The now infamous quotation from Elizabeth Holmes teaches valuable lessons. "I think that the minute that you have a backup plan, you've admitted that you're not going to succeed." Really? Is that what business schools are now teaching? What should entrepreneurs and businesses learn from the mistakes made here?
Currently Theranos is facing lawsuits from investors and clients alike. One of Theranos Inc.’s biggest financial backers has sued the embattled startup and its founder for allegedly lying to attract its nearly $100 million investment, according to a fund document and people familiar with the matter. Walgreens has filed a lawsuit in Delaware, accusing Theranos of breach of contract. Walgreens is seeking $140 million in the suit, according to the Wall Street Journal.
While there are those who might claim that hindsight bias is the only reason we decry the previous comments of Ms Holmes, there are some general principles that serve us well as lessons to be learned.
First, hubris is neither an endearing personal trait nor an attitude likely to lead to business success. While passion, enthusiasm and confidence can be crucial for a business, these traits unchecked can lead one down a path of ruin. Goals and vision must be tempered by reason. Recognizing that unforeseen variables are inherent in any business venture, adaptability and yes, contingency plans must be in place. One of the greatest reasons for business failure is over optimism on product/service success with resultant unrealistic financial projections. Unrealistic expectations can lead to under-capitalization. Theranos suffered the reverse fate with overoptimism and over promising their unproven technology. They marketed and sold something which they could not deliver. How many peoples' lives were lost or compromised by the reporting of millions of erroneous lab results is incalculable.
Proving and establishing the value of technology, software and service delivery are critical to providing ethical value to investors and clients alike. Some may come to the defense of Holmes and say the investors should have performed more due diligence or in a free market "caveat emptor" Fraud and deceptive business practices, mitigate these defenses. Lack of transparency and material misrepresentations can never be tolerated in a business setting. The verdict is not in. Only juries/courts will tell the extent of these activities at Theranos
Basic business ethics and common sense could have prevented much of the unfortunate headlines and failure we have witnessed. In any business, humility and transparency are traits which should be encouraged at all levels!
Nicolas Argy, M.D., J.D. Copyright 2016