A great book with a pretty comprehensive list of red flags to lookout for any new business! John Carreyrou’s writing is like a thriller and you can hardly put down the book until it is all finished. The highlights below can be used as a checklist of things that can go wrong in a startup - so use it!

Table of Contents

Red flags

Asking the CFO to revise numbers upwards

The first set of numbers he’d come up with hadn’t been to her liking, so he’d revised them upward. He was a little uncomfortable with the revised numbers, but he figured they were in the realm of the plausible if the company executed perfectly.

VC-fueled startups tend to overstate financial numbers

Besides, the venture capitalists startups courted for funding knew that startup founders overstated these forecasts. It was part of the game. VCs even had a term for it: the hockey-stick forecast. It showed revenue stagnating for a few years and then magically shooting up in a straight line.

When colleagues don’t share the same enthusiasm as the founder

was a bit over the top, but she seemed sincere and Mosley knew that evangelizing was what successful startup founders did in Silicon Valley. You didn’t change the world by being cynical. What was odd, though, was that the handful of colleagues who’d accompanied Elizabeth on the trip didn’t seem to share her enthusiasm.

Technology did not work consistently

Theranos 1.0, as Elizabeth had christened the blood-testing system, didn’t always work. It was kind of a crapshoot, actually, he said. Sometimes you could coax a result from it and sometimes you couldn’t.

Cherry picking results for the demo!

But you never knew whether you were going to get a result or not. So they’d recorded a result from one of the times it worked. It was that recorded result that was displayed at the end of each demo.

Secrecy under the guide of legality

For one thing, in his eight months at Theranos, he’d never laid eyes on the pharmaceutical contracts. Every time he inquired about them, he was told they were “under legal review.” More important, he’d agreed to those ambitious revenue forecasts because he thought the Theranos system worked reliably.

When experts in the area are skeptical

Shaunak was more skeptical. Raised by Indian immigrant parents in Chicago, far from the razzle-dazzle of Silicon Valley, he considered himself very pragmatic and grounded. Elizabeth’s concept seemed to him a bit far-fetched. But he got swept up in Robertson’s enthusiasm and in the notion of launching a startup.

Unable to answer technical questions from VCs in the medical industry

But when the MedVenture partners asked for more specifics about her microchip system and how it would differ from one that had already been developed and commercialized by a company called Abaxis, she got visibly flustered and the meeting grew tense. Unable to answer the partners’ probing technical questions, she got up after about an hour and left in a huff.

Theoretically possible, but practically?

As the money flowed in, it became apparent to Shaunak that a little patch that could do all the things Elizabeth wanted it to do bordered on science fiction. It might be theoretically possible, just like manned flights to Mars were theoretically possible. But the devil was in the details.

Thinking as if you are the next big historical game changing personally

Ed had noticed a quote on her desk cut out from a recent press article about Theranos. It was from Channing Robertson, the Stanford professor who was on the company’s board. The quote read, “You start to realize you are looking in the eyes of another Bill Gates, or Steve Jobs.”

Rosy revenue projections that never materialized

the revenue projections Elizabeth was touting to the board weren’t grounded in reality. They were hugely exaggerated and impossible to reconcile with the unfinished state of the product, they said.

Not enough checks and balances

Since she would control the foundation, she would also control the voting rights associated with the new stock, which would increase her overall voting stake. Avie didn’t think it was in other shareholders’ interest to give the founder more power. He objected.

“Good” work ethics that does not guarantee success

Sleeping little and working hard

It was the start of a lifelong pattern: work hard and sleep little. As she excelled academically, she also managed to find her footing socially and dated the son of a respected Houston orthopedic surgeon.

Academic excellence

ELIZABETH WAS ACCEPTED to Stanford in the spring of 2002 as a President’s Scholar, a distinction bestowed on top students that came with a three-thousand-dollar grant she could use to pursue any intellectual interest of her choosing.

Conviction for a greater good

Elizabeth took away from them is that if she wanted to truly leave her mark on the world, she would need to accomplish something that furthered the greater good, not just become rich.

Just because it is low-tech, does not mean it should be discarded

Elizabeth didn’t actually drop out of Stanford until the following fall after returning from a summer internship at the Genome Institute of Singapore. Asia had been ravaged earlier in 2003 by the spread of a previously unknown illness called severe acute respiratory syndrome, or SARS, and Elizabeth had spent the summer testing patient specimens obtained with old low-tech methods like syringes and nasal swabs. The experience left her convinced there must be a better way.

Just because it is high-tech, does not mean it is reliable

In a twenty-six-page document she used to recruit investors, she described an adhesive patch that would draw blood painlessly through the skin using microneedles. The TheraPatch, as the document called it, would contain a microchip sensing system that would analyze the blood and make “a process control decision” about how much of a drug to deliver.

