Book Recommendation: Bad Blood

Well, my audit went well last week. The inspector called us “the most boring audit he’d ever had”, which quite frankly is what you want to hear from a regulator. Interest = violations = citations = sad BS King.

As someone who has now dealt with quite a few inspectors over the years, I am always interested to see how exactly they choose to go about surveying everything given the time constraints. This particular inspector had an interesting tactic: he ran down the list of regulations we should be following, and asked us verbally if we followed it or not. Everything tenth one or so, he would suddenly pivot and ask us to provide proof. He mentioned afterwards that he put a lot of weight on how quickly we were able to produce what he asked for. From what I can tell, his theory was that if you produce proof for random questions easily and without hesitation, you probably prepared for everything fairly well. Not a bad theory. Luckily for me, our preparation strategy had been to read through every standard, then prepare a response for it. Thus, we were boring, and my sanity is restored.

I was thinking about all this as I sat down to relax this weekend and picked up the book “Bad Blood: Secrets and Lies in a Silicon Valley Startup” by John Carreyrou. This book covers the rise and fall of Theranos and its founder Elizabeth Holmes, a topic I’ve mentioned on this blog before. To say I couldn’t put it down is a near literal statement: I started it at 5pm last night and finished it by noon today. The book converges on many of my interests: health, medicine, technology, data, and how very smart people can be deceived in to believing something that isn’t true. It also doesn’t hurt that the companies founder is a woman about my age who was once touted as being the first self-made female billionaire in a field I have actually worked in.

For those unfamiliar with Theranos, I’ll give the short version. Theranos was a company started in 2003 by then 19 year old Stanford drop out Elizabeth Holmes. Her vision was to create a blood analyzer that could run regular lab tests on just a few drops of blood, so patients could use a finger stick (like with home glucose monitoring) rather than get their blood drawn the conventional way. Ten years in, the company was worth almost $10 billion, but there was an issue: their product didn’t really work the way they claimed, and the company was using extreme tactics to cover this up. Eventually, in a bid to get somebody to pay attention to this, the story was brought to the attention of a Wall Street Journal reporter (John Carreyrou, who wrote the book) and he managed to untangle the web. Despite the highlights all being pretty well publicized at the time, I found the details and timeline reconstruction to be a fascinating read.

What interested me most about the book was that my characterization in my blog post 2 years ago was a little bit wrong. I had snarked that Carreyrou was one of the first to question them, but as I read the book I discovered that actually a lot of people had questioned Theranos, even during its prime. It actually restored my faith in humanity to see how many people had attempted to raise concerns about what they saw. Many of these people were young, with student debt, or marketing people unfamiliar with science, or simply people with ethics who just got uncomfortable, and many of them only stopped pushing when they were on the receiving end of some downright frightening legal (and sometimes not so legal) intimidation tactics. Additionally, many people who were deceived really couldn’t be blamed. In one particularly bizarre anecdote, Carreyrou mentions that a fellow Wall Street Journal reporter had gone to a meeting with Theranos and they had promised to show him how the machine worked. It turns out the machine didn’t work, but they’d written a program to hide any error messages with a progress screen, and then when he left the room they swapped out his sample and ran it on a regular analyzer they had in another room. Not really his fault for not picking up on that. She got her deal with Walgreens by performing a similar slight of hand. Since the initial WSJ articles, Theranos has paid out millions in lawsuits claiming that they intentionally deceived investors, and Holmes and Ramesh Balwani (her #2 guy and former boyfriend) are under indictment.

Throughout the book, Carreyrou returns to two related but slightly different central points:

  1. Holmes and her investors wanted to believe she was the next Steve Jobs or Bill Gates.
  2. Healthcare doesn’t work like other tech sector products. Claiming your technology works before it’s ready could kill someone.

It was interesting for me to reflect that if Holmes hadn’t entered the healthcare realm, she might have actually succeeded. While the biographies of people like Steve Jobs are actually littered with the stories of broken promises, many of the people who flipped on Holmes stated that they were compelled to resign their jobs or talk to reporters because they feared the shoddy work was going to kill someone.

