functioned unreliably, producing frequent error messages and incorrect results. As the epidemic came under control, the project lost momentum.

View all questions
stars icon Ask follow up

Megadeals: Walgreens and Safeway

In 2010 Theranos started courting Walgreens, one of America's largest pharmacy store chains, promising to run blood tests within minutes from a few drops of patient blood. The Walgreens innovation team immediately saw huge potential in a partnership. Both companies agreed to run a pilot project where Theranos readers would be placed in 30 to 90 Walgreens stores within a year. Walgreens committed to purchase $50 million worth of Theranos Cartridges and loaned $25 million to Theranos. This was unusually fast deal-making for the conservative company.

stars icon
Questions and answers
info icon

Yes, there are several examples of companies that have successfully implemented practices similar to Theranos' approach to securing a partnership with a large corporation. One such example is the partnership between Apple and IBM. In 2014, they announced a partnership to transform enterprise mobility through a new class of business apps—bringing IBM’s big data and analytics capabilities to iPhone and iPad. The partnership was successful and resulted in a series of enterprise-ready apps. Another example is the partnership between Spotify and Samsung. In 2018, they announced a long-term partnership where Spotify became part of the set-up experience on Samsung devices. These partnerships, like Theranos' approach, involved innovative technology companies partnering with larger, more established corporations to leverage their scale and reach.

The Theranos-Walgreens case serves as a cautionary tale for businesses. It underscores the importance of due diligence before entering into partnerships or making significant investments. Companies should thoroughly vet potential partners, validate their claims, and ensure they have a solid, proven product or service. It also highlights the need for transparency and ethical business practices. Misrepresentation and deceit can lead to severe consequences, including loss of trust, legal issues, and financial downfall. Lastly, it reminds businesses to be wary of quick deals that seem too good to be true, as they often are.

View all questions
stars icon Ask follow up

Hunter, an expert in clinical laboratories, was hired by Walgreens to evaluate the partnership. Theranos claimed to have a commercially ready lab that could perform 192 different blood tests on their devices. In reality, the company had only a research lab and the Edison could do only a limited set of tests called immunoassays. When Hunter asked to see the lab and do a live test on Theranos devices, he was politely refused. To verify the reliability of Theranos technology, Hunter asked for a patient study where Theranos results would be compared to results from Stanford Hospital. This was again swiftly rejected by Elizabeth. Theranos claimed that its technology had been reviewed by Johns Hopkins University's medical school. When Hunter asked for the documents, he was shocked to see a generic 2-page letter with an explicit disclaimer saying the letter was not an endorsement of the technology by Johns Hopkins Medicine. Frustrated by Hunter's probing, Elizabeth and Sunny ensured Walgreens removed him from further meetings. Walgreens ignored the red flags raised by Hunter and continued with the partnership. A key reason for this was fear that its competitor CVS would court Theranos and they would lose out on groundbreaking innovation.

stars icon
Questions and answers
info icon

The lessons from the Theranos scandal can be applied in today's business environment in several ways. Firstly, it highlights the importance of transparency in business operations. Companies should be open about their capabilities and not make false claims about their products or services. Secondly, it underscores the need for proper corporate governance and ethical leadership. Leaders should not mislead investors and stakeholders about the company's performance or prospects. Lastly, it emphasizes the need for due diligence. Investors and partners should thoroughly vet a company before getting involved with it. These lessons can help prevent similar scandals and promote a more ethical and sustainable business environment.

Theranos presented several innovative ideas that surprised the medical and business world. The most notable was their claim to have developed a technology that could perform a wide range of blood tests using just a few drops of blood drawn from a finger prick. This was a significant departure from traditional blood testing methods which require larger volumes of blood and can be invasive. Theranos also claimed that their technology was faster, cheaper, and more accurate than traditional methods. However, these claims were later proven to be false, leading to the company's downfall.

View all questions
stars icon Ask follow up

Theranos also made headway with Safeway, one of America's largest supermarket chains. Steve Burd, who led the company for seventeen years had a stellar reputation. Theranos gelled well with his passion for healthcare and promised a new revenue stream for Safeway. A deal was signed wherein Safeway would loan $30 million to Theranos and build new clinics inside its stores where customers could get their blood tested. Safeway would be exclusive Theranos partners in the Supermarket segment while Walgreens would have an exclusive partnership for drugstores.

stars icon
Questions and answers
info icon

The Theranos case is highly relevant to contemporary issues and debates in corporate governance. It serves as a cautionary tale about the importance of transparency, accountability, and ethical leadership in business. The company's downfall was largely due to its lack of these key governance principles. The case highlights the potential consequences of misleading investors, the importance of independent oversight, and the dangers of a corporate culture that discourages dissent. It also raises questions about the role of board members in ensuring ethical conduct and the need for more stringent regulations in the tech and healthcare sectors.

The Theranos case has significantly influenced corporate strategies and business models, particularly in the healthcare and tech sectors. It has underscored the importance of due diligence, transparency, and robust corporate governance. Companies are now more cautious in their partnerships and investments, ensuring thorough vetting processes. The case has also highlighted the need for realistic valuations and the dangers of hype without substance. It has led to a greater emphasis on ethical leadership and corporate responsibility.

