Business Thoughts: Theranos waiting on technology to catch up?

The story of Theranos the health tech company is now a legendary one: how a secretive dropout formed a multi-billion dollar company that suddenly imploded last year and now its valuation is (almost) nil. I won’t regurgitate the details here as it’s been written again and again by countless others. In hindsight it seems like a classic case of something seemingly too good to be true turning out exactly that: too good to be true. What fascinates me is the accusation that it was a simply a mega ponzi scheme run by a very daring person. In my humble opinion, it probably wasn’t but points to something else.

What if the problem with Theranos is that it simply screwed up its marketing and hyped a product unsupported by current technology. In other words, it was wagering that future technology would allow it to do everything it promised could be achieved — one finger prick can tell you everything about your genetics and identify potential diseases. I reckon no sane person would argue that such a thing would be impossible without the time constraint. In 50 years or less, I’d imagine this feat would not only be possible but also cheaper than even Theranos had marketed it to be. The inconvenient truth is that today is not 2067 and the company essentially played its hand too quickly rather than baiting its time a little bit longer. For that, they committed felony and defrauded its investors out of millions of dollars.

The takeaway is that this neither a new concept or uncommon practice. Tech companies, especially startups, in particular are often valued on their potential rather than the actual performance. Is this the definition of the so-called “unicorns”? One could make a good argument that Elon Musk’s Tesla had been doing this all along: wagering on battery-powered cars for which the technology is still primitive. And Tesla has been successful in selling their vehicles to customers, who buy and preorder en masse knowing very well the range and charging limitations. But the key difference is that Tesla didn’t overstate the capabilities of current battery technology nor what the company could achieve in the current state. Future state is all fair game and possibilities limitless. Unfortunately, Theranos sold on the future state and cashed the check too quickly.