So if this was so obvious, how did Theranos get to $10 billion? And how did they end up with people like Henry Kissinger, George Schulz and James Mattis on the board? A few lessons I gleaned:

  1. Watch out for the narrative, ask for data. One of the few things everyone agrees upon in this story was that Holmes was a compelling CEO. She could spin a strong narrative to anyone who asked, and was kind and easy to work with as long as you let her stick to the story. Throughout the story though, anyone who asked for proof of anything she said was met with responses ranging from frosty to belligerent. This is what initially reminded me of my inspection. We were able to provide proof just as readily as we were able to provide verbal confirmation, which is why our inspector ended up believing us.
  2. Look for real experts. After Carreyrou published his first article about the concerns with the company, he notes that Theranos issued quite a few heavily worded denials and legal threats to the Wall Street Journal. Luckily for him, he noted that post-publication several other media outlets jumped in and started asking questions. He noted that one of the reasons they were so quick to pounce is that a quick look at Theranos’s board and investors revealed that no one involved really knew anything about biotech. While names like Henry Kissinger are impressive, people quickly started noting that the board was mostly military men and diplomats. The lack of any medical leadership seemed out of place. Additionally, some investing groups (like Google Health) that specialize in biotech had passed on Theranos. This was enough to cause other news outlets to turn up the heat on Holmes, as the lack of real experts struck everyone as suspicious.
  3. Look at the history. In an interview he gave, Carreyrou pointed out that it wasn’t the initial investors in Theranos who screwed up, as early investors are often gambling on half-baked ideas. The people who failed their due diligence were those who invested a decade in. He notes that those people should have been pushing harder for financial statements and peer reviewed studies, and that didn’t happen. For Theranos not to have peer reviewed studies in their first year was understandable. To still be lacking them in their tenth year was a very bad sign.
  4. Apply the right standards to the right industry. Healthcare isn’t the same as a cell phone. There are laws, and regulating bodies that can and will shut you down. A 1% product failure rate can kill people. Don’t get so excited by the idea of “disruption” that you ignore reality.

Come to think of it, with a few tweaks these are all pretty good life lessons about how to avoid bad actors in your personal life as well. I really do recommend this book, if only as a counter-narrative to the whole “everyone said we couldn’t do it, but we proved the naysayers wrong!” thing. Sometimes naysayers are right.

Although maybe not forever. As an interesting end note: according to this article, Holmes is currently fundraising in Silicone Valley for another start up.

4 thoughts on “Book Recommendation: Bad Blood

  1. What made her especially credible, I wonder? I went looking on Youtube to see if there was anything of her speaking. Her voice is very deep, and she is pretty in a slightly odd way. There is something unnerving about her, but I say that only after reading about the fraud.

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    • Interestingly, they think her voice is likely an affectation.

      She seemed to have some sort of knack for winning over older men. Carreyrou’s theory is that a good part of it was people’s desire to see a female Mark Zuckerberg or Steve Jobs, so she got some passes. While she was dating a man 20 years older than her (she eventually brought him in as second in command), he mostly portrays her older male supporters as going a “daughter/granddaughter I never had” route. They do note repeatedly that she really was quite quick to catch on to all sorts of engineering concepts, and her initial ideas really were quite promising. So basically she was a legitimately brilliant young woman with a great idea who could weave a compelling story, talking with a voice (and apparently presence) of a much older woman. A lot of older men found that compelling. They do note that she never hired another woman for her senior management or her board.

      Carreyrou gets pretty hung up on this, because apparently he had a lot of accusations hurled at him initially that he was being sexist. That’s part of why he hammers so hard on the “this was a medical product” thing. People would pull out instances of Mark Zuckerberg lying and ask why he wasn’t investigating that. One of the reasons his initial reporting got so much traction is because he got doctors and patients to jump in with bad results they’d gotten and hours spent in the ER/trips cancelled/etc.

      Oh! One other thing. Her Stanford connections didn’t hurt. One of the things they noted is that all of the famous men who supported her actually all had offices in the same building in Stanford. So she didn’t necessarily win all of them over, just one or two and then the rest followed.

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  2. It was also an area ripe for productivity improvements. Look at the labor involved in blood drawing and testing along with equipment and overhead. Someone will do what Theranos claimed to do and make a pile. Theranos only had to be plausible enough while hoping to actually make this work.

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