Top 10 Theranos Scandal Facts Photo Elizabeth Holmes, the founder of the blood testing company Theranos, lost her place on Forbess list of Americas richest self-made women. Credit Kimberly White/Getty Images for Breakthrough Prize
Elizabeth Holmes, the founder of the blood testing company Theranos, was a rare breed, something more rare than even the Silicon Valley unicorn she created: a self-made female billionaire. Forbes, the business publication that has made a franchise of cataloging the rich, had put Ms. Holmes on the top of its list last year of Americas richest self-made women.
The magazines new estimated tally of her wealth? It went from $4.5 billion to $0.
Ms. Holmess unusual status, as a young woman who created and controlled a company seemingly valued at about $9 billion, captivated the media: She graced countless magazine covers, including T: The New York Times Style Magazine. Theranos, she said, would revolutionize the lab industry by offering blood tests from a single finger p***k at a fraction of the cost of traditional testing.
But over the last year, Theranos became the subject of a series of hard-hitting Wall Street Journal articles and intense regulatory scrutiny from an array of federal agencies.
The media is now mesmerized by Ms. Holmess fall. Truth be told, the half of the $9 billion valuation ascribed to Theranos and previously listed as Ms. Holmess wealth was nothing more than an estimate based on investors best guesses. Taking into account all the controversy and uncertainty surrounding the value of the companys top-secret technology, Forbes is now guessing that the company is worth more like $800 million. While Ms. Holmes still owns at least half of the company, much of that value would be tied up with outside investors.
But, as an article in Forbes on Wednesday about Ms. Holmes is quick to acknowledge, no one really knows. Theranos has not let anyone really kick the tires. Ms. Holmes, 32, who has repeatedly vowed to reveal all, is now expected to present some data to the public in August at the annual meeting of the AACC, formerly the American Association for Clinical Chemistry. Even then, it may be impossible to come up with a better estimate of what her company is worth.
Not surprisingly, Theranos refused to shed any light on the matter, except to dispute Forbess analysis.
As a privately held company, we declined to share confidential information with Forbes, Brooke Buchanan, a company spokeswoman, said in an emailed statement. As a result, the article was based exclusively on speculation and press reports.
It wasnt that long ago that Theranos was one of the hottest companies in the medical technology field and was gaining a lot of attention as a Silicon Valley startup to watch out for.
Then The Wall Street Journal came at them hard by questioning the science of the company and its claims to be able to run blood tests on mere drops of blood instead of vials.
Months later, the company is facing criminal investigations, and the FDA may ban founder Elizabeth Holmes from the industry. Its been a whirlwind of surprise and its also a stark reminder of the perils of investing in Silicon Valley.
There are also lessons that brands can take away from the struggles the company is having and how theyve responded to the media blowout.
1. Put the Right People Out in Front
Throughout the entire issue, Holmes has been front and center to tackle the inquiries and interviews and hasnt been afraid to be in the crosshairs. This might be considered a sign of strength where PR is concerned, but thats not always the right choice.
Holmes should have done more. And by that I dont mean she should have been more visible she should have been less so.
Instead of taking the hits and being out in front, she should have called on someone with the medical expertise to handle the PR inquiries and be the face of the crisis. Someone who could break it down clearly for the public. Thats because, in this case, the value of the company lies in the science behind what they do.
When that one thing the core concept of the company is attacked, then you have to protect it. Without the right person, such as a medical ally, that protection is left up to someone Holmes who lacks any kind of medical degree.
The company failed to defend the science. And thats a significant PR slip-up.
2. Make Stuff That Works
Its pretty clear that Theranos let the marketing get out way ahead of the product itself.
According to the WSJ article, Theranos wasnt necessarily using the product it touted and instead was allegedly using existing technology for tests.
It seems like the company didnt spend an adequate amount of time testing for product-market fit, along with making sure that the product was 100% viable, before pushing forward with marketing.
Before you start marketing anything be it a product or service make sure your stuff works.
3. Be Transparent
One of the biggest issues facing Theranos at this point is its lack of transparency. While the company continues to insist on the viability of its product citing its own studies it refuses to release any big data.
Researchers from Icahn School of Medicine at Mount Sinai have done their own tests, but Theranos is disputing the accuracy of those tests. At the same time, Theranos continues to refuse to provide its own data.
This is a prime example of why transparency is important. Your audience and customers expect it. If they ever feel like youre withholding information, then you lose trust and that is difficult to regain once its gone.
4. Keep Your Focus
Even in the middle of a crisis, you still have a business to run. At one point, Holmes was unable to be reached because she was in all-day meetings with the Harvard Medical School Board of Fellows.
In addition to that, she has continually stood out at speaking events, television interviews, investigative interviews, and more.
You absolutely need to address tough questions from reporters, employees, customers, and even regulators. But at some point, once the troops have been rallied, you need to focus and get back to work.
Its extremely difficult to pivot in a crisis and take actionable steps to improve or change when the majority of your time is spent on publicity and PR. You have people (hopefully) to handle that for you. If not, hire the right person or agency that can let you get back to work.
5. Bad Hacks Will Catch Up with You
Im not claiming to be an expert on Theranos or even that specific industry.
With that said, it stands to reason that if youre running tests on machines that arent the proprietary machines youve been claiming to use, then youre running a bad hack.
