The Elizabeth Holmes trial and the problem with Silicon Valley’s “Fake It Until You Make It” philosophy

Silicon Valley is notoriously built on steam.

Sometimes called the “fake it ’til you make it” philosophy, it’s about selling a dream rather than a reality. And why not? Silicon Valley is full of companies that have changed the world in profound ways, for better or for worse, and have become fabulously wealthy in the process. It creates an allure of potential; billions and billions of dollars could be an app or a product away. So when someone comes along with steady eyes, unwavering confidence and a black turtleneck and makes bold claims about how they’re going to revolutionize human life, it’s easy to get caught up. After all, that’s exactly what Steve Jobs did and today everyone has a smartphone in their hand.

George HW Bush used to call this stuff “the vision thing”, the promise of the world they want to build. Sometimes you have people like Mark Zuckerberg who are more or less capable of succeeding. Most of the time, you end up with Adam Neumann, the founder of WeWork who made billions of dollars without ever generating a penny of real value for investors before the company collapsed into a wall.

And then there’s Elizabeth Holmes

Holmes had a vision, the charisma to sell it, and nothing else to recommend it. His bold statement – to prevent unnecessary death by making it possible to identify and diagnose a whole range of diseases from a single drop of blood from the comfort of your own home – never came to fruition. The technology was not there. But she embraced the fake until you did — black turtleneck and all — and in the process, defrauded billions of investors. She created a monster, and it was her. A jury gave its consent.

Now I’ve been in public relations for over 40 years, helping companies navigate every stage, from idea to start-up to IPO and beyond, including the inevitable crises they face. encountered along the way. So believe me when I tell you that “fake it until you make it” doesn’t work.

On the one hand, there are the non-substantial reasons; honesty, integrity, and authenticity are things we value because they allow us to trust, and violating that trust through deliberate deception hurts everyone. One only has to look at the current pandemic crisis to see what this erosion of trust can do.

On the other hand, there is the hard truth of the consequences; pride precedes the fall, as they say, and the truth always comes out. When you build an empire of billions on a foundation of will-o’-the-wisps and false promises, it can’t survive.

Manage investor expectations

Of course, there’s a degree to which many companies get away with a little wrong until you do (although I still wouldn’t recommend it). “The prototype will be ready in three weeks”, while it will probably take six or eight; the technology is there, but it’s still being refined into something that feels like the end goal. While this may seem like a good way to appease impatient investors right away, it will come back to bite you when three weeks pass and the impatience gives way to frustration and mistrust; this is why transparency is always the best option. “The prototype exists, works perfectly, and we are ready to start shipping it to partner suppliers”, on the other hand, while the technology does not even exist yet, as Holmes did with the device of Edison’s blood test and his infamous “nanotainer”, is a blatant fraud.

Now Holmes was in trouble, because the nanotainer was Theranos’ only raison d’etre; without it, they offered nothing but a complex, bulky machine that ran automated tests with high failure rates. If the nanotainer didn’t exist, there would be no company, no billions, no founder-visionary to grace the covers of magazines. Her company’s valuation was based entirely on proposed technology that didn’t exist, was beyond current materials science, and yet the money flowed in because she sold the lie very well.

I’m not sure there is a version of Theranos that could have been honest about the state of things to properly manage expectations. The whole enterprise rested on the ghost of an idea; how do you sell investors on the incredible amount of work, time and money it would have taken to actually develop the underlying technology behind the dream? How long would that have taken? Has anyone been sold on it? It is doubtful.

But managing investor expectations should be key, and that means being upfront about the status of the product, how you intend to build it, and whether the means to do so even exist. I could stand up here and sell you a box that could generate endless electricity for free, but if I had nothing to back that up, well, you’d be investing in hot air and nothing else. And the word is circulating.

Imagine a different Theranos. Into This World, Elizabeth Holmes started with the vision, but explained why it doesn’t yet exist, what obstacles stand in the way, why they haven’t been overcome by others before you, and the applications of technologies underlying beyond. vision. What else could materials science produce? What else could generate income and value for investors? In this world, what she really does is found a research company specializing in the miniaturization of medical devices. The Edison apparatus is the vision, but the research needed to get there is the launching pad. Maybe it’s not that sexy. And it’s harder to get people involved. But it is a real basis on which to build.

This Holmes would have a small group of investors who would need regular updates on the technology’s potential applications, progress being made, and how they intend to monetize what they’ve created. That Holmes would never be a generational prodigy, but might have finally achieved the legendary and elusive machine of his dreams. She wouldn’t have graced magazine covers or drawn jaw-dropping interviews, but she could have built a stable business that would make the world a better place.

Therein lies the problem: Silicon Valley values ​​all the bad things. We venerate the charismatic visionary, without thinking to wonder what is behind the curtain. And it promotes speed over slow, steady progress.

Companies are founded with the express intention of being sold and closed. They call it an “exit strategy,” as if the product itself is incidental to the real goal of being a tech billionaire. Which, of course, is usually the case. Holmes played the part and promised a fast machine without worrying about what it would take to get there, made billions off of that lie, and ended up committing serious criminal acts in the process. She will never run a business again. Who would trust him with his money?

You see, “fake it until you make it” is a gamble, and the harsh truth of gambling is that ultimately the house always wins. You can’t cheat the odds. You cannot change the truth. If your product or business model isn’t working, it’s going to come out and you’ll be caught up in the ensuing chaos.

But it doesn’t have to be that way.

The power of positivity

Honesty and pessimism are not the same thing, although honesty and patience can be. If the past two years have taught us anything, it’s that impatience breeds dishonesty; oh, let’s get back to normal, everything is fine, and then BOOM! Omicron. Because not everything was.

The key to managing investor expectations is therefore a combination of honesty, positivity and, yes, patience. Things take time. The key is to focus on progress, not setbacks.

Back to Theranos

In this scenario, Holmes sold his company on the vision, even without the underlying technology. But as trouble started to arise, Holmes should have been outspoken and pivoted. “Yes, we hit some roadblocks, but we also passed some milestones. Our focus at this time will be to refine the existing product for what it can do and reinvest your money in specialist research to help us achieve the original goal, which will always be our priority. In the meantime, the refined product, even if it does not meet the original vision, will generate continuous income and simplify blood tests. We thank you for your patience.

See what we did there? Our version of Holmes, here, keeps an eye on the goal, talks about all the progress they’ve made to a farther-than-expected destination, while now contributing to the field of medical technology. This Theranos may have lost investors, of course; but Elizabeth Holmes was nothing if not a consummate and persuasive saleswoman. She probably could have kept most of them and, in doing so, kept the dream alive. The fact that she didn’t is an indictment of Silicon Valley culture — and our willingness to believe bald nonsense — as much as Holmes herself.

Nothing worthy is easy, and nothing easy is worthy.

So many of our problems stem from a simple refusal to bow to the bare fact that you can’t will something to exist. I look at Theranos and see so much wasted potential, thrown away in the service of self-enhancement and ego when there was every chance of creating something that could one day fulfill its own vision. Instead, everything was tainted with deception, careers were ruined and the great dream perished. This should be a sobering lesson for anyone who fakes it until they succeed with their startup.

If you want to build something, achieve something, accomplish something historic with other people’s money, you better make sure you have both feet on the ground. Otherwise, all you’re standing on is steam.

Photo attribution and credit:

FORTUNE GLOBAL FORUMMonday, November 2nd, 20152015 FORTUNE GLOBAL FORUMSan Francisco, CA, USA

Speakers: Elizabeth Holmes, Founder and CEO of Theranos, Alan Murray, Editor of Fortune Photograph by Stuart Isett/Fortune Global Forum

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