Working long hours

(Elizabeth) was frustrated with the pace of their progress and wanted to run the engineering department twenty-four hours a day, seven days a week, to accelerate development. Ed thought that was a terrible idea. His team was working long hours as it was. He had noticed that employee turnover at the company was already high and that it wasn’t confined to the rank and file.

Not listening to different employees about management style again and again

In one of their last email exchanges, he recommended two management self-help books to her, The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t and Beyond Bullsh*t: Straight-Talk at Work, and included their links on Amazon.com. He quit two days later.

Be careful of one-hit wonders - it does not mean you are talented!

Yet Sunny didn’t see himself as lucky. In his mind, he was a gifted businessman and the Commerce One windfall was a validation of his talent. When Elizabeth met him a few years later, she had no reason to question that. She was an impressionable eighteen-year-old girl who saw in Sunny what she wanted to become: a successful and wealthy entrepreneur.

Technical challenges

From prototype / mock-up to a real product is a great challenge

It didn’t take Ed long to realize that Theranos was the toughest engineering challenge he’d ever tackled. His experience was in electronics, not medical devices. And the prototype he’d inherited didn’t really work. It was more like a mock-up of what Elizabeth had in mind. He had to turn the mock-up into a functioning device. The main difficulty stemmed from Elizabeth’s insistence that they use very little blood.

Reliability of the tests

He and his team spent months reengineering it, but they never reached a point where they could reliably reproduce the same test results from the same blood samples. The quantity of blood they were allowed to work with was so small that it had to be diluted with a saline solution to create more volume. That made what would otherwise have been relatively routine chemistry work a lot more challenging.

Communication between various teams to put together a product

The chemistry work was handled by a separate group made up of biochemists. The collaboration between that group and Ed’s group was far from optimal. Both reported up to Elizabeth but weren’t encouraged to communicate with each other. Elizabeth liked to keep information compartmentalized so that only she had the full picture of the system’s development.

Why medical, transportation, energy industry is unlike pure software industry

In Oracle’s early years, he had famously exaggerated his database software’s capabilities and shipped versions of it crawling with bugs. That’s not something you could do with a medical device.

Caring about the looks of the product more than making it work first!

Ana joined Theranos as its chief design architect. This mostly meant she was responsible for the overall look and feel of the Edison. Elizabeth wanted a software touchscreen similar to the iPhone’s and a sleek outer case for the machine. The case, she decreed, should have two colors separated by a diagonal cut, like the original iMac.

Too much secrecy hindering actual technical progress

She was also getting put off by her secrecy. A designer might not be as crucial to this little enterprise as an engineer or a chemist, but she still needed to be in the information loop about the product’s development to do her job properly. Yet Elizabeth kept Ana on a need-to-know basis.

When technology is too basic

Sometimes, it would crash against the cartridge and the pipette tips would snap off. The overall impression was that of an eighth-grade science project.

Technology that is tested in the industry, but practical implementations are always a challenge!

The process by which test results were generated involved a transatlantic round-trip of ones and zeros: when the blood test was completed, a cellular antenna on the reader beamed the voltage data produced by the light signal to a server in Palo Alto. The server analyzed the data and beamed back a final result to a cell phone in Belgium. When the cellular connection was weak, the data transmission would fail.

Inability to take the actual defect at face and solve it

Once again, things did not go smoothly. Frequently, the readers flashed error messages, or the result that came back from Palo Alto was negative for the virus when it should have been positive. Some of the readers didn’t work at all. And Sunny continued to blame the wireless transmission.

Refusing access, comparison test and even the actual result

The red flags were piling up. First, Elizabeth had denied him access to their lab. Then she’d rejected his proposal to embed someone with them in Palo Alto. And now she was refusing to do a simple comparison study. To top it all off, Theranos had drawn the blood of the president of Walgreens’s pharmacy business, one of the company’s most senior executives, and failed to give him a test result!

Obsession on small size instead of working towards what works in the edges of possibilty

her overarching concern was its size: she still nurtured the vision of someday putting it in people’s homes and wanted something that could fit on a desk or a shelf. This posed engineering challenges because, in order to run all the tests she wanted, the miniLab would need to have many more components than the Edison.

Possible in theory, not possible in reality

Laboratories all over the world had been using these instruments for decades. In other words, Theranos wasn’t pioneering any new ways to test blood. Rather, the miniLab’s value would lie in the miniaturization of existing lab technology. While that might not amount to groundbreaking science, it made sense in the context of Elizabeth’s vision of taking blood testing out of central laboratories and bringing it to drugstores, supermarkets, and, eventually, people’s homes.

Make it work, then make it better, cheaper, faster, smaller!

Instead of building new instruments from scratch to fit the arbitrary dimensions Elizabeth had laid out, Greg felt they would do better to take the off-the-shelf components they were laboring to miniaturize and integrate them together to test how the overall system worked. Once they had a working prototype, they could then worry about shrinking it. Emphasizing the system’s size first and how it worked later was putting the cart before the horse. But Elizabeth wouldn’t budge.

