07 / 10 / 2021

Trials and Errors (Or the Stories of Elizabeth Holmes and Mike Richards)

As the recent “Jeopardy!” embarrassment made clear, finding the right person to fill a job is hard work. It takes the skills of an investigative journalist to ensure there are no hidden skeletons or grandiose claims. The same scrutiny is required when evaluating a startup’s potential.

Carey Smith | Founding Contrarian

Over the last year, I’d been aware of a vague sense of emptiness but unable to pinpoint its source. Something was missing in life, and it had nothing to do with the pandemic. Then lo and behold, Elizabeth Holmes was back in the headlines — the Theranos founder and gift that keeps on giving to reporters with news holes to plug.

And just like that, the void was filled. With Holmes’ trial underway, we can now look forward to weeks of entertaining copy rehashing the fraud of, well, the decade, at least. But I’ll bet dollars to donuts that all the words devoted to the clickbait queen will somehow fail to acknowledge a very important point: Holmes was aided and abetted by both investors and reporters too lazy to do their jobs.

One of the first in the new wave of stories appeared in The New York Times below the headline: “They Still Live in the Shadow of Theranos’s Elizabeth Holmes.” The gist of it was that female entrepreneurs — those who were quoted, at least — found it frustrating that they were repeatedly asked about and compared to Holmes when pitching their startups. Said one: “There was already a higher bar before Theranos because we don’t fit the pattern. This just makes it that much harder.”

Well, seriously, folks. What do you expect? Most VCs are not what you’d call deep thinkers. For all we know, they view remarks about Theranos as the equivalent of “breaking the ice.” They’re bankers whose livelihood is chasing trends and making quick decisions based on a pitch. And whether they’d admit it or not, most are still members in good standing of the old boys network. So it would hardly be surprising if their takeaway from the Theranos debacle is to be more skeptical of female entrepreneurs. Though I bet if asked, many of them would agree that male founders are the ones more likely to be selling hype.

Holmes attained unprecedented notoriety because investors and reporters wanted so badly to believe in her that they failed to question her most basic assertions. They were so wowed by the highfalutin old farts on her board that they overlooked her evasions and didn’t raise an eyebrow about her bogus machines because she was the “It Girl,” and they were all in on “It.” Joining in the chorus singing her praises was a whole lot easier than being skeptical and digging deeper. That takes work.

So maybe some female founders feel unfairly treated as a result of Holmes’ bad behavior. But it’s worth noting that all of those interviewed by the Times were funded, and all eventually escaped Holmes’ onerous “shadow.” Meanwhile, those poor, benighted VCs are simply trying to apply what they’ve learned, even if they’ve learned the wrong thing.

The lesson they should have taken from the Holmes story has nothing to do with whether someone is female or male. It has everything to do with thinking critically and doing your job — making the calls, asking tough questions and checking sources — in other words, proper vetting. But who wants to do all that? That’s work, and that’s no fun.

But reading about the Theranos trial? Now that’s what I call a good time.