View all questions
stars icon Ask follow up

The miniLab

With two massive deals on the table, Theranos had a new problem. Both companies were promised that Theranos devices could perform hundreds of blood tests. In reality, the Edison could only perform a limited group of tests. Theranos hired engineers to build a new device, the miniLab, which would be capable of doing multiple types of tests. To do this, the miniLab would need far more components than the Edison. While most components were commercially available, the engineering challenges came from Elizabeth's focus on miniaturization. As soon as a barely-working prototype was ready, Sunny began placing component orders for a hundred minilabs based on the prototype. A manufacturing facility was leased for production. The engineering teams were shocked at how a barely tested prototype was assumed to be a finished product. This could have dangerous consequences.

stars icon
Questions and answers
info icon

The Theranos case offers several lessons in corporate governance. First, the importance of transparency and honesty. Theranos made bold claims about its technology that were not backed by reality, leading to a loss of trust and eventual downfall. Second, the need for proper oversight and checks and balances. Theranos lacked these, allowing the company to continue its deceitful practices. Third, the dangers of over-reliance on charismatic leadership. Elizabeth Holmes' charisma and vision were not enough to compensate for the company's lack of viable technology. Lastly, the necessity of a viable product. Despite the hype and high valuations, Theranos' product was fundamentally flawed.

The premature production of the miniLab based on a barely-tested prototype had a significant negative impact on Theranos. It led to a situation where a product that was not fully developed or tested was being mass-produced. This not only wasted resources but also potentially put patients at risk as the device was intended for medical testing. The decision to go ahead with production demonstrated a lack of proper corporate governance and risk management. It also damaged the company's reputation when the shortcomings of the miniLab became public, contributing to the eventual downfall of Theranos.

View all questions
stars icon Ask follow up

Safeway turns a blind eye

Safeway's wellness centers, which looked more like spas, were being built in eight hundred stores at a massive cost of 350 million dollars. However, there were significant delays from Theranos's end. Finally, a beta run was launched where Theranos handled blood testing at the Safeway employee health clinic. However, no devices were put there. Samples were couriered to Theranos's office for testing. Blood was drawn using both finger sticks and hypodermic needles, raising suspicions among Safeway medical staff. Results, which were supposed to be instantaneous, took over two weeks and many employees received erroneous results. Safeway turned a blind eye to these concerns.

stars icon
Questions and answers
info icon

The Safeway-Theranos partnership was a significant venture, with Safeway investing $350 million to build wellness centers in 800 stores. However, the partnership faced numerous issues. Theranos was responsible for blood testing at Safeway's employee health clinic, but the process was fraught with problems. Blood samples were not tested on-site but were couriered to Theranos's office, and results were not instantaneous as promised but took over two weeks. Moreover, many employees received erroneous results. Despite these issues, Safeway did not address these concerns. This case serves as a cautionary tale for corporate partnerships, highlighting the importance of due diligence, transparency, and accountability.

The lessons from "Bad Blood" can be applied in today's business environment in several ways. Firstly, businesses should ensure transparency in their operations and avoid making bold claims that cannot be substantiated. Secondly, they should have robust corporate governance structures in place to prevent fraud and protect investors. Lastly, businesses should prioritize the welfare of their customers and avoid compromising on the quality of their products or services for the sake of profits.

View all questions
stars icon Ask follow up

At Theranos, the miniLabs were not ready to be used to test Safeway's blood samples. So they began to use commercial blood analyzers to handle tests. Even then problems cropped up. Manufacturer instructions were ignored and expired blood drawing tubes were used, compromising results. Safeway, unaware of these problems, began hiring staff for the wellness centers. The company had forecasted that the wellness centers would bring in $250 million in revenue for 2012. Delays meant that it did not materialize. The wellness centers were taking up precious real estate space that could be put to other uses.

stars icon
Questions and answers
info icon

The real estate space occupied by Safeway's wellness centers could be repurposed for a variety of uses. It could be converted into additional retail space, expanding the range of products offered by Safeway. Alternatively, it could be transformed into a space for community events or workshops, enhancing Safeway's relationship with its customers. Another option could be to lease the space to other businesses or services that complement Safeway's offerings, such as a pharmacy or a cafe. The choice would depend on Safeway's business strategy and the needs of its customers.

The issues at Theranos significantly affected Safeway's wellness centers. Theranos was supposed to provide miniLabs for testing blood samples at Safeway's wellness centers. However, the miniLabs were not ready, and Theranos had to resort to using commercial blood analyzers. This led to several problems, including ignoring manufacturer instructions and using expired blood drawing tubes, which compromised the results. Safeway, unaware of these issues, continued to hire staff for the wellness centers, expecting them to bring in significant revenue. However, due to the delays and issues with Theranos, the expected revenue did not materialize. This meant that the wellness centers, which were occupying valuable real estate space, were not as profitable as expected.