Not building a proper prototype first

The miniLab Greg was helping build was a prototype, nothing more. It needed to be tested thoroughly and fine-tuned, which would require time. A lot of time. Most companies went through three cycles of prototyping before they went to market with a product. But Sunny was already placing orders for components to build one hundred miniLabs, based on a first, untested prototype.

Not understanding why industry practices are bulky, slow or low-tech

Compared to big commercial blood analyzers, another one of the miniLab’s glaring weaknesses was that it could process only one blood sample at a time. Commercial machines were bulky for a reason: they were designed to process hundreds of samples simultaneously. In industry jargon, this was known as having a “high throughput.”

Why stacking is also not used in the industry to save horizontal space

In these modular stacking configurations, each server is referred to as a “blade.” But no one had stopped to consider what implications this design would have with respect to one key variable: temperature. Each miniLab blade generated heat, and heat rises.

Following waterfall method to design the perfect product, instead of creating iterative prototypes

Less than three years was not a lot of time to design and perfect a complex medical device. These problems ranged from the robots’ arms landing in the wrong places, causing pipettes to break, to the spectrophotometers being badly misaligned.

What happens when you keep harping on taking nano amounts of blood…

Moreover, this double dilution lowered the concentration of the analytes in the blood samples to levels that were below the ADVIA’s FDA-sanctioned analytic measurement range. In other words, it meant using the machine in a way that neither the manufacturer nor its regulator approved of.

Not understanding the science beneath the application: microfluids

that it would soon be able to run even more. The ability to perform so many tests on just a drop or two of blood was something of a Holy Grail in the field of microfluidics. Thousands of researchers around the world in universities and industry had been pursuing this goal for more than two decades, ever since the Swiss scientist Andreas Manz had shown that the microfabrication techniques developed by the computer chip industry could be repurposed to make small channels that moved tiny volumes of fluids.

No room for error in the technology

Losing a little bit of the blood sample didn’t matter much when it was large, but it became a big problem when it was tiny. To hear Elizabeth and Sunny tell it, Theranos had solved these and other difficulties—challenges that had bedeviled an entire branch of bioengineering research.

School level product

Tyler and Aruna weren’t sure what to think. The device seemed to consist of nothing more than a pipette fastened to a robotic arm that moved back and forth on a gantry. Both had envisioned some sort of sophisticated microfluidic system. But this seemed like something a middle-schooler could build in his garage.

Giving excuses on why comparison tests cannot be done

Daniel’s response followed a tortuous logic. He said a laboratory’s proficiency-testing results were assessed by comparing them to its peers’ results, which wasn’t possible in Theranos’s case because its technology was unique and had no peer group. As a result, the only way to do an apples-to-apples comparison was by using the same conventional methods as other laboratories. Besides, proficiency-testing rules were extremely complicated, he argued. Tyler could rest assured that no laws had been broken. Tyler didn’t buy it.

Lack of published peer-reviewed data in the scientific community

The New Yorker article did strike some skeptical notes. It included quotes from a senior scientist at Quest who said he didn’t think finger-stick blood tests could be reliable, and it noted Theranos’s lack of published, peer-reviewed data.

Using the same industry standard equipment in the actual test, but not declaring it

Diluting finger-stick samples and running them on Siemens machines was supposed to be a temporary solution, but it had become a permanent one because the 4S had turned into a fiasco.

There is a reason why the industry takes syringes of blood. Instead of dissing it off as low-tech, try to understand why?

Tim confirmed to me that both practices were highly questionable. He also explained the pitfalls of using blood pricked from a finger. Unlike venous blood drawn from the arm, capillary blood was polluted by fluids from tissues and cells that interfered with tests and made measurements less accurate.

Messy lab

As for the lab itself, it was a mess: the company had allowed unqualified personnel to handle patient samples, it had stored blood at the wrong temperatures, it had let reagents expire, and it had failed to inform patients of flawed test results, among many other lapses.

Company Culture

Not giving due respect, transparency or credit to employees leaving

No one knew if there was any truth to it because his departure, like all the others, wasn’t announced or explained.

Pitting teams against one another

Before long, Ed noticed that Elizabeth was making new engineering hires, but she wasn’t having them report to him. They formed a separate group. A rival group. It dawned on him that she was pitting his engineering team and the new team against each other in some corporate version of survival of the fittest.

Too much secrecy using I.T.

Bissel and Lortz had the company’s computer network set up in such a way that information was split into silos, hampering communication between employees and departments. You couldn’t even exchange instant messages with a coworker. The chat ports were blocked. It was all in the name of protecting proprietary information and trade secrets, but the end result was hours of lost productivity.

Treating employees leaving the company very badly and unfairly

After Elizabeth fired Mosley, Matt had stumbled across inappropriate sexual material on his work laptop as he was transferring its files to a central server for safekeeping. When Elizabeth found out about it, she used it to claim it was the cause of Mosley’s termination and to deny him stock options.

