Theranos, Elizabeth Holmes And Cult Of Personality CEOs

When the whole world was fawning over Elizabeth Holmes and Theranos, Wall Street Journal reporter John Carreyrou was sitting on the subway in New York reading skeptically about the rocket ship taking off 3,000 miles across the country.

The investigative reporter said he noticed a couple of odd things about the Silicon Valley-based health tech company from a profile in The New Yorker and the claims Holmes was making about its blood testing device. “I just thought there was some weird things about what I read in that story, some things that struck me as odd,” he says.

For one, the way Holmes described the Theranos technology was incredibly vague. Moreover, there was the notion that Holmes—who dropped out of school at 19 and had little chemical engineering training—could really add value in the field of medicine and invent something extraordinary.

A few weeks later, by chance, Carreyrou received a call from Adam Clapper, a pathologist who wrote the industry blog, Pathology Blawg. Clapper had similar cynical feelings about Theranos and connected to Carreyrou to Richard Fuisz, an entrepreneur who knew Holmes as a child and had more background information on the company. After connecting with those two, he got in touch with first-hand sources, including Theranos’ outgoing lab director, about what was really happening at the company.

From there, it was off to the races. Carreyrou’s reporting in the WSJ and later, his book, “Bad Blood: Secrets and Lies of a Silicon Valley Startup,” uncovered Theranos and Holmes’ fraudulent behavior, essentially how the company’s blood testing technology wasn’t even close to doing what it promised. Holmes was misleading investors and customers, and putting the public in danger by having them use its shoddy products.

After Carreyrou’s reporting, Holmes left the company in disgrace, and got charged by the federal government on fraud. A few weeks ago, Theranos announced it was shuttering all operations. “Bad Blood” has been optioned into a movie, starring Jennifer Lawrence as Holmes. Chief Executive got a chance to speak with Carreyrou about a wide array of topics. Below are excerpts from this conversation.

You did a lot of reporting and writing on this story before “Bad Blood” came out. At what point did you think it would be a good book?

In the summer of 2015, the way the company counterattacked [my reporting] as I relate in the book, was in some ways really astonishing and I’d never experienced anything like it. And I’m getting threatened, my paper’s getting threatened, my sources are also being followed and threatened. The number two guy at the company is flying out to Arizona to threaten doctors who have spoken to me on the record. I mean it was completely surreal.

And the first thought that came to me is, “I’m like living a movie right now.” So it wasn’t long before that thought became, “This is a book. This story could carry a book.” And shortly thereafter I started hatching the plan in my mind that I needed to look into a book. And of course it all hinged on getting that first story published October of 2015, so I still had to concentrate on that. But the seeds were planted for a book that summer.

What really stuck out to me in the book is you really go through all the people who basically enabled Theranos and Elizabeth, including the media. I mean you don’t even spare your own paper. There are so many things here that really lead her to have this monumental rise. Why did so many people fail to see the reality here?

I think it’s a combination of several factors. One is this second bubble, as I like to call it, in Silicon Valley…which by the way hasn’t really deflated. It’s kind of a gold rush environment. The sums of money coursing through that ecosystem are enormous…since basically the rise of Facebook…there’s been this gold rush mentality out there and there’s been this mentality of trying to get on the next rocket ship. And I think that was a factor that influenced people like [well-known lawyer] David Boies, the way he took compensation, in Theranos shares instead of money, it influenced those elderly ex-statesmen, they were all given shares for being on the board.

I think it was also that Elizabeth is a very smart young woman, and that she told a really good story, a really compelling story, and it was also a feel-good story. Because as she described it at the height of her fame, the Theranos finger-stick tests were painless and user-friendly and therefore people would get their blood tested more often and therefore disease would get diagnosed earlier and people would say goodbye to loved ones less often. And so it was a story that also pulled at your heartstrings. I think she was an expert at emphasizing that aspect of things.