View all questions
stars icon Ask follow up

A military foray

Theranos was attempting to get the military to use its technology. When Elizabeth met James Mattis, the head of US Central Command, she spoke of how Theranos's instant testing could save lives on the battlefield. Intrigued, he asked his staff to consider a field trial for Theranos devices. However, the military realized that it could not deploy Theranos devices as they had not been approved by the FDA. A compromise was worked out. Theranos's tests would not be used for wounded soldiers. Instead, the devices are used to confirm the results produced by regular testing methods. However, by the time General Mattis retired in 2013, Theranos had not even begun the study.

stars icon
Questions and answers
info icon

A traditional manufacturing company can apply innovative approaches discussed in the Theranos story by focusing on disruptive innovation. This could involve developing new technologies or processes that could significantly improve efficiency or effectiveness in the manufacturing process. However, it's crucial to ensure that any new technology or process is thoroughly tested and approved by relevant regulatory bodies to avoid the pitfalls that Theranos encountered. Additionally, maintaining transparency with stakeholders and practicing good corporate governance are essential to avoid the issues of fraud and misrepresentation that led to Theranos's downfall.

The Theranos scandal has had a significant impact on corporate strategies and business models in the tech industry. It has led to increased scrutiny and skepticism towards startups, particularly those making bold claims without substantial evidence or transparency. Investors are now more cautious and demand more proof of concept and regulatory approvals before investing. It has also highlighted the importance of good corporate governance and ethical leadership. Companies are now more focused on building trust and credibility, and there is a greater emphasis on compliance and risk management.

View all questions
stars icon Ask follow up

False claims

To prepare a marketing campaign for the launch of Theranos's testing services at Walgreens and Safeway stores, Elizabeth hired the advertising agency Chiat\Day. The agency was chosen because they had represented Apple for years. From the fall of 2012 to the spring of 2013, the agency worked on everything from creating a brand identity to making a new website for Theranos. They decided that the best visual for Theranos would be the 'nanotainer', a miniature vial Theranos designed to collect blood from fingertips. To complement the visual, the team came up with the slogan "One tiny drop changes everything".

stars icon
Questions and answers
info icon

The lessons from Theranos's marketing campaign can be applied in today's business environment in several ways. Firstly, the importance of a clear and compelling brand identity is evident. Theranos's 'nanotainer' and the slogan 'One tiny drop changes everything' were effective in capturing attention and communicating the company's value proposition. Secondly, the choice of a reputable advertising agency can significantly influence the success of a campaign. However, it's crucial to remember that while marketing can create hype, it cannot substitute for a solid, reliable product or service. Theranos's downfall was largely due to their failure to deliver on their promises, despite their successful marketing strategies.

A traditional retail company can apply innovative marketing approaches discussed in Theranos's case by focusing on creating a strong brand identity and using compelling visuals and slogans. They can hire a reputable advertising agency to help with this. The agency can work on various aspects such as creating a new website, designing a unique logo, and coming up with a catchy slogan. The company can also use innovative products or services as the centerpiece of their marketing campaign, similar to how Theranos used the 'nanotainer'. However, it's important to note that while Theranos's marketing was successful, the company ultimately failed due to fraudulent practices. Therefore, while applying these marketing techniques, companies must ensure they are also delivering on their promises.

View all questions
stars icon Ask follow up

Soon agency employees began to encounter problems with Theranos. There was the familiar obsession with secrecy. Materials provided by Theranos had to be kept in a locked room accessible only to people who signed confidentiality agreements. Elizabeth wanted the promotional material to carry bold claims. One such claim was that 800 tests could be run on a drop of blood. Another claim was that Theranos's tests were approved by FDA, which was not true. Chiat\Day executives grew concerned about these dubious claims as they were liable to legal penalties in case of misleading advertising. A day before the website launch in September 2013, Elizabeth called an emergency meeting and proceeded to systematically water down all previous claims to the extent where agency employees wondered if Theranos had any novel technology at all.

stars icon
Questions and answers
info icon

The misleading advertising claims made by Theranos had severe implications. They not only misled the public but also investors, causing them to invest in a product that did not deliver as promised. This led to a loss of trust and credibility, which is crucial for any business, especially in the healthcare sector. Furthermore, these false claims resulted in legal penalties for misleading advertising. Ultimately, these factors contributed to the downfall of the company, leading to its dissolution.

Theranos made several bold claims in their promotional materials. One such claim was that 800 tests could be run on a single drop of blood. Another claim was that Theranos's tests were approved by the FDA, which was not true. These claims were later watered down significantly, leading to doubts about the novelty of Theranos's technology.

View all questions
stars icon Ask follow up

Building a religion

As Theranos was readying for launch, the problems with the miniLab continued. It would take years to turn this barely functioning prototype into a viable product. But Elizabeth wanted to meet the September 2013 deadline for launching at Walgreens no matter what. Since the miniLab was nowhere close to ready, they decided to revert to using the Edison. But the Edison could only perform a very limited range of tests. This led to the decision to cheat. Theranos employees hacked into a Siemens blood testing device to make it compatible with the finger-sticks Theranos used for drawing blood. The machines were being used in a way that neither the manufacturer nor the FDA approved of. Employees from the chemistry team tried to convince Elizabeth that the Edison had a very high error rate and was not ready for commercial use. Regular patients would rely on these results to make medical decisions. When Elizabeth seemed indifferent to their concerns, some even resigned. Furious with the resignations, Elizabeth called an all-employee meeting and said that she was building a religion. Those who did not believe should leave.

stars icon
Questions and answers
info icon

Yes, inadequate monitoring is indeed a corporate governance issue. Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community. Monitoring is a crucial part of this system. If a company's operations, financial performance, or regulatory compliance are not adequately monitored, it can lead to serious issues, including financial irregularities, legal penalties, and loss of trust among stakeholders. In the case of Theranos, inadequate monitoring of product development and testing processes led to the release of a faulty product, which ultimately resulted in the company's downfall.