How jokes on the products are perceived

Then all hell broke loose. Someone took the ad down and brought it to Elizabeth, who thought it was real. She convened an emergency meeting of the senior managers and the lawyers. She was treating it as a full-blown case of industrial espionage

Not following common industry practice in terms of team collaboration

At the other diagnostics companies where he had worked, there had always been cross-functional teams with representatives from the chemistry, engineering, manufacturing, quality control, and regulatory departments working toward a common objective. That was how you got everyone on the same page, solved problems, and met deadlines.

Not open to objection or criticism

Elizabeth and Sunny regarded anyone who raised a concern or an objection as a cynic and a naysayer. Employees who persisted in doing so were usually marginalized or fired, while sycophants were promoted. Sunny had elevated a group of ingratiating Indians to key positions.

How employees will figure out fake ways to communicate actual problems in the company if the culture does not encourage speaking out

Arnav Khannah, a young mechanical engineer who worked on the miniLab, figured out a surefire way to get Sunny off his back: answer his emails with a reply longer than five hundred words. That usually bought him several weeks of peace because Sunny simply didn’t have the patience to read long emails. Another strategy was to convene a biweekly meeting of his team and invite Sunny to attend. He might come to the first few, but he would eventually lose interest or forget to show up.

Trying to sell mission without an actual substance behind

The resignations infuriated Elizabeth and Sunny. The following day, they summoned the staff for an all-hands meeting in the cafeteria. Copies of The Alchemist, Paulo Coelho’s famous novel about an Andalusian shepherd boy who finds his destiny by going on a journey to Egypt, had been placed on every chair.

Whistle-blowing when employees are left with no choice

After exchanging a few emails with Shulman, Tyler had his answer. In response to a description he gave her of Theranos’s practices, she wrote back that they amounted to “a form of PT cheating” and were “in violation of the state and federal requirements.” Shulman gave Tyler two options: he could give her the name of the offending laboratory, or he could file an anonymous complaint with New York State’s Laboratory Investigative Unit. He chose to do the latter.

Belittling employees when they inform you they are planning to quit

told him he planned to quit. George asked him to hold off and to give Elizabeth another chance to address everything. Tyler agreed to do so and tried to set up another meeting with Elizabeth, but her rising public profile made her very busy. She asked him to send her an email with his concerns instead… When the response finally arrived, it didn’t come from Elizabeth. It came from Sunny. And it was withering. In a point-by-point rebuttal that was longer than Tyler’s original email, Sunny belittled everything from his grasp of statistics to his knowledge of laboratory science.

How Glassdoor reviews are balanced

Negative Glassdoor reviews about the company weren’t unusual. Balwani made sure they were balanced out by a steady flow of fake positive reviews he ordered members of the HR department to write.

Fake it till you make it does not create the actual product

By positioning Theranos as a tech company in the heart of the Valley, Holmes channeled this fake-it-until-you-make-it culture, and she went to extreme lengths to hide the fakery. Many companies in Silicon Valley make their employees sign nondisclosure agreements, but at Theranos the obsession with secrecy reached a whole different level.

Bad management style


Sunny was a force of nature, and not in a good way. Though only about five foot five and portly, he made up for his diminutive stature with an aggressive, in-your-face management style.

No technical knowledge of the industry

Sunny didn’t know or understand any of this because he had no background in medicine, much less laboratory science. Nor did he have the patience to listen to the scientists’ explanations. It was easier to just blame the cellular connection.

Not heeding the industry expert’s knowledge

Theranos scientists had told her that the best way to diagnose H1N1, as the swine flu virus was called, was with a nasal swab and that testing for it in blood was of questionable utility. She’d raised this point with Elizabeth before leaving, but Elizabeth had brushed it off. “Don’t listen to them,”

Using bribes to collect data

Rumors were circulating among employees that Sunny’s connections there were shady and that he was paying bribes to obtain blood samples from infected patients. When a colleague of Chelsea’s in the client solutions group named Stefan Hristu quit immediately upon returning from a trip to Thailand with Sunny in January 2010, many took it to mean the rumors were true.

Arrogance of wealth generation because of one success

“I’ve made enough money to look after my family for seven generations. I don’t need to be here!” he screamed in Tony’s face. Tony roared back in his Irish brogue, “I don’t have a cent and I don’t need to be here either!”

Building a bubble around oneself without any opposing or different views

Chelsea also worried about Elizabeth. In her relentless drive to be a successful startup founder, she had built a bubble around herself that was cutting her off from reality. And the only person she was letting inside was a terrible influence.

Showing off wealth despite intense secrecy and scrutiny

The cloak-and-dagger theatrics struck Hunter as silly. It was four in the afternoon and the restaurant was empty. There was no one to conceal their presence from. What’s more, if there was anything likely to draw attention, it was Sunny’s Lamborghini in the parking lot.

Founder might have all work lifestyle, but what about the employees?

She told Greg she wanted to see Kent come in on weekends too; it bothered her that his friend didn’t. Keeping a work-life balance seemed a foreign concept to her. She was at work all the time.