Growth hacking is one thing, but bad hacks in business (no matter how effective at the time) catch up with you. Youre just cutting corners.
Im sure there are parts of older social platforms like Facebook that still have poorly-cobbled PHP from 2008. The same could be said for a big platform like SalesForce. Not updating those bad hacks, or corner cutting, has them leaning on bad practices.
Whether its your product, your process, or your marketing deployment, those hacks are going to catch up with you. If you cant operate without them, youre in trouble.
6. Dont Overhype and Oversell
You could point back to the old adage of If its too good to be true with Theranos. The company spent a great deal of time on hype that caught the attention of a lot of people, but it failed to back up its marketing and actually deliver.
In fact, a number of doctors who reviewed the data for Forbes unanimously said that the world isnt ready for this kind of change until Theranos makes more of its own data public.
Id be very reluctant to use Theranos based on this study, said Edward R. Ashwood, Professor and Vice Chair for Clinical Pathology at the University of Colorado in Denver.
When youre creating a marketing strategy, dont stretch the truth. Focus on help over hype. Focus on the real value, and the real benefits. Anything beyond that will cost you dearly if youre unable to back it up.
7. Have a Social Strategy for Managing a Crisis
As the issue unfolds, Theranoss Facebook page remains devoid of engagement. The company continues to post content, mainly centered on testimonials from customers and employees.
What its not doing is responding to the barrage of comments and questions from visitors.
Complete and utter silence disengages you from your audience. It erodes trust and makes people feel like youre hiding something. Take the time, before a crisis occurs, to create a social media strategy that clearly defines how these types of incidents are handled, and who will be responsible for owning them.
Has your company learned any valuable lessons as a result of the PR fallout around Theranos? Let me know your thoughts in the comments below.
May 31 Theranos, Inc., defrauded patients when it claimed that its blood tests were accurate when they clearly weren"t, according to three proposed class action suits filed in late May in federal district court in California ( R.G. v. Theranos, Inc., N.D. Cal., No. 5:16-cv-02891, filed 5/30/16 ; Jones v. Theranos, Inc., N.D. Cal., No. 3:16-cv-02835, filed 5/26/16 ; M.P.B. v. Theranos, Inc., N.D. Cal., No. 3:16-cv-02810, filed 5/25/16 ).
The filings in the U.S. District Court for the Northern District of California, which ask for actual and punitive damages, come as Theranos waits for the Centers for Medicare and Medicaid Services to decide whether to implement sanctions it threatened against the company on April 14.
The sanctions could include suspending Medicare payments, shutting down Theranos"s California laboratory and barring its chief executive from owning or operating a laboratory for two years (10 LSLR 09, 4/29/16).
The class action suits are really not surprising and often happen when there"s been a regulatory action such as the one by the CMS, which the litigations cite, said Mark Mansour of Mayer Brown, Washington. They represent the individuals who claim to have been affected, and they are one more thing in the mix.
He added, The next big event, the next shoe to drop, will be what the CMS does.
Allege Tests Inaccurate
The proposed class action suits were filed by three Arizona residents who said they had purchased Theranos blood tests from Walgreens through the pharmacy chain"s joint venture with Theranos, which is based in Palo Alto, Calif.
One plaintiff is identified only by the initials R.G.; another as M.P.B., and the third as Casey Jones. The litigations were instituted on behalf of the named plaintiffs and all similarly situated individuals.
The complaints by R.G. and M.P.B. were filed on May 30 and May 25, respectively, by McCune Wright LLP, Redlands, Calif., and Berwyn, Pa., and are identical. Jones"s complaint was filed May 26 by Hagens Berman Sobol Shapiro, Berkeley, Calif., Seattle and Phoenix.
R.G., M.P.B. and Jones alleged that Theranos advertised that through its testing procedure, a hand-held device would be used that takes just a few drops of blood from a patient, and from that sample Theranos"s proprietary Edison machine could conduct hundreds of blood tests.
But the Edison machines didn"t work and Theranos"s tests weren"t accurate, M.P.B. and R.G. wrote. Theranos conceded the inaccuracy of the results, the two plaintiffs contended, by informing regulators it was voiding all of the companies" test results, both those run on the Edison machines and those run on traditional machines that Theranos employed when it stopped using the Edisons.
Jones said that when he went to the Walgreens, rather than having just a few drops of his blood withdrawn by a hand-held device as Theranos had advertised, he was subjected to having large vials of blood drawn in the traditional manner.
Punitive Damages, Disgorgement
M.P.B. and R.G. asserted causes of action of fraud; negligent misrepresentation; violation of California Civil Code 1710 (Deceit) and 1750 (Consumer Legal Remedies Act); violation of the Arizona Consumer Fraud Act, A.R.S. 44-1521; and violation of California Business & Professions Code Sections 17200 (Unfair Business Practices Act) and 17500 (false advertising laws).
Jones asserted causes of action of breach of contract; unjust enrichment; Arizona consumer fraud; violation of California Business & Professions Code Sections 17200 and 17500; and violation of California Civil Code Section 1750.
The three asked the court for certification of the class action; disgorgement of all profits obtained as a result of violations of laws, statutes and regulations; damages; punitive damages; interest; and attorneys" fees and costs.
To contact the reporter on this story: John T. Aquino in Washington at jaquino@bna.com
To contact the editor responsible for this story: Randy Kubetin at rkubetin@bna.com