The four main corporate issues of Theranos were:

1. False Claims: Theranos claimed their technology could run comprehensive tests using just a few drops of blood. However, their device, the Edison, could only perform a limited range of tests, leading to inaccurate results.

2. Unethical Practices: To meet deadlines, Theranos employees hacked into a Siemens blood testing device to make it compatible with their own technology. This was done without the approval of the manufacturer or the FDA.

3. Ignoring Employee Concerns: Employees who raised concerns about the high error rate of the Edison and its readiness for commercial use were ignored. Some even resigned due to this.

4. Poor Corporate Governance: The company was accused of defrauding investors by making bold claims about their technology and its capabilities, leading to high valuations. The governance issues culminated in the company's downfall.

These issues led to the rapid decline and eventual dissolution of the company.

View all questions
stars icon Ask follow up

This CEO is out for blood

On the day of Theranos's commercial launch, a highly favorable interview of Elizabeth appeared in the front pages of the Wall Street Journal. Elizabeth had carefully engineered this piece by leveraging her connections. She used the Walgreens launch and the article to start a new fundraising campaign. At investor presentations, Elizabeth and Sunny claimed that their device could perform 300 different medical tests and that all their tests were submitted to the FDA for approval. Theranos had a stellar board that included the former Secretary of State George Schultz, retired general James Mattis, and Henry Kissinger. The sterling reputation of these men and their military background made Theranos's claims about the military using its devices seem credible. The Walgreens and Safeway deals along with a potential Department of Defense contract raised investor expectations. Sunny gave ambitious revenue projections - Theranos would make gross profits of $1.08 billion on revenues of $1.68 billion by 2015. These numbers were fabricated and multiple times higher than the company's internal projections. After a new round of fundraising, Theranos was valued at an astonishing $9 billion. It had become a unicorn, a startup worth over a billion dollars. Elizabeth, who owned over half the shares, was now worth nearly $5 billion.

stars icon
Questions and answers
info icon

Investors faced several obstacles due to the fraudulent activities of Theranos. Firstly, the company made false claims about the capabilities of its device, stating it could perform 300 different medical tests and that all tests were submitted to the FDA for approval. Secondly, the company had a high-profile board, which added credibility to its claims. Thirdly, the company gave ambitious revenue projections, which raised investor expectations. These obstacles could have been avoided if investors had conducted thorough due diligence, including verifying the company's claims with independent sources, scrutinizing the company's financial projections, and seeking expert opinions on the company's technology.

Theranos, led by Elizabeth Holmes, made bold claims that challenged existing practices in the medical testing field. They claimed that their device could perform 300 different medical tests, a significant leap from traditional methods. Furthermore, they asserted that all their tests were submitted to the FDA for approval, suggesting a level of credibility and trust. These claims, if true, would have revolutionized the medical testing field by making it more efficient and accessible. However, these claims were later found to be false, leading to the company's downfall.

View all questions
stars icon Ask follow up

In June 2014, Elizabeth featured on the cover of Fortune, with the headline "This CEO is out for blood." In the interview which made her a star, Elizabeth disclosed Theranos's valuation at $9 billion and claimed that 70 tests could be done from just one finger stick draw. Soon she featured in Forbes, USA Today, Fox Business and NPR. Elizabeth was named as one of the hundred most influential people in the world by Time magazine and joined the board of fellows at Harvard. Her security team grew to twenty people, her food was cooked by a personal chef and she traveled in a private jet. The people who handled publicity made Elizabeth the face of Theranos and raised her public profile.

stars icon
Questions and answers
info icon

The story of Theranos challenges existing paradigms and practices in corporate governance in several ways. Firstly, it highlights the importance of transparency and accountability in businesses. Theranos was able to mislead investors and the public about its technology due to a lack of transparency. Secondly, it underscores the need for a strong and independent board of directors who can provide effective oversight and challenge management decisions. In Theranos' case, the board was largely composed of big names who lacked experience in the healthcare sector. Lastly, it raises questions about the role of auditors and regulators in detecting and preventing corporate fraud. Despite numerous red flags, Theranos was able to operate for years without being detected.

Publicity played a significant role in the rise of Theranos. The company's CEO, Elizabeth Holmes, was featured in several high-profile media outlets, including Fortune, Forbes, USA Today, Fox Business, and NPR. These appearances significantly raised her public profile and made her the face of Theranos. This publicity helped to increase the company's valuation to $9 billion. However, the same publicity also played a role in the company's downfall. When the truth about the company's fraudulent practices came to light, the extensive publicity Theranos and Holmes had received amplified the negative impact, leading to a swift and dramatic fall.