NEPOTISM AT THERANOS took on a new dimension in the spring of 2011 when Elizabeth hired her younger brother, Christian, as associate director of product management. Christian Holmes was two years out of college and had no clear qualifications to work at a blood diagnostics company, but that mattered little to Elizabeth.

Suing ex employees and shutting them down

but her lawyer advised her to back down and to sign the document once Theranos brought in a high-powered attorney from Wilson Sonsini. Going up against Silicon Valley’s premier law firm was a losing battle, he told her. She reluctantly followed his advice.

Hiring people with certificate qualifications but no actual industry experience

Sunny had put a man named Samartha Anekal, who had a Ph.D. in chemical engineering but no industry experience, in charge of integrating the various parts of the miniLab. Sam was perceived by some of his colleagues as a yes-man who did Sunny’s bidding.

Bad handling of an employee death

Inside Theranos, Ian’s death was handled with the same cold, businesslike approach. Most employees weren’t even informed of it. Elizabeth notified only a small group of company veterans in a brief email that made a vague mention of holding a memorial service for him. She never followed up and no service was held.

No value or empathy towards long serving employees

But he was bothered by the lack of empathy being shown toward someone who had contributed nearly a decade of his life to the company. It was as if working at Theranos was gradually stripping them all of their humanity.

Not all famous vendors are perfect for you process and product. E.g. how startups choose foxconn just because Apple uses it.

Elizabeth had chosen Chiat\Day because it was the agency that represented Apple for many years, creating its iconic 1984 Macintosh ad and later its “Think Different” campaign in the late 1990s. She’d even tried to convince Lee Clow, the creative genius behind those ads, to come out of retirement to work for her.

Last minute changes. Badly wanting something does not make it true!

THE LAST-MINUTE REVISIONS only served to reinforce Kate and Mike’s suspicions. Elizabeth had wanted all those sweeping claims to be true, but just because you badly wanted something to be real didn’t make it so, Mike thought.

Hiring employees with no experience or who won’t disagree with you

On paper, all three had impressive educational credentials, but they shared two traits: they had very little industry experience, having joined the company not long after finishing their studies, and they had a habit of telling Elizabeth and Sunny what they wanted to hear, either out of fear or out of desire to advance, or both.

Servant master attitude of treating employees

Sunny, in fact, had the master-servant mentality common among an older generation of Indian businessmen. Employees were his minions. He expected them to be at his disposal at all hours of the day or night and on weekends. He checked the security logs every morning to see when they badged in and out.

Threat of lawsuits

And even if it failed to do so, it could tie him up in court for months, if not years. This was one of the most valuable private companies in Silicon Valley, one of the fabled unicorns. Its financial resources were virtually limitless. The litigation could bankrupt him. Did he really want to take that risk?

Just because you are old and experienced…

The decade-old episode had left Phyllis skeptical that Elizabeth, who had no medical or scientific training to speak of and a clear tendency not to listen to people who were older and more experienced, had really gone on to develop groundbreaking blood-testing technology.

Not declaring that the company directors are also romantically linked

If what Alan was saying was true, this added a new twist: Silicon Valley’s first female billionaire tech founder was sleeping with her number-two executive, who was nearly twenty years her senior. It was sloppy corporate governance, but then again this was a private company.

Knowing when to listen even to the inexperienced young employees - don’t always discard their views also!

Theranos gave him the option of saying that he was young and naïve and that the reporter had deceived him, but he declined. He had known exactly what he was doing and youth had nothing to do with it. He hoped he would have acted the exact same way if he had been forty or fifty. To placate Theranos, Tyler did consent to being portrayed as a junior employee whose duties were so menial that he couldn’t possibly have known what he was talking about when it came to topics like proficiency testing, assay validation, and lab operations.

Followed by private investigators

Tyler also received a tip that he was being surveilled by private investigators. His lawyer tried to make light of it. “It’s not a huge deal,” he said. “Just don’t go anywhere you’re not supposed to be and remember to smile and wave to the man in the bushes outside your house when you leave for work.”

Wrong data

Using experimental technology for actual diagnosis is wrong

Those were supposed to be for research purposes only and to have no bearing on the way patients were treated. But encouraging someone to rely on a Theranos blood test to make an important medical decision was something else altogether. Chelsea found it reckless and irresponsible.

False claims of the technology

Theranos had told Walgreens it had a commercially ready laboratory and had provided it with a list of 192 different blood tests it said its proprietary devices could handle.

Refusing to do the easiest comparison test for validity

Theranos had sent them some test kits for it, but they were for obscure blood tests like a “flu susceptibility” panel that no other lab he knew of offered. It was therefore impossible to compare their results to anything. How convenient, Hunter had noted. Moreover, the kits were expired.

Fake claims vs reality

she had told both companies her technology could perform hundreds of tests on small blood samples. The truth was that the Edison system could only do immunoassays, a type of test that uses antibodies to measure substances in the blood.

