About
Young entrepreneurs from all over the world work hard on their innovative ideas to achieve success and accumulate wealth from their prospective startup. Some of their ideas succeed combined with elaborate marketing strategies, while some fail to make an impact.
The ideas of a startup that has the potential to improve the livelihood of humans gather momentum. The ideas that are unrealistic to achieve, but promise to have a profound impact on the lifestyle of humans are not sustainable in the long run.
Theranos was one such startup initiative that promised to provide an accurate diagnosis of about 200 different types of tests by collecting few drops of blood as a sample.
They emphasized that patients can perform the test at the comfort of their home using their machine instead of sending their sample to labs which eventually took a few days to send back the results and upload the results for their doctors. The patients can eventually mail the results to the doctor’s office.
Theranos also promised to save the life of people by early diagnosis of their ailment that can result in medication from an early stage before the ailment gets complicated thus increasing the life expectancy of humans.
Theoretically, the idea looked vibrant as this could replace drawing of a large sample of blood at the doctor’s office to just prick a figure to obtain few drops of blood and insert it into a machine that would analyze the sample and provide an accurate diagnosis for 200 tests.
The Beginning
Elizabeth Holmes, born on 3rd Feb 1984, to a well-connected family in Washington DC. Her father was a Vice president in Enron, an energy company that went bankrupt. She was a bright student and interested in computer programming.
She started selling C++ compilers in Chinese schools. Her parents arranged a mandarin tutor for her so that she interacts with the Chinese school authorities in their native language. In 2002 she studied chemical engineering at Stanford University.
Working as a researcher and laboratory assistant at Genome Institute of Singapore, she worked with patients detected with Sars- Cov collecting their blood samples. Having fear of collecting a large sample of blood for the tests she engraved upon the idea, of a machine that can detect different ailments using a small sample of blood collected through a prick in the figure.
In 2003, she dropped off from Stanford University and started her company named “Real Time Cure”, which could provide an accurate diagnosis from the small collected blood sample.
The medical professors at her university did not approve of her idea, claiming that all the tests could not be performed with a tiny sample of blood moreover, different tests require different methods and reagents to provide accurate results, and that cannot be done using a single machine.
Elizabeth is a persuasive and intelligent lady, she managed to convince some of the professors of her university that this can be made possible. She would often accompany her professor and make her investors believe in her idea.
In the later part of 2003, she renamed her company to ‘Theranos’ that was a combination of the terms “therapy” and “diagnosis”. A medical diagnosis startup, that can detect the ailment of a patient that looked more like science fiction than reality to build a prick device similar to a glucometer that can diagnose over 200 blood-related parameters instead of only providing the reading of glucose level.
The Approach
Elizabeth was inspired by the way Steve Jobs of Apple Computers conducted his business. She followed the same path, even to the point of dressing up like him. She had a good sense of persuasion and with her blue eyes that hardly blinked and able to persist her eye contact with the person in front.
With her baritone voice, which eventually turned out not to be her original voice, she was a remarkable manipulator and speaker. During one of her visits to China, she met Ramesh Balwani, a migrant from a Pakistani Sindhi family who was about 20 years older than her.
Ramesh was a participant in the dot com boom that the world experienced and amassed millions in assets. The need for funding brought them together who in due course of time became her boyfriend.
She hired engineers to develop a machine that could potentially diagnose the blood, and her prototype machine was named Edison. She was able to convince investors about the prospect of such a device but was unable to convince the medical fraternity due to her lack of knowledge.
Any device in the healthcare industry would require decades of research and analysis to make it successful that her company didn’t have. US agencies like FDA (Food and Drug Administration) have strict regulations for such a device.
She instructed engineers to work round the clock to produce such a device, when engineers resisted saying that it is not possible to build such a device, she hired another engineering team and pitted against the first team to introduce competition.
The Strategy
Elizabeth knew that her device is not ready; she collaborated with Pfizer to run blood tests of Cancer patients on her machine. To highlight how dangerous it was, the blood test is used to increase or decrease a patient’s medications or diagnose those conditions that require immediate action.
Any lack of accuracy in the results would have been fatal for the patients. She did this exercise to display to her investors how reliable her device is. But in reality, she would collect the blood samples from the patients and get them tested in regular labs instead of her device and generate the report.
Learning her tactics, the CFO of the company told her that she is lying to the public with her device. Instead of admitting her drawbacks, she fired the CFO of the company and never hired a CFO again.
By the end of 2010, Theranos had an investment capital of 92 million dollars. She hired the advertising firm that used to work for Apple, she wanted to be seen herself as the new Steve Jobs in making. She insisted not to disclose her device and its components on the covering of trade secrets.
The employees working in the company would join based on a legal contract that they would never disclose the working of the device after leaving the company. She hired the best lawyer to deal with any such employee that violated the legal contract.