View all questions
stars icon Ask follow up

The fairy tale unravels

In December 2014, The New Yorker published a piece on Elizabeth which attracted the attention of Adam Clapper, a pathologist who ran an industry blog named Pathology Blawg. Adam was skeptical about Theranos's claims to run so many tests on a drop of blood. He spoke to Alan Beam, a former laboratory director at Theranos, who confirmed his suspicions about the unreliable and haphazard blood testing practices that Theranos employed. Adam passed the tip to John Carreyrou, a journalist with the Wall Street Journal. This is how John, the author of this book, began to investigate Theranos.

stars icon
Questions and answers
info icon

The lessons from the Theranos scandal can be applied in today's business environment in several ways. Firstly, it's crucial to maintain transparency in business operations and communications. Misrepresentation of capabilities can lead to disastrous consequences. Secondly, corporate governance should be strong and independent, capable of questioning and checking the management's decisions. Thirdly, investors and stakeholders should perform due diligence before investing, not just relying on hype or reputation. Lastly, regulatory bodies need to be vigilant and proactive in their oversight to prevent such frauds.

Companies trying to implement blood testing practices similar to those claimed by Theranos might face several obstacles. Firstly, the technology to run a multitude of tests on a single drop of blood, as Theranos claimed, is currently not reliable or accurate enough. This could lead to false results and potential harm to patients. Secondly, such a revolutionary approach would face intense scrutiny from regulatory bodies, which could delay or halt progress. Lastly, the medical community might be skeptical of such claims, given the Theranos scandal. To overcome these obstacles, companies should invest heavily in research and development to ensure the accuracy and reliability of their tests. They should also work closely with regulatory bodies from the early stages of development and be transparent about their processes and results to gain trust from the medical community.

View all questions
stars icon Ask follow up

The tip from Clapper reinforced John's previous suspicions about Theranos. There was no peer-reviewed data to back Theranos's claims. Further, cutting-edge medical advances took decades of formal training and research. Unlike in computer science, college dropouts pioneering groundbreaking medical technology was unheard of. John got in contact with Alan who confirmed that the Edisons were highly error-prone and repeatedly failed quality control. Out of the 240 tests Theranos offered, only 80 could be done on finger sticks. Of these hardly a dozen were analyzed on Theranos's devices. The rest were performed on hacked commercial analyzers. Results of these tests were unreliable. Theranos would dress up lab data. A syphilis test that gave accurate results only 65 percent of the time. Yet data was fudged to show an accuracy of 95 percent. Vitamin D tests, which were approved for use on patient samples, consistently failed quality control checks. As the former director of the lab, he was worried about being held liable for Theranos's malpractices. Alan was even more concerned that faulty test results could lead to wrong diagnoses which put patients at risk. Others John spoke to at Theranos confirmed Alan's claims. As one of them said "The way Theranos is operating is like trying to build a bus while you're driving the bus. Someone is going to get killed."

stars icon
Questions and answers
info icon

The failure of Theranos had significant implications on the medical technology industry. It served as a cautionary tale about the dangers of hype and lack of transparency in health tech. The scandal led to increased scrutiny and skepticism towards startups making bold claims without substantial evidence or peer-reviewed data. It highlighted the importance of rigorous testing, validation, and regulatory compliance in the field of medical technology. The incident also emphasized the need for effective corporate governance and ethical leadership. Overall, it has made investors, partners, and customers more cautious and discerning.

The lack of peer-reviewed data was a significant factor in the downfall of Theranos. Peer-reviewed data is a crucial part of scientific validation, providing a level of credibility and trust. Theranos lacked this validation, which raised suspicions about the legitimacy of their claims. The company claimed to have groundbreaking medical technology, but without peer-reviewed data, these claims were unsupported. This lack of transparency and validation led to doubts about the reliability and accuracy of their technology, ultimately contributing to the company's downfall.

View all questions
stars icon Ask follow up

John began contacting doctors whose patients had their blood tested with Theranos. Dr. Nicole Sundene shared multiple instances where faulty test results from Theranos had caused health scares for her patients. A patient's lab reports indicated a stroke and she was immediately sent to the emergency room. It was only after multiple scans and tests that she was found to be completely normal and discharged. Other doctors John met shared horror stories of Theranos's faulty test results creating needless suffering for patients.

stars icon
Questions and answers
info icon

The Theranos scandal has had significant implications on corporate governance in Silicon Valley. It has highlighted the need for greater transparency and accountability in startups, particularly in the health tech sector. The scandal has also underscored the importance of due diligence by investors and the need for robust internal controls and checks. It has led to increased scrutiny of startups, with investors and regulators demanding more proof of product viability and financial health before investing. Furthermore, it has raised questions about the role of boards in overseeing management and the need for them to have relevant industry expertise.

The faulty test results from Theranos had a significant impact on the healthcare industry. They caused unnecessary health scares and suffering for patients. For instance, there were cases where patients were wrongly diagnosed with serious conditions like stroke based on these faulty results, leading to unnecessary medical procedures and emotional distress. This not only undermined the trust in diagnostic tests but also raised questions about the regulatory oversight in the healthcare industry.

View all questions
stars icon Ask follow up

Scuttling the story

When Theranos came to know that John was investigating the company, John's sources received threatening legal notices asking them to refrain from divulging confidential information about Theranos. The Wall Street Journal also received an email demanding that the paper destroy confidential information about Theranos in its possession. The company also pressurized Dr. Sundene and other doctors to retract their statements.

stars icon
Questions and answers
info icon

The Theranos case offers several lessons in corporate governance. First, the importance of transparency and honesty. Theranos was heavily criticized for its lack of transparency and misleading claims. Second, the need for a strong and independent board of directors. Theranos' board was criticized for being too close to the CEO and not providing adequate oversight. Third, the importance of proper financial controls and audits. Theranos was able to mislead investors and regulators for years due to weak financial controls. Lastly, the need for a strong corporate culture that encourages ethical behavior and whistleblowing.