Gathering data not using the prototype, but using the same industry practise

He also noticed that the phlebotomists were drawing blood from every employee twice, once with a lancet applied to the index finger and a second time the old-fashioned way with a hypodermic needle inserted in the arm. Why the need for venipunctures—the medical term for needle draws—if the Theranos finger-stick technology was fully developed and ready to be rolled out to consumers, he wondered.

Not willing to work with the industry regulator as a strategy

Theranos’s strategy, which envisioned bypassing the FDA altogether, was a nonstarter, he warned Elizabeth, especially if she planned to roll out her devices nationwide by the following spring, as she had asserted to him. There was no way the agency would allow her to do that without going through its review process, he told her.

Not willing to understand why regulations are needed and working towards it

he looked around the table, he noted that she had brought no regulatory affairs expert to the meeting. He suspected the company didn’t even employ one. If he was right about that, it was an incredibly naïve way of operating. Health care was the most highly regulated industry in the country and for good reason: the lives of patients were at stake.

Exaggerated numbers not based on proper research

And when Stan tried to get him to walk him through how he’d arrived at what seemed like extremely aggressive sales targets, Sunny gave vague and boastful answers. Normally, companies did research to determine the size of the audience they were marketing to and then worked out what percentage of that audience they could realistically hope to convert into customers. But such basic concepts seemed lost on Sunny.

Fail in simple statistics and data gathering

test is generally considered precise if its CV is less than 10 percent. To Tyler’s dismay, data runs that didn’t achieve low enough CVs were simply discarded and the experiments repeated until the desired number was reached. It was as if you flipped a coin enough times to get ten heads in a row and then declared that the coin always returned heads.

When cherry picking is wrong

Erika and Tyler might be young and inexperienced, but they both knew that cherry-picking data wasn’t good science. Nor were they the only ones who had concerns about these practices.

Why QC and cross-checks are important

Quality-control checks are a basic safeguard against inaccurate results and are at the heart of the way laboratories operate. They involve testing a sample of preserved blood plasma that has an already-known concentration of an analyte and seeing if the lab’s test for that analyte matches the known value.

When data puts people into harm…

The voice he heard on the other end of the line sounded terrified. “Dr. Fuisz, the reason I’m willing to talk to you is you’re a physician,” Beam said. “You and I took the Hippocratic Oath, which is to first do no harm. Theranos is putting people in harm’s way.”

Every single modern advancement has been based on published, peer reviewed data

Now that he mentioned it, there were some things I’d read in that article that I’d found suspect. The lack of any peer-reviewed data to back up the company’s scientific claims was one of them. I’d reported about health-care issues for the better part of a decade and couldn’t think of any serious advances in medicine that hadn’t been subject to peer review.

You cannot self-teach your medicine, law, aviation, energy, laboratory science in your parents’ garage - software folks must understand this crucial difference when trying to innovation in another industry

When I stopped to think about it, I found it hard to believe that a college dropout with just two semesters of chemical engineering courses under her belt had pioneered cutting-edge new science. Sure, Mark Zuckerberg had learned to code on his father’s computer when he was ten, but medicine was different: it wasn’t something you could teach yourself in the basement of your house. You needed years of formal training and decades of research to add value. There was a reason many Nobel laureates in medicine were in their sixties when their achievements were recognized.

What happens when the data is false positive or false negative

He described the two nightmare scenarios false blood-test results could lead to. A false positive might cause a patient to have an unnecessary medical procedure. But a false negative was worse: a patient with a serious condition that went undiagnosed could die.

Hiding the error message with slow progress message

When something went wrong inside the machine, the app kicked in and prevented an error message from appearing on the digital display. Instead, the screen showed the test’s progress slowing to a crawl.

When the regulators clamped in

This was major. The overseer of clinical laboratories in the United States had not only confirmed that there were significant problems with Theranos’s blood tests, it had deemed the problems grave enough to put patients in immediate danger. Suddenly, Heather King’s written retraction demands, which had been arriving like clockwork after each story we published, stopped.

Founder hype

How founder hype is created in the startup community with all star examples

One of them was the wild success of Facebook. In June 2010, the social network’s private valuation rose to $23 billion. Six months later, it jumped to $50 billion. Every startup founder in the Valley wanted to be the next Mark Zuckerberg and every VC wanted a seat on the next rocket ship to riches.

Fake it till you make it? Nah…

Hunter was beginning to grow suspicious. With her black turtleneck, her deep voice, and the green kale shakes she sipped on all day, Elizabeth was going to great lengths to emulate Steve Jobs, but she didn’t seem to have a solid understanding of what distinguished different types of blood tests. Theranos had also failed to deliver on his two basic requests: to let him see its lab and to demonstrate a live vitamin D test on its device. Hunter’s plan had been to have Theranos test his and Dr. J’s blood, then get retested at Stanford Hospital that evening and compare the results.

