5 Lessons We Haven’t Learned Yet from the Theranos Scandal
Theranos will go down as the early 21st century’s biggest healthcare fraud. It is epic on the level of Uber’s toxic culture. Founder and CEO Elizabeth Holms built partnerships with major health behemoths. They raised money for their innovative blood testing device from experienced investors. It was all a sham.
There are plenty of explanations about how this was allowed to happen. The Silicon Valley culture of spin. Investors and customers are not doing their due diligence. The media is overly enamored with tech celebrity CEOs. The Theranos team acted illegally to hide the actual reality.
These are real issues. But, I’d argue they are symptoms of the problem. Here are the five things we should be learning from the Theranos scandal. These items are
5. The healthcare sector is highly problematic. Investors see opportunities for improvement even when the product is dubious … and that might be OK (see lesson 2).
Investors make decisions on many variables including product and leadership. They also look at the market. Is there a need? Does that need translate to a business opportunity? The healthcare opportunity is so vast, and the need so great, investors are (sometimes irrationally) piling in.
This should be a lesson to established players. Theranos is an outlier. There are hundreds of other firms with real products. As they mature, they may replace incumbents.
4. Health innovation journalists celebrate the “BIG.” They should celebrate the process to get to real impactful innovation.
The Silicon Valley ethos is “fail fast.” That’s great. But, our physiology doesn’t change as fast as a news cycle. Healthcare journalists want a big scoop. So they report on big raises, celebrity CEOs, and big companies like Amazon, or Apple.
Healthcare innovation is a slow process even for major companies. It’s likely there are some smaller firms out there that journalists should watch. Otherwise, they may miss a scoop.
3. We need to find a balance between Silicon Valley speed and the real world reality.
Likewise changes in our bodies our health (and the systems to support them) don’t change with the speed of a modern business cycle. Investors need to understand healthcare startups won’t go to scale at the same rate as a social media startup. CEOs (me included) have at times felt unreasonable pressure to make a number. That pressure can backfire.
2. Setting lofty expectations isn’t a crime. Creating excitement isn’t a crime. Lying and misleading is.
Innovation is an absolute necessity in healthcare. Convincing others you’re working on the right solution is a significant success metric. Transactions and deals can take years. Innovators have got to keep the momentum to make continuous improvements to highly complex solutions.
However, the key here is “working on.” Anyone presenting a “done” solution in healthcare is doing one of two things. One, focusing on to narrow a problem. Or, two, lying.
1. We don’t have a cost-effective way to validate health claims (until ProofPilot).
No VC would fund an e-commerce or enterprise service app without the vital metric: Sales. However, when your purpose is a health outcome or health diagnosis, money in and money out isn’t the whole story. Clinical trials are considered the gold standard to validate health claims. However, they aren’t practical for iterative decision-making every day in innovation. So we make decisions based on hunches, anecdote or whoever speaks the loudest.
We designed ProofPilot to reduce the fear of the failed trial. Trials should be a tool for (responsible) product development. Any pilot program should be a candidate for a trial. Any VC should demand to see the results of repeated trials in the same way they do financial results.