Theranos has raised a storm in the past few months, with the trial of Elizabeth Holmes. Her conviction concluded with a four-count charge of the 11 charges of fraud brought against her. These scenarios have, in the past, been captured by moviemakers, to show the erratic history of business.
In 1987, the film, Wall Street, gathered a lot of debate and concern around the delicate struggles of a corporate executive. Bud Fox, a stockbroker filled with raw ambition, is caught in the trappings of power-mongering. He is in high admiration of the power and control that Gordon Gekko has not just on the market, but on people. Gordon is remembered for the popular phrase, that triggered debate across the corporate world,
‘Greed is good!’Gordon Gekko
Finally drawn into the web of insider trading, Fox is enveloped by his greed and scheming, till these end in disaster.
As corporations have learned, the hard way over time, greed is hardly ever good. With the flurry of activities within the past weeks that saw the conviction of the embattled Theranos Founder and CEO, Elizabeth Holmes, the buck seems to have shifted to the growing area of technology businesses. The four-month trial had taken the cynosure of attention so much so that it is reported that many journalists had to be up in the wee hours of the morning to ensure that they had a front seat to the entire debacle. Without a doubt, Silicon Valley seemed to be facing some public scrutiny, in a similar manner in which traditional business had been through.
The Vicious Circle of Corporate Misdemeanor
Over the years, the world of business globally has often been rocked by the cringe-worthy tale of business scandals. From the Enron accounting scandal that shook the edifices of business reliability across the United States, dragging famous accounting firm Arthur Andersen in the mud in the wake of its crisis, to the more recent fraud charges against Nikola Corporation. In a scathing analysis of ivory-league business school pedagogy over the years, Duff Macdonald, in 2017, exposed the intricate details of power, ambition, and influence that have made business education to be overly focused on the company’s responsibilities to its shareholders over and above its other responsibilities. While, critically, the business of business is business as Milton Friedman avers, it is coming more to the fore, that businesses are not just entities looking to make a profit, but are conversable agents, implying that their actions carry responsibilities to various stakeholders.
The greatest undoing of Holmes in this entire imbroglio was reneging her responsibilities to her customers, to the society, to shareholders, and to other stakeholders as well. Holmes had become consumed by the ‘fake it till you make it’ syndrome that befuddles tech business realism. Like walking through a smokescreen, the entire world had come out of that illusion of tech reality that Theranos had become.
Smoke and Mirrors: The Theranos spoof
Theranos and Holmes had, somehow, managed to create a company with a fictional $10 billion valuation based on a technology that was not only faulty but was touted to do what it could not do. The company had made false and misleading claims that it had devised blood tests that required only but little blood samples, that were rapidly done by small automated devices which it had developed. With the backing of many top investors such as Tim Draper, Rupert Murdoch, and Larry Ellison, Holmes was gathering all the needed attention for her growing startup.
She had immediately risen to prominence, hyped as the female Steve Jobs. She took the front covers of all the top magazines, from Fortune to Forbes and Inc. However, Holmes was made for this kind of lifestyle. Tyler Shultz, the grandson of George Shultz, one of Theranos’ top investors, had relayed to CBS News that,
Elizabeth is a very, very charismatic person…when she speaks to you, she makes you feel like you are the most important person in her world in that moment. She almost has this reality distortion field around her that people can just get sucked into.
However, flying on the back of lies, a crash was inevitable. John Carreyrou exposes in his popular book, Bad Blood, the intricacies of this new-age business scandal that has shaken the roots of investor confidence for Silicon Valley technology startups. Many pundits argue that the model that tech startups use with a focus on valuation can be sometimes confusing. However, it is apposite to note that while valuations are important, cash is the lifeblood of any startup.
Lessons for Africa from Theranos’ experience
There are significant lessons for African technology startups, especially with the groundbreaking performance in investor attraction and confidence that the tech industry on the continent enjoyed last year.
Faking it don’t mean you making it
Especially in fintech, there are a significant number of smokescreens in the tech industry, even in Africa. Adjusted numbers. Inflated figures. And investors are reeling in surprise after a grilling board meeting in the wake of an investment decision. While a good deal of tech is still shrouded in uncertainty, especially because of its intricacy and vastness, it is important that the startup founder is clear and simple about what the tech does, and demonstrates that effectively. The issue with lies and deception is that one’s stakeholders are misled into an investment commitment when there is no real or proven tech. A 2019 London-based MMC Ventures research shows that over 40% of purported Artificial Intelligence startups have little or no evidence of actually using AI in their products. Many startups, as a pundit puts it, have perfected the art of ‘selling the future’.
Surround yourself with critical friends and partners
Making a joke about the challenging situation that Holmes had found herself in, Danielle Baskin, popular satirist and reporter, had mocked the fact that Holmes’ ‘Holmies’ had suddenly abandoned their stan. In a tweet, she makes a very touching observation,
Coming out of the Holmes trial, I think one of the biggest pieces of advice to startup founders is to have friends. You need people in your life you enjoy hanging out with that say things like ‘lol, what are you talking about?’ or ‘that’s a bad idea’ when you say weird.
With the hugely scandalous events around Elizabeth Holmes’ conviction, many people are asking if there weren’t friends and partners close to her that could have shaken her to the reality of the decisions she was getting embroiled in. If she did have loyal friends and ‘Holmies’, how they had kept mum on the impending doom that Holmes was courting, is shocking, to say the least.
Ensure you are offering palpable value
It is important for a startup founder, that your startup initiative is giving real value, and not just perceived value. The necessity of conceptualizing and deploying this value helps the startup to keep up with solving an apparent problem, and not just deceiving stakeholders with flamboyant words and technology. Harvard Business School Professor, Bill George, echoes this need when he emphasizes that startup founders should have their eyes fixed on serving their customers effectively, engaging employees with care and respect, and being honest, open, and transparent with dealing with problems.
Africa’s tech ecosystem long-term growth strategy
Thinking ethically is thinking long-term.
And part of this strategy entails ensuring that the tech startup fulfills its responsibilities to all stakeholders without trampling down on or hurting anyone or the environment. With Africa’s growing tech ecosystem, it is crucial that the growth across the industry is consolidated, and buoyed up for the long haul. To achieve this, startup founders have to eschew any tactics or strategies tailored to deceive their stakeholders to maintain market share. While these strategies may be very beneficial in the short run, they are doomed to fail, and fail woefully, in the long run.