Put in some personal story

As the Safeway CEO and a group of his top executives listened intrigued, she described how her phobia of needles had led her to develop breakthrough technology that made blood tests not only more convenient, but faster and cheaper.

No need to emulate other famous founders - be yourself!

Greg thought that was silly. He was pretty sure Jobs hadn’t personally screened all the movies for rent or sale on iTunes. Elizabeth seemed to have this exaggerated image of him as an all-seeing and all-knowing being. A month or two after Jobs’s death, some of Greg’s colleagues in the engineering department began to notice that Elizabeth was borrowing behaviors and management techniques described in Walter Isaacson’s biography of the late Apple founder.

Believing to be some historic figure before any delivered results

They glanced at each other knowingly. What Elizabeth had just said confirmed their armchair psychoanalysis of their boss: she saw herself as a world historical figure. A modern-day Marie Curie.

Be very careful of exposure to media very early on without actual revenue or paying customers

For a heretofore unknown startup, coverage this flattering in one of the country’s most prominent and respected publications was a major coup. What had made it possible was Elizabeth’s close relationship with Shultz—a connection she’d made two years earlier and carefully cultivated.

Courting big names mean nothing when the product does not work

These were men with sterling, larger-than-life reputations who gave Theranos a stamp of legitimacy. The common denominator between all of them was that, like Shultz, they were fellows at the Hoover Institution. After befriending Shultz, Elizabeth had methodically cultivated each one of them and offered them board seats in exchange for grants of stock.

Center of attraction

At his grandfather’s urging, Tyler played the song he’d hastily composed. He tried not to cringe as he sang its cheesy lyrics, which borrowed from Theranos’s “one tiny drop changes everything” slogan. To his horror, he had to play it again a little while later because Henry Kissinger arrived late and everybody thought that he too should hear it.

The fine line between knowing when to hype up or not

Surely the writer hadn’t made up these claims on his own; he must have heard them from Elizabeth. A faint smile briefly crossed Daniel’s lips. “Well, sometimes Elizabeth exaggerates in an interview setting,” he said.

Don’t believe on the viability of a company or the product based on the founder’s “good ethics”. Only data from the product speaks!

Mattis went out of his way to praise her integrity. “She has probably one of the most mature and well-honed sense of ethics—personal ethics, managerial ethics, business ethics, medical ethics that I’ve ever heard articulated,” the retired general gushed.

Be careful of unwarranted media attention

WHEN PARLOFF’S COVER STORY was published in the June 12, 2014, issue of Fortune, it vaulted Elizabeth to instant stardom. Her Journal interview had gotten some notice and there had also been a piece in Wired, but there was nothing like a magazine cover to grab people’s attention. Especially when that cover featured an attractive young woman wearing a black turtleneck, dark mascara around her piercing blue eyes, and bright red lipstick next to the catchy headline “THIS CEO IS OUT FOR BLOOD.”

Keep a consistent frequency of media / talks / conference exposure to keep focus on the real work

Two months later, she graced one of the covers of the magazine’s annual Forbes 400 issue on the richest people in America. More fawning stories followed in USA Today, Inc., Fast Company, and Glamour, along with segments on NPR, Fox Business, CNBC, CNN, and CBS News. With the explosion of media coverage came invitations to numerous conferences and a cascade of accolades.

Understanding the public perception

As much as she courted the attention, Elizabeth’s sudden fame wasn’t entirely her doing. Her emergence tapped into the public’s hunger to see a female entrepreneur break through in a technology world dominated by men. Women like Yahoo’s Marissa Mayer and Facebook’s Sheryl Sandberg had achieved a measure of renown in Silicon Valley, but they hadn’t created their own companies from scratch. In Elizabeth Holmes, the Valley had its first female billionaire tech founder.

Taking private jets - necessary?

Elizabeth also had a personal chef who prepared her salads and green vegetable juices made of cucumber, parsley, kale, spinach, lettuce, and celery. And when she had to fly somewhere, it was in a private Gulfstream jet.

Impressing Joe Biden with a fake lab

Holmes and Balwani wanted to impress the vice president with a vision of a cutting-edge, completely automated laboratory. So instead of showing him the actual lab, they created a fake one. They made the microbiology team vacate a third, smaller room, had it repainted, and lined its walls with rows of miniLabs stacked up on metal shelves.

Big names praising does not mean validation of the product unless they are industry experts

During the roundtable discussion, Biden called what he had just seen “the laboratory of the future.” He also praised Holmes for proactively cooperating with the FDA. “I know the FDA recently completed favorable reviews of your innovative device,” he said.

Maybe founders should use their own self-awareness for check and balance

But others were less charitable, having long harbored doubts of their own. Why had Holmes always been so secretive about her technology? Why had she never recruited a board member with even basic knowledge of blood science? And why hadn’t a single venture capital firm with expertise in health care put money into the company? For these observers, the story confirmed what they’d quietly suspected.