Companies can protect themselves from investigative journalism by maintaining transparency and ethical practices. They should ensure that their claims are backed by solid evidence and are not misleading. Regular audits and reviews can help in identifying and rectifying any discrepancies. It's also crucial to have a robust corporate governance structure that promotes accountability and integrity. In case of any investigation, companies should cooperate fully and provide all necessary information rather than resorting to intimidation or legal threats.

View all questions
stars icon Ask follow up

Theranos continued its efforts to scuttle John's story. On July 28, an op-ed by Elizabeth Holmes appeared in the Wall Street Journal. Elizabeth courted Rupert Murdoch, the media mogul, to convince him to invest in Theranos. Murdoch, who owned Wall Street Journal, was impressed by Elizabeth's charisma and rosy revenue forecasts of 2 billion dollars in revenue by 2016. He invested 125 million dollars in Theranos, making it his single largest non-media investment. During a visit, Elizabeth raised the issue of John's story hoping he would ensure it would be killed. Murdoch chose not to intervene, despite his investment in Theranos.

stars icon
Questions and answers
info icon

Theranos projected a rosy revenue forecast of 2 billion dollars by 2016. This optimistic projection significantly influenced investor decisions, as evidenced by media mogul Rupert Murdoch's investment. Impressed by Elizabeth Holmes's charisma and the projected revenue, Murdoch invested 125 million dollars in Theranos, making it his single largest non-media investment.

Elizabeth Holmes used a few tactics to try and scuttle John's story about Theranos. One of the main tactics was her attempt to use her influence with Rupert Murdoch, who was a major investor in Theranos and also the owner of the Wall Street Journal where John was planning to publish his story. She hoped that Murdoch would use his influence to kill the story. However, Murdoch chose not to intervene.

View all questions
stars icon Ask follow up

La Mattanza

John was worried that the more the delay in publishing, the more time Theranos had to kill the story. However, his editor felt that a story with such an impact must be made watertight before being published. He illustrated this by giving the example of the Sicilian ritual la mattanza. Fishermen would wade into the sea with spears and stand absolutely still for hours. When the fish no longer noticed them and swam close, they would swiftly kill the unsuspecting prey. The same principle applied in investigative journalism. John's only concern was that the story had to be published before D.live, the Wall Street Journal's annual tech conference in October where Elizabeth had been invited. After her appearance at the event, it would be difficult for the paper to publish an expose on Theranos.

stars icon
Questions and answers
info icon

The Wall Street Journal's annual tech conference, D.live, was significant in the Theranos story because Elizabeth Holmes, the founder of Theranos, was invited to speak at the event. The investigative journalist, John, wanted to publish the expose on Theranos before this event. He believed that after her appearance at the conference, it would be difficult for the paper to publish an expose on Theranos.

The delay in publishing the story about the Theranos scandal allowed the company more time to potentially suppress the story. However, the delay also ensured that the story was thoroughly investigated and solid before being published. The concern was to publish the story before a major tech conference where Elizabeth Holmes, the founder of Theranos, was invited. After her appearance, it would be more challenging to publish an expose on Theranos.

View all questions
stars icon Ask follow up

The exposé

The first story was published on the Journal's front page on October 15, 2015. It revealed how Theranos ran only a small part of the tests on their devices. It also exposed Theranos's lack of accuracy and its issues with proficiency testing. This created a media furor with Forbes, New Yorker, NPR and other news outlets picking up the story. In Silicon Valley, skeptics felt their suspicions were reaffirmed while others were unsure what to believe. Theranos issued strong denials.

stars icon
Questions and answers
info icon

Small businesses can ensure accuracy and proficiency in their operations by implementing robust quality control measures, investing in employee training, and maintaining transparency in their operations. Regular audits and reviews can help identify any discrepancies or areas of improvement. It's also crucial to foster a culture of honesty and integrity, where employees feel comfortable reporting issues. Lastly, businesses should avoid making unsubstantiated claims about their products or services, as this can lead to legal issues and damage to their reputation.

The book 'Bad Blood' provides several lessons to prevent similar corporate scandals. Firstly, it emphasizes the importance of transparency in business operations. Companies should not make false claims or hide the truth about their products or services. Secondly, it highlights the need for strong corporate governance and ethical leadership. Leaders should not mislead investors or stakeholders about the company's performance or prospects. Thirdly, it underscores the importance of due diligence. Investors and stakeholders should thoroughly investigate a company before making any investment decisions. Lastly, it shows the role of media and whistleblowers in exposing corporate fraud. Therefore, creating an environment where employees feel safe to report unethical behavior is crucial.

View all questions
stars icon Ask follow up

John's sources at the FDA revealed that the agency had conducted a surprise inspection of Theranos's labs. The key reason was the poor test data submitted to the FDA. The nanotainer, Theranos's blood collection device, was banned from further use and declared an "unapproved medical device". Elizabeth tried to cover this up as a voluntary decision. The next day, the Wall Street Journal ran a front-page story on the FDA inspection and nanotainer ban.

stars icon
Questions and answers
info icon

The implications of the Wall Street Journal's front-page story on the FDA inspection and nanotainer ban were significant. It exposed the regulatory issues faced by Theranos, particularly the FDA's ban on their blood collection device, the nanotainer. This led to a loss of credibility and trust in the company, impacting its reputation and valuation. It also raised questions about the company's corporate governance and transparency, as the company had tried to cover up the ban as a voluntary decision.