This fear among the employees didn’t allow them to report anything to the outside world. The company moved to a prime location in Silicon Valley. Meanwhile, she had created a board of members that included Don Lucas of Oracle being the chairman of the board.
In 2010, Ramesh Balwani joined the company as second in charge as the Chief operating officer. He had software knowledge but no knowledge of a medical device. He knew how to control the workforce, seldom his tempers flying high on the employees often firing them.
The Expansion
Elizabeth was introduced to former secretary of State George Shultz in 2011. She convinced her to join her board of directors. She was on the front page of the Fortune and Forbes magazine as the youngest lady entrepreneur with a great idea.
In 2011, Walgreens, the company that operates the second-largest pharmacy chain in America began negotiating with Theranos. Walgreens hired a lab consultant to investigate the technology used by Theranos and provide sufficient knowledge to Walgreen management to decide on the negotiations.
The lab consultant did due diligence and provided the facts to the Walgreens management stating that they do not have any such medical device ready. But the Walgreen’s management overlooked it as they did not want to miss an opportunity to be the first to open blood sample collection centers.
After the negotiations, Walgreens opened blood collection centers at their pharmacy chain. Theranos promised that their device could diagnose 192 tests, but theoretically, even a few tests were also not possible.
Walgreens invested about 105 million dollars. The blood samples collected from these stores were diagnosed at a regular lab instead of Theranos machine. Meanwhile, Elizabeth convinced big stalwarts to become a member of the board.
Anyone who agreed to her vision in the company got promoted and the ones who raised questions got fired. By 2015, Theranos had negotiations with Cleveland Clinic, America Health Caritas, and other medical facilities to use their technology. No one doubted the Theranos as their board members included Henry Kissinger and George Shultz the former US secretary of state, and General James Mattis.
Elizabeth Holmes was very politically connected by then, she threw a fundraiser campaign for Hillary Clinton in her run for presidential elections in 2016. Money kept pouring in, Rupert Murdoch put 120 million dollars, and Wal-Mart put 150 million dollars in Theranos, and it was estimated to be a 9 Billion dollars valuation company.
She redesigned her office to look more like a presidential office, with bulletproof glass, even inviting the then vice president and now American President Joe Biden to visit their lab. A lab was fabricated just for the visit, and Biden was very impressed with her presentation.
The Downfall
Safeway, an American supermarket chain, invested 350 million dollars in renovating their superstores in anticipation of using Theranos technology, but in turn, they were met with constant launch delays and excuses.
Eventually, Theranos started accepting the blood samples from Safeway stores but again tested them in regular labs lying that these tests were done on the Theranos machine.
John Carreyrou, working as a journalist at the wall street journal, began investigating the behavior and working of Theranos, former employees and other sources anonymously provided him enough evidence that something fishy is happening at Theranos.
Theranos took this very seriously and threatened to sue everyone who was talking by using their power of money. They also hired private investigators to keep an eye on their ex-employees. Several letters were sent to Wall Street Journal to kill the story or face defamation suits.
Rupert Murdoch who was also an investor in Theranos and owner of Wall Street Journal was requested personally by Elizabeth to kill the story, to which he refused to display full faith in his journalist. Theranos used every trick on the book to stop the story from publishing.
On 15th Oct 2015, Wall Street Journal finally carried out the story revealing the secrecy of Theranos. Every major newspaper picked up the story and questions were started to ask about the authenticity of the Theranos machine.
Elizabeth came and replied to the questions thinking that she will be able to use her charm to persuade the world as she did before. But now things were different, people started asking for proof. The US health agencies like FDA (Food and Drug Administration), CMS (Centre for Medicare and Medicaid Service) raided the premises of Theranos.
Further investigations revealed that the Theranos machine could only perform 12 tests on blood rather than the 250 tests that were claimed. Even those 12 tests provided inaccurate results. Investors started suing Theranos one after another in the hope of recovering their money.
Even the patients sued Theranos, for using their device. The Theranos valuation lumped to zero from a whopping 9 Billion dollars and investors lost their hard-earned money. It was later revealed that Elizabeth Holmes and Ramesh Balwani, knew about the problems and they lied to the investors, their board, and even the patients.
The U.S. Securities and Exchange Commission (SEC) charged Holmes Ramesh Balwani, with fraud advertising a false product in March 2018. After a thorough investigation by the U.S. Attorney’s Office for the Northern District of California in San Francisco that lasted more than two years.
The federal grand jury indicted Holmes and former Theranos chief operating officer and president, Ramesh Balwani, on nine counts of wire fraud and two counts of conspiracy to commit wire fraud.
Theranos was dissolved, in September 2018, and both Elizabeth Holmes and Ramesh Balwani stand a chance to be imprisoned for 20 years for the committed fraud and playing with patient’s health.
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