Play the victim card

One approach she favored was to portray me as a misogynist. To generate further sympathy, she suggested she reveal publicly that she had been sexually assaulted as a student at Stanford. Her advisers counseled against going that route, but she didn’t abandon it entirely. In an interview with Bloomberg Businessweek, she suggested she was the victim of sexism.

Play the woman card

“Until what happened in the last four weeks, I didn’t understand what it means to be a woman in this space,” she told the magazine. “Every article starting with, ‘A young woman.’ Right? Someone came up to me the other day, and they were like, ‘I have never read an article about Mark Zuckerberg that starts with ‘A young man.’ ”

Vaporware can be pulled off in software industry with no implication on human lives, but not for medical industry

THE TERM “VAPORWARE” was coined in the early 1980s to describe new computer software or hardware that was announced with great fanfare only to take years to materialize, if it did at all. It was a reflection of the computer industry’s tendency to play it fast and loose when it came to marketing. Microsoft, Apple, and Oracle were all accused of engaging in the practice at one point or another. Such overpromising became a defining feature of Silicon Valley.


All of this was ostensibly to protect trade secrets, but it’s now clear that it was also a way for Holmes to cover up her lies about the state of Theranos’s technology. Hyping your product to get funding while concealing your true progress and hoping that reality will eventually catch up to the hype continues to be tolerated in the tech industry.

Controlling the board

In December 2013, she forced through a resolution that assigned one hundred votes to every share she owned, giving her 99.7 percent of the voting rights. From that point on, the Theranos board couldn’t even reach a quorum without Holmes.


Understanding that trends are due to other implications

All of this might not have been enough to ignite the new boom, however, if it hadn’t been for another key ingredient: rock-bottom interest rates. To rescue the economy, the Federal Reserve had slashed rates to close to zero, making traditional investments like bonds unattractive and sending investors searching for higher returns elsewhere. One of the places they turned to was Silicon Valley.

Why companies will fail into the hype trap

It was a myopic view of the world that was hard to understand for an outsider like Hunter who wasn’t a Walgreens company man. Theranos had cleverly played on this insecurity. As a result, Walgreens suffered from a severe case of FoMO—the fear of missing out.

Just because unicorns are created, it does not mean every company is actually creating a value. Understanding instead why these high valuations were being created…

BY THE FALL of 2013, money was flowing into the Valley ecosystem at such a dizzying pace that a new term was coined to describe the new breed of startups it was spawning. In an article published on the technology news website TechCrunch on November 2, 2013, a venture capitalist named Aileen Lee wrote about the proliferation of startups valued at $1 billion or more. She called them “unicorns.”

Difference between dot-com and unicorns

Instead of rushing to the stock market like their dot-com predecessors had in the late 1990s, the unicorns were able to raise staggering amounts of money privately and thus avoid the close scrutiny that came with going public.

How journalism separates concerns

This added an interesting wrinkle, I thought: my newspaper had played a role in Holmes’s meteoric rise by being the first mainstream media organization to publicize her supposed achievements. It made for an awkward situation, but I wasn’t too worried about it. There was a firewall between the Journal’s editorial and newsroom staffs.

Claiming secrecy due to competitors

Boies replied that they were trying to be helpful but that they would not reveal what methods Theranos employed unless we signed nondisclosure agreements. Those were secrets Quest and LabCorp were desperately trying to find out by any means possible, including industrial espionage, he claimed.

Why stonewall if there is nothing to hide?

We continued going around in circles, never getting a straight answer about how many tests Theranos performed on the Edison versus commercial analyzers. It was frustrating but also a sign that I was on the right track. They wouldn’t be stonewalling if they had nothing to hide.

The strategy of La Mattanza: Attack when enemies least notice

He explained that la mattanza was an ancient Sicilian ritual in which fishermen waded into the Mediterranean Sea up to their waist with clubs and spears and then stood still for hours on end until the fish no longer noticed their presence. Eventually, when enough fish had gathered around them, someone gave an imperceptible signal and in a split second the scene went from preternatural quiet to gory bloodbath as the fishermen struck viciously at their unsuspecting quarry. What we were doing was the journalistic version of la mattanza, Mike said.

When the revelations came out

THE STORY WAS PUBLISHED on the Journal’s front page on Thursday, October 15, 2015. The headline, “A Prized Startup’s Struggles,” was understated but the article itself was devastating. In addition to revealing that Theranos ran all but a small fraction of its tests on conventional machines and laying bare its proficiency-testing shenanigans and its dilution of finger-stick samples, it raised serious questions about the accuracy of its own devices.

Road to hell is paved with good intentions

I’m fairly certain she didn’t initially set out to defraud investors and put patients in harm’s way when she dropped out of Stanford fifteen years ago. By all accounts, she had a vision that she genuinely believed in and threw herself into realizing. But in her all-consuming quest to be the second coming of Steve Jobs amid the gold rush of the “unicorn” boom, there came a point when she stopped listening to sound advice and began to cut corners.