The ban on Theranos's nanotainer had a significant impact on the company's reputation and operations. It led to a loss of trust among investors, partners, and the public, as it raised serious questions about the company's technology and its compliance with regulatory standards. The ban also disrupted Theranos's operations as the nanotainer was a key component of its blood-testing technology. Without it, the company had to halt its testing services, which further damaged its business and credibility.

View all questions
stars icon Ask follow up

Much to everyone's surprise, Elizabeth appeared at the Journal's D. Live tech conference. In her interview with the paper's technology editor, Elizabeth insisted that the withdrawal was voluntary. She also lied that Theranos did not use any commercial lab equipment for finger tests. Over the next few weeks, John published four more articles exposing how Walgreens and Safeway had walked away from their partnership with Theranos. Throughout this entire period, Elizabeth played the wronged visionary, claiming that false allegations were the price she had to pay for being a pioneer.

stars icon
Questions and answers
info icon

The story of Theranos and Elizabeth Holmes serves as a cautionary tale for investors in the tech industry by highlighting the importance of due diligence. Despite the high valuations and bold claims made by Theranos, the company ultimately collapsed due to fraudulent practices and poor corporate governance. This underscores the need for investors to thoroughly investigate a company's claims, technology, and governance structures before investing. It also emphasizes the risk of investing in companies led by charismatic leaders who may not have a solid business model or product.

The false claims made by Elizabeth Holmes severely damaged the reputation of Theranos. The company was seen as untrustworthy and deceptive, which led to a loss of confidence among investors, partners, and the public. Partnerships with major companies like Walgreens and Safeway were terminated as they no longer wanted to be associated with Theranos. The scandal also raised questions about the company's corporate governance and integrity, further tarnishing its image.

View all questions
stars icon Ask follow up

Sources tipped off John that Centers for Medicare & Medicaid Services (CMS) had done an inspection of Theranos's lab recently and it had not gone well. The agency declared that Theranos posed "immediate jeopardy to patient health and safety". The contents of the report were devastating for Theranos. The federal agency said that Edisons were used in the lab for only 12 of the 250 tests Theranos performed. The rest were run on commercial analyzers. The test results were highly unreliable including a test that failed quality control 87 percent of the time. Unsafe laboratory practices were followed with blood stored at wrong temperatures and expired chemicals used. In a follow-up action, the CMS threatened to ban Holmes from the blood -testing industry for two years. This was a damning indictment of Theranos. John published this story along with the report on the Wall Street Journal website. A week later yet another story broke that Theranos had voided tens of thousands of blood-test results, saying they were unreliable. When Walgreens came to know about this, they terminated the partnership.

stars icon
Questions and answers
info icon

The CMS threat to ban Holmes from the blood-testing industry had severe implications on Theranos' operations. It was a damning indictment of the company, undermining its credibility and trustworthiness. This threat came after an inspection of Theranos' lab by CMS, which revealed highly unreliable test results and unsafe laboratory practices. The potential ban could have resulted in a significant disruption of Theranos' operations, as it would have prevented the company from conducting its core business of blood testing. Furthermore, it likely contributed to the rapid decline and eventual dissolution of the company.

The Wall Street Journal's reporting significantly impacted the public perception of Theranos. It exposed the company's fraudulent practices and unreliable test results, which were previously unknown to the public. This led to a loss of trust in the company, damaging its reputation and leading to its eventual downfall.

View all questions
stars icon Ask follow up

Amidst the mounting calamities, Elizabeth felt she had one last chance to reverse all this. She had been invited to the annual conference of the American Association of Clinical Chemistry. At the conference, she unveiled the miniLab and explained how the device could be deployed at the homes of patients to deliver much faster test results. Watching her presentation, John realized what made so many people blindly believe in Elizabeth. She was an amazing saleswoman. "Like her idol Steve Jobs, she emitted a reality distortion field that forced people to momentarily suspend disbelief." This changed, however, when the audience began asking sharp questions about the novelty of the technology and the lack of data in the presentation. A wave of critical articles followed.

stars icon
Questions and answers
info icon

The term 'reality distortion field' (RDF) is often associated with Steve Jobs, co-founder of Apple, but it was also used to describe Elizabeth Holmes, founder of Theranos. RDF refers to an individual's ability to convince themselves and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole, marketing, appeasement, and persistence. RDF is said to distort an audience's sense of proportion and scales of difficulties and makes them believe that the tasks which seem impossible will be accomplished, regardless of the current technological constraints or realities. In the case of Elizabeth Holmes, her RDF was her ability to convince investors and partners that Theranos could revolutionize the medical industry with its technology, despite the fact that the technology did not work as promised.

Theranos faced several potential obstacles when introducing the miniLab. One of the main challenges was skepticism from the scientific community due to the lack of data in their presentation and questions about the novelty of the technology. To overcome these obstacles, Elizabeth Holmes, the company's founder, used her skills as a saleswoman to convince people of the product's potential. She presented the miniLab at the annual conference of the American Association of Clinical Chemistry, explaining how the device could be deployed at patients' homes for faster test results. However, the lack of transparency and data led to a wave of critical articles, indicating that their attempts to overcome obstacles were not entirely successful.

