Bad Blood, by Carreyrou, is an exemplary tale of a business going bad. It is in line with two other classics, The Deal of the Century by Coll and Barbarians at the Gate by Burrough and Helyar. The former depicts the beginnings of the collapse of AT&T and the second the complex takeover of Nabisco. Both of these tales result in a massive restructuring of businesses, for better or worse. In this case, it describes probably the worst behavior seen in a startup ever and the destruction of whatever business was conceived.
This is a tale of people who seem to have been brought into a techno-cult, many smart young people who got proselytized by an even younger individual who managed to present herself as super competent but who was fundamentally was intellectually and morally flawed. This book does not depict a tragedy, except perhaps for the young employees who wasted years of their lives and frankly may be forever scarred. It is a book about the ability for a perverse individual and a co-conspirator to convince a significant number of allegedly competent people to dismiss their fundamental judgments regarding reality. There was an induced suspension of belief on the part of many otherwise highly competent people and the acceptance of this almost cult like persona.
I approached this book having done about 35 start-up and turn-arounds, as the principal or investor. Many did well, many were stalled mid-stream, and none went bankrupt. In the process I often saw that my initial premise was altered and thus the business model changed. However in almost all there was a need for a plan and a reporting on the plan to a Board who had a modicum of confidence. In some cases I had Directors call first thing Monday to see what the cash flow of the prior week was and compare it to plan. Reality was always at the fore. Plan and actuals, and interaction with hands on boards.
I have seen deals where one had to pull the plug when reality and expectations were dissonant. In one case an entrepreneur in an investment could not reproduce the core result and worse yet even if they could they had no way to manufacture it. That is not a way to run a business.
I also approach this book as one who has spent time in and around the health care field. Unlike the more common areas of start-ups, health care, including biotech, must live in a highly regulated environment. Human lives are in the balance. Thus one sees the high costs of clinical trials and the failure of many reasonable therapeutic efforts. The FDA and similar entities control with an iron hand the ways and wherefores of these entities. This control system never came to play here until way too late.
Now this can be a tale of many entities: (i) the principals themselves, (ii) the employees, (iii) the investors, (iv) the Directors, (v) the customers, or (vi) the consumers or patients. The author focuses upon the first two giving some limited understanding of the other participants. In particular this is a book presenting the work and hardships of many of the employees over time. It would be interesting at some time to examine the many other dimensions, but this presentation is a well presented self-contained effort.
Now, fundamentally, any investor, and especially a Director, must have an understanding of their Fiduciary Duty to the other shareholders and must execute themselves in any efforts of the company to adhere to that duty. That means effecting a process of due diligence. Due diligence is demanded in any investment and it fundamentally entails: (i) that the product or service can be real and deliverable, (ii) that management has the competence to do so, (iii) that the price point is highly competitive and that the margins are appropriate, and finally (iv) that the people one is dealing with are ethical, honest and competent. It appears that in the case of Theranos, as the author recounts, that many never did any Due Diligence. What is truly amazing is that the venture investors involved would never allow themselves to invest in any other deal without doing their due diligence. Furthermore, the “big name” Directors represented in the book most likely had no idea what due diligence entails. In my experience of the 100 companies I would look at, 2-3 would ultimately pass the test, 80-90 would be dismissed out of hand and the remaining would never pass Due Diligence. It appears that if one accepts the author’s tale, and why not, then there never was any due diligence. “Trust me” is not the basis for major investments, by investors, Directors or joint venture partners.
The author describes in full detail the creation and buildup of the company and how it managed to go through hundreds of millions of dollars and at the same time achieve nothing. The battles between the top managers and the staff, the high rates of turnover and the outright prevarication of the principals are presented. What is most astonishing is the tale of how the principals dealt with an attempted sale to the DOD. One military officer managed, presented as a highly qualified and competent one, dared to ask a key question of the principal and that principal in turn manages to go to a four star general, now a prominent person in Washington. The General then believing this principal proceeds to call-out his own person. Marines should not, must not, do that; it demonstrates, in my opinion, lack of judgement, and lays the ground for questioning any subsequent judgement of such a person. But the author shows that this example was not in any way unique, if anything it was a pervasive behavior on the principal’s part.
Overall this book is a tale of one individual after another interacting with the principals and how they were manipulated and then thrown aside.
What this book does not do is more important. This is not a criticism since answering these issues may fall into the criminal and civil litigation forthcoming. But specifically:
1. Why did none of the accredited investors perform due diligence? Or were there some who tried and then walked away? The book alludes to many of the investors but they seemed to like sheep, just following the herd. This were all competent people. It would be important to understand why they did investments, often of significant amounts, and not due the due diligence and furthermore not demand Board rights.
2. Why did the Directors allow themselves to sit by and have management do what they did? Directors have a fiduciary duty and it appears that none of them were either aware of what their duty was and/or did they have the competence to even ask the questions. The Directors were all prominent people in the fields, but unfortunately none appeared to be experienced in this area. The book does not in any way address the Directors in any detail. That would be an important analysis.
3. One of the most significant “red flags” in any business is the loss of a CFO. When the first CFO left abruptly, the Board should have individually met and questioned him as to why he left. One can understand that the CFO was bound not to speak to others but he can and must speak to the Board. The question is; why not? Perhaps the Board was not qualified to even ask the questions.