The other thing is this wasn’t a complete house of cards like Bernie Madoff, you know? She didn’t drop out of Stanford resolving to pull a long con 15 years ago. She actually truly did nurture the ambition of walking in Steve Jobs’ footsteps and being a successful Silicon Valley entrepreneur. And she did over that decade-plus hire people and work on several iterations of technology and tried to make it happen.

And so there got to a point, especially when she went live with the technology, she solicited money on the strength of that where it became fraud because she was hiding the set-backs and she was hiding what she had. She papered over her set-backs and she exaggerated her claims, but it was rooted in someone who had tried to succeed. And so I think that made her all the more believable.

You talk a lot in the book about Elizabeth’s personality and that hypnotic way that she was able to con people. And it seems like those kind of personalities pop up a lot in Silicon Valley, and we’re almost seeing it now too with Elon Musk, that cult of personality-driven environment. What is it about [Silicon Valley] that really makes it susceptible to those personalities?

Well, I think the cult of personality is something that’s really been at the center of Silicon Valley for a while now. And one of the people most to blame for it, winningly or not, and he’s not alive anymore to rebut this argument, but I would say is Steve Jobs. People have made a God out of Steve Jobs. He’s like the entrepreneurial baby in this country now.

He’s the guy who could see around corners and who’s just so brilliant and people admire the great wealth that he achieved and that his wife has inherited. And so as a result, people in Silicon Valley, if you go and hang out there, I don’t know if you’ve hung out there, but they’ve really convinced themselves that there is this breed of entrepreneur who can see around corners? It’s the myth of the brilliant founder.

So it’s a Silicon Valley myth. And she benefited from it and capitalized on it, and Musk is benefiting from it and capitalizing on it too, not that Musk hasn’t achieved some things. Arguably, SpaceX has achieved [a good amount] and [is] impressive, but with Tesla you see a blind belief in him, you see more, especially with a public company, you see more of the ways in which it’s gone too far.

You know, the valuation assigned to Tesla, when you think about it, it’s a company that’s not profitable, it’s under $10 billion in debt and still hasn’t figured out how to manufacture cars in an efficient way and yet it’s the most valuable car maker in this country.

I think the Theranos scandal is…it’s a reminder that these people are human. And don’t put them too much on a pedestal, and don’t excuse every one of their actions, especially when those actions veer into essentially securities fraud and white-collar crime, you know?

Hidden in the stories of the false and fraud aspects of Theranos is this book that focuses a lot on culture. It focuses on the culture of Theranos, which was really toxic. And the company’s number two, Sunny Balwani, was really just making life miserable for people, and so many people would come in and out of that company. If you’re reading this book as a CEO, what do you take from reading this and what this book says about culture, and how a company can really have a toxic culture?

You’re totally right. I think it’s one of the most important dimensions of the book. I think it shows that culture, in some ways is that you can have a whip-smart leader with a really good idea and you can go on to hire many credentialed people like Theranos did, a lot of the people who worked at Theranos were really smart, and really well-trained and educated. But it can all go bad if your culture is terrible and if you run the place like a despot, and if you don’t listen when people tell you that something isn’t working or that something is impossible.

And you have to listen to employees to some extent and not treat them like slaves, which is virtually what Sunny did, you know? Employees were his minions, and he didn’t want to hear them push back about anything and he wanted to see them work really long hours and show up on weekends and it almost didn’t matter if the work was productive or not. What mattered was face time. And the conditions they created in this workplace made it impossible for her to achieve her goals. She was shooting herself in the foot by running the company that way.

What are some takeaways that CEOs and business leaders should take from this book?

I hope that one of the main takeaways is it’s important to have a moral compass, even in business, you know? That sure, all businesses except, you could argue non-profits, but even non-profits seek to make money and to maximize profits, but there are lines not to cross. And again, especially when you’re in the world of medicine and your product is going to affect people’s health and lives and is going to form really important health decisions.

It’s a book about a business that went bad and that morphed into a fraud, but it’s really a book about ethics. And it’s a book that shows what happens when your moral compass as a business man or woman goes completely askew.

Read more: Theranos CEO Holmes Presses on as Costs Mount