Bad Blood Lesson from Theranos: How a Culture of Fear and Paranoia Doomed a Company.


Imagine a company that everybody thought would change the world for the better, but ended up being one of the biggest frauds in business history.

This story is about Elizabeth Holmes founder of the biotech start-up Theranos, and co-founder Ramesh ‘sunny’ Balwani. This story is about fraud, deceit, lies, and manipulation. This story is about how a company came crashing down from 9 billion $ to nothing. A business story that starts with sky-high valuations and ends in fraud and criminal charges. This story is one of the worst disasters of Silicon Valley, but a thriller and roller coaster ride.

Why should you read it?

It is a must-must read for every budding entrepreneur, start-up fanatic, dreamer, venture capitalist, and business leader. It is a great example of what can go horribly wrong when entrepreneurs forget to stick to the basics, an amazing tale of a woman who went from hero to zero in just over a decade.

Elizabeth Holmes was born and raised in a comfortably well-off family in Washington DC. From a young age, she knew what she wanted in life. At age nine, Elizabeth wrote a letter to her father expressing her ambitions in life to discover something new, something that mankind didn’t know was possible to do.

The story of the spark.

In 2002 during a trip to Asia, she witnessed the SARS outbreak, came back home determined to change the world. It is said on returning home she did not leave her room for 5 days just sleeping 2 hours while working on an idea.

In 2003, 19-year-old Elizabeth Holmes decides to leave her education midway at Stanford University to launch a start-up, promising to disrupt the medical industry by revolutionizing the way laboratory testing was done. Her vision was to create a blood analyzer mimicking a miniature blood lab capable of quickly and inexpensively diagnosing multiple health conditions using just a single drop of blood in the comfort of your own home. Her claim of using only a finger prick of blood to run hundreds of tests was enough to disrupt the $60 billion blood-testing industry.

Traditionally the current testing industry process was to draw syringes full of blood from the veins of the patient, then physically send the samples to the lab. The lab would use large machines to carry out the tests and the result would take 2-3 days. Isn’t it?

Now, this would be her process. Patients would prick their fingers drawing blood. The blood would be stored in a cartridge, the cartridge would be inserted into the envisioned Theranos machine to run the test. The machine would perform tests on the spot and beam the information via the internet to the lab and the doctor to interpret the results. The idea looks revolutionary- quicker, faster, and cheaper.

Her catchphrase was, “One tiny drop of blood changes everything.”

The boom time.

Thanks to the possibility she was able to raise funds to the tune of 6 million $ in the first year of operation.

Elizabeth’s passion and salesmanship were contagious. She won over everyone and was successful in assembling a star-studded board of directors, including some of the most respected names and luminaries like George Shultz (former secretary of state), former secretary of Défense James Mattis, former Wells Fargo CEO Richard Kovacevich, and Riley Bechtel (Chairman of Bechtel Group). The Walton’s and Murdoch’s were among her backers. This who’s who of big and reputable names boosted her reputation and credibility.

Later Forbes magazine named her, “The world’s youngest self-made female billionaire.”

Another business magazine put her on the cover saying “The next Steve Jobs.”

In 2015, Elizabeth Holmes then just 30 was named by Forbes as the youngest and richest female entrepreneur billionaire with a $9B valuation.

Everything came crashing.

Everything was going right but by 2015 the curtains started coming apart as a whistle-blower raised concerns about Theranos’s testing device, the Edison. By 2016 she was exposed as a fake. The technology she bragged and touted didn’t work at all, and by 2018 the company she founded had collapsed to zero and was dissolved. Ms. Elizabeth Holmes as of now faces 20 years in prison if found guilty of fraud.

It shows what happens when a dictatorial leader with a toxic co-leader creates a dysfunctional culture of overpromising and under-delivery, bigger ego’ than talents, hire and fire, intimidation and legal threats, non-disclosure, unhealthy team competitions, and blind faith.

Be wary of the culture of fear:

Elizabeth created at Theranos a “Culture of fear.” She regarded anyone who voiced their concern or raised an objection as a cynic or naysayer. They were often shut down, faced retaliation and eventually marginalized or fired. Any dissenting voice was either ignored, bullied, or threatened. If anybody pushed and persisted, they received surprise visits from her lawyers threatening with lawsuits.

Employees were forced to sign non-disclosures and non-competes. So, employees who had important insights and ideas went silent for fear of losing their jobs. Any feedback or correction of the process or leadership was unwelcome. Soon the culture of fear turned into a culture of paranoia. Dissidents were fired and sycophants promoted. All of these factors created a highly toxic and dysfunctional culture.

Does the culture of fear work?

If there is anyone who feels that a culture of fear serves the purpose is temporarily right. It worked for Theranos too, but only for few years. In the long-term employees just kept their heads down for survival. They were forced into silencing and isolation, thus becoming less productive and efficient.

Open communication is key to create trust and collaboration among teams. Ultimately fear results in stifling creativity and innovation. Just imagine a technology start-up unable to push boundaries and innovate. What will happen to such a company? Obviously, demise, and that’s exactly what happened to Theranos. So, there should be no surprise at the end result.

It should be an eye-opener for all those companies or leaders who don’t see any harm in such a culture. For some leaders, it comes so naturally that they fail to recognize that they are cultivating a culture of fear and paranoia. By the time they realize many a time it’s too late.

Experts agree that if Theranos had operated with openness, honesty, and transparency, then maybe they would have solved many problems and challenges head-on and in the process achieved its vision.

Remember this, if you really want to create a sustainable successful organization then fear should be the biggest red flag. True leaders understand the value of diversity of thought and constructive dissent. They value input, insight, and information from every corner as a touchstone for continued growth and progress. They create a psychologically safe environment where employees at all levels can openly share their views and concerns.

Keep measuring and diagnosing your culture.

Reading this if you’re concerned and want to understand if fear exists among your team, then regularly engage in an open and honest dialogue with employees to understand if there is even a shade of fear in their culture.  Well, Talibanization has never worked in business.

Another way to understand is by carefully watching the attrition rate. Ask, why are employees leaving? Dig deep and you could unearth cultural issues. Build a process in place for honest and candid exit interviews, a great way to become aware.

True leaders never shy away from measuring culture. Be aware of a culture of fear or any other unproductive habit- harmful to the company is taking root.

If Theranos’s signs are emerging in your company it’s time to diagnose the culture and fix it. Always keep managing and measuring your culture.

Theranos is a great case study for leaders to examine and dissect to avoid making the same errors.

What do you think, what is your opinion, what is your experience? Do let me know in the comments box below!

Create a Fearless Culture.

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