View all questions
stars icon Ask follow up

Meltdown

This was the last straw for Theranos's investors. Partner Fund which had invested almost $100 million sued Theranos, Elizabeth and Sunny for deceit. Another set of investors filed a separate lawsuit alleging securities fraud. Most investors, however, settled for an extra grant of shares in exchange for promising not to sue. Rupert Murdoch sold his shares back to Theranos for one dollar to claim a tax write-off. The law firm Boies and Schiller stopped its work for Theranos. Walgreens filed a lawsuit alleging that Theranos breached the "most basic quality standards and legal requirements". The firm agreed to pay $ 4.65 million to reimburse 76,217 people who had taken blood tests. The number of tests Theranos voided reached 1 million. What cannot be measured, however, is the damage that could have been caused had Theranos gone ahead with its nationwide rollout.

stars icon
Questions and answers
info icon

If Theranos had gone ahead with its nationwide rollout, the potential damage could have been immense. Given that the company was found to have breached basic quality standards and legal requirements, it's likely that inaccurate test results could have led to misdiagnoses, inappropriate treatments, and potential harm to patients. Additionally, the financial implications would have been significant, with investors and customers potentially losing large sums of money. The damage to the reputation of the healthcare and biotech industries could also have been substantial, undermining trust and confidence.

The financial impact of the Theranos scandal was significant. Investors who had poured millions into the company, such as Partner Fund, sued for deceit. Others filed lawsuits alleging securities fraud. Some investors settled for an extra grant of shares in exchange for not suing. Rupert Murdoch sold his shares back to Theranos for one dollar to claim a tax write-off. Walgreens, which had partnered with Theranos, filed a lawsuit alleging that Theranos breached basic quality standards and legal requirements. Theranos agreed to pay $4.65 million to reimburse 76,217 people who had taken blood tests. The number of tests Theranos voided reached 1 million. The unmeasurable impact is the potential damage that could have been caused had Theranos gone ahead with its nationwide rollout.

View all questions
stars icon Ask follow up

Theranos settled the case with Partner Fund for $43 million. Costly litigations meant that Theranos began to run out of money. Repeated layoffs reduced the workforce from 800 in 2015 to around 130 employees. In March 2018, the Securities Exchange Commission charged Theranos with fraud. Elizabeth was barred from being a director or officer in public companies for ten years. She had to relinquish voting control at Theranos, return a large portion of her stock and pay $500,000 in penalties.

stars icon
Questions and answers
info icon

As a result of the fraud charges, Elizabeth Holmes was barred from being a director or officer in public companies for ten years. She had to relinquish voting control at Theranos, return a large portion of her stock, and pay $500,000 in penalties.

The Securities Exchange Commission's charges had a significant impact on Theranos. Elizabeth Holmes, the company's founder, was barred from being a director or officer in public companies for ten years. She had to give up voting control at Theranos, return a large portion of her stock, and pay $500,000 in penalties. These charges, along with costly litigations, led to financial strain on the company, resulting in layoffs and a reduction in workforce.

View all questions
stars icon Ask follow up

Epilogue

"Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry". Elizabeth embodied this and went to extreme lengths to hide the problems at Theranos. However, unlike tech companies, Theranos was in healthcare and the costs were far higher than releasing buggy software. Patient lives were at risk as treatment decisions are decided based on lab results. Some believe that Elizabeth did all this under the toxic influence of Sunny. However, a closer look reveals that Elizabeth knew exactly what she was doing. Elizabeth systematically manipulated people to do what she wanted. From Channing Robertson to Don Lucas to George Schultz, everyone was under the influence of Elizabeth's reality-distortion field. While she did start out with the vision to change the world, her ambition would not admit any setbacks. This forced her to make disastrous decisions that cost Theranos, the investors and the general public dearly.

stars icon
Questions and answers
info icon

The story of Theranos is a stark reminder of the importance of corporate governance and business ethics. It highlights the dangers of hyping a product to secure funding while concealing true progress, a practice unfortunately tolerated in some industries. This is a clear violation of business ethics. In terms of corporate governance, the Theranos scandal underscores the need for transparency and accountability. Elizabeth Holmes, the CEO, manipulated people and made disastrous decisions that cost the company greatly. This could have been prevented with better oversight and checks and balances within the company. The story also raises questions about the role of board members and investors in ensuring ethical conduct and sound governance.

Elizabeth Holmes' actions at Theranos have had a significant impact on corporate strategies in the tech industry. Her approach of hyping a product to secure funding while concealing the true progress of the company has been seen in other tech startups. However, the extreme lengths she went to hide the problems at Theranos, a healthcare company, resulted in high costs and put patient lives at risk. This has led to increased scrutiny and calls for greater transparency and accountability in the tech industry, particularly for companies operating in sensitive sectors like healthcare. Furthermore, her manipulation of people to achieve her goals has highlighted the need for strong corporate governance and ethical leadership.

View all questions
stars icon Ask follow up

Download, customize, and translate hundreds of business templates for free

Start for free ⬇️

Go to dashboard to download stunning templates

Download