Shortcuts to Theranos | The Economist

EARLY ON IN “The Inventor,” a documentary about Elizabeth Holmes, the founder of Theranos, she talks about her reading habits as a child and her interest in what makes a great leader. “So many technological changes in our society, but as humans we don’t change much,” she said in that slow, deep voice.

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Regardless of the verdict in the ongoing trial of Ms Holmes, accused of defrauding investors and patients by making false statements about the startup’s blood testing technology, she is right. Theranos’ story is not just about how its leaders behaved and whether they deliberately misled others. (Ms Holmes denies the accusations.) It’s also about how people make decisions. The trial showed how cognitive shortcuts helped propel the company to a valuation of over $ 9 billion, before being reported by the the Wall Street newspaper, revealing that its proprietary technology wasn’t working, sent it into oblivion.

One shortcut concerned Mrs. Holmes herself. At first glance, Theranos’ product was a blood test device. In fact, the real product of the company was its founder, a fundraising machine in a turtleneck. His charisma intoxicated investors, attracted employees, and charmed the older statesmen who filled the startup’s board. Her story – of a female entrepreneur who left Stanford to disrupt the world of healthcare – was catnip to reporters.

Charisma is a reasonable trait that investors love in a startup founder. But people too easily equate confidence with competence. In a 2012 study, researchers at the University of Lausanne taught a group of mid-level managers a set of “charismatic leadership tactics” – from three-point lists and moral conviction to hand gestures. As a result, observers’ appreciation of the competence of managers has jumped.

Some of Ms. Holmes’ charisma may also have been learned. His defense team entered two handwritten documents in the court records. One is a note in which she presents a list of instructions for the day ahead. The other is a set of business rules drafted for her by Sunny Balwani, former COO of Theranos and former lover of Ms Holmes, whose own trial begins next year. (Ms Holmes’ defense rests in part on her claims that she was abused, molded and controlled by Mr Balwani, which he denies.)

The documents themselves seem laughable. “All the laws of nature, all secrets, are imprinted on every cell of our body,” writes Balwani, a somewhat disturbing statement from the head of a medical startup. Ms. Holmes’ note includes lines such as “I know the outcome of every meeting”, “I am constantly making decisions and amending them as needed” and “My hands are always in my pockets or gesturing”. But the formula, if that’s what it was, seems to have worked. Senior executives at large companies praised Ms. Holmes for “owning the room,” but ignored warning signs that the company’s product was not working.

This may be due to a second decision shortcut: Many investors and executives have relied heavily on the judgment of others rather than their own eyes. Much of the trial focused on adding the logos of drugmakers like Pfizer and Schering-Plow, without their knowledge, to reports that appeared to validate Theranos’ technology. A former CFO of Walgreens, a drugstore chain that partnered with the startup, said he believed the reports were written by the drug companies, when in fact they found the technology was lacking. . Ms Holmes said she added the logos herself, saying she did so in good faith.

It is just not practical to verify everything, or to run a business assuming all information has been tampered with. There was no reasonable way to infer from the documents that Pfizer and Schering-Plow were unimpressed with Theranos’ devices. But at some point, due diligence has to extend to seeing a technology in action.

Theranos ‘story isn’t just about Ms. Holmes’ guilt or innocence. It raises questions about Silicon Valley’s’ fake-it-till-you-make it ‘culture, investors’ fear of missing out on the next big thing, and the scrutiny private companies receive against their listed peers. . These are also the thought patterns that helped Ms. Holmes soar. When reviewing a candidate’s credentials or taking comfort in logos on a website, when you’re blown away by someone’s charisma, ask yourself what you really know.

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Read more from Bartleby, our management and labor columnist:
The office of the future (December 4, 2021)
How to deal with the Great Resignation (November 27, 2021)
The Conversation Guide for Businesses (November 20, 2021)

This article appeared in the Business section of the print edition under the title “Shortcuts to Theranos”

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