4. The fact the young principal owned a tremendous controlling interest and as such could block anything she desired from happening should have raised red flags as well. One must ask; why not? This seems to be a case of true distortion of reality. The question is; why?
5. The biggest unanswered question seems to be; where did all the money go? They seemed to have Safeway and Walgreens pay their own way, the attorneys clearly cost a small fortune, but if the company had a running number of employees of say 100, and the fully loaded costs per employee were say $200,000, then the annual burn rate for the company less CAPEX was $20 million, Even at large CAPEX and attorney fees, one must ask where the money went?
The author tells the tale via the many employees and their interactions with the two principals. But the other dimensions, namely the investors, Directors, business partners, must be folded into the mix. Again it is perhaps too early to get this tale told properly, but if one is to gain anything from this fiasco, then one must understand those dimensions as well. If only someone had been able to do due diligence. Its lack was the classic red flag!
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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.Highlighted by 5,931 Kindle readers- Like her idol Steve Jobs, she emitted a reality distortion field that forced people to momentarily suspend disbelief.Highlighted by 5,079 Kindle readers
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- Well, there was a reason it always seemed to work, Shaunak said. The image on the computer screen showing the blood flowing through the cartridge and settling into the little wells was real. 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.Highlighted by 3,557 Kindle readers
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Bad Blood: Secrets and Lies in a Silicon Valley Startup
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Bad Blood: Secrets and Lies in a Silicon Valley StartupThis is a book written by John Carreyrou, a Wall Street Journal investigative reporterIt is saga of Elizabeth Anne Holmes who started at 19 a blood monitoring company with best intentions in the world, to make the patients safer. She cited the fact that an estimated one hundred thousand Americans died each year from adverse drug reactions. Theranos the company Elizabeth founded - would eliminate all those deaths, she said. It would quite literally save lives.ad Blood: Secrets and Lies in a Silicon Valley StartupShe worshipped Jobs and Apple. She liked to call Theranos’s blood-testing system “the iPod of health care” and predicted that, like Apple’s ubiquitous products, it would someday be in every household in the country."This is the Silicon Valley I dreamt of."On her father’s side, she was descended from Charles Louis Fleischmann, a Hungarian immigrant who founded a thriving business known as the Fleischmann Yeast Company. Its remarkable success turned the Fleischmanns into one of the wealthiest families in America at the turn of the twentieth century." Charles Louis Fleischmann was not only Hungarian, he was of Jewish descent, although it seems he was not a practicing Jew.Smoking cigarettes while reading the TalmudThis story is from a book called "The complete Idiot's Guide to Jewish Spirituality and Mysticism" by Michael Levin A yeshiva student comes home on Sabbath afternoon and finds his father reading the Talmud and smoking a cigarette. He is shocked: smoking is forbidden on the Sabbath. The father noticed his son is stunned by his behavior. He said:"When you know as much Talmud as I do, you too can smoke a cigarette on Sabbath"People may become self-righteous for keeping their obligations like studying the Torah and feel the rules don't apply to them. They lost the fear of God and their humility. There is no spirituality and no kindness.These are actual quotes from the book“The biggest problem of all was the dysfunctional corporate culture in which the mini Lab was being developed. Elizabeth and Sunny regarded anyone who raised a concern or an objection as a cynic and a naysayer.”“For the dozens of Indians Theranos employed, the fear of being fired was more than just the dread of losing a paycheck. Most were on H-1B visas and dependent on their continued employment at the company to remain in the country. With a despotic boss like Sunny holding their fates in his hands, it was akin to indentured servitude. 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. Every evening, around seven thirty, he made a fly-by of the engineering department to make sure people were still at their desks working.”With a board of directors including Henry Kissinger, 94 years old, with top venture capitalists on board, with her original Stanford chemistry professor Channing Robertson, receiving a 500,000 dollars check for just being a cover up consultant, General Jim Mattis who became Trump Defense Secretary, few is any contested Elisabeth legitimacyElizabeth was a drop-out of Stanford with some hypnotic presence. How come she fascinated most famous people on the Valley, but fall under the influence of her boyfriend Ramesh “Sunny” Balwani? He was twenty years older and a married man when they first met."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. His thick eyebrows and almond-shaped eyes, set above a mouth that drooped at the edges and a square chin, projected an air of menace. He was haughty and demeaning toward employees, barking orders and dressing people down"Epilogue - for nowIf you read the LinkedIn as I do, 99% of the people are not entrepreneurs. They just pretend being entrepreneurial when all they want is a job.So let’s assume although Elizabeth is proven guilty, she gets funded again. Would you refuse to work for her? No! You wouldn’t, despite what happened to Theranos. You will take the job again with both hands and pray this time is Kosher.And Bad Blood will become a cult book, just like Paul Coelho “The Alchemist” and Steve Jobs biography by Walter Isaacson and the words Fake-until-you-make-it will enter the Bible.
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Top reviews from other countries
Natalia Rice
The best read of the season; the author deserves an award.
Reviewed in the United Kingdom 🇬🇧 on July 2, 2018David
If something sounds too good to be true it probably is.
Reviewed in the United Kingdom 🇬🇧 on April 3, 2019
Paul Dyer
Shocking but depressingly familiar
Reviewed in the United Kingdom 🇬🇧 on June 21, 2020
@Timothy_Hughes
Playing fast and loose with patients data is morally wrong, but where did it all go wrong?
Reviewed in the United Kingdom 🇬🇧 on May 5, 2022
