Bad Blood: 5 Lessons in Company Culture from the Rise and Fall of Theranos

Where did it all go so wrong?

You’ve all heard the story: golden girl rises from the boys’ club of Silicon Valley to become the first self-made female billionaire in the cut-throat world of tech startups.

Then, the bubble bursts, and it’s revealed that the company had been fudging test results and defrauding investors. The founders now face criminal charges.

Elizabeth Holmes was supposed to be our next Steve Jobs, black turtleneck and all. Except that she’s a woman — which made her even more celebrated in the tech space!

So where did things go so, so wrong?

“The culture at Theranos was toxic,” says John Carreyrou, the author of Bad Blood, which chronicles the epic rise and shocking fall of Elizabeth Holmes and her company Theranos.

“Would-be whistleblowers were threatened with lawsuits. Criticism of leadership or practices was unwelcome. Those who pushed back were usually either fired or marginalised to the extent that they had to leave — they had an expression, which was to ‘disappear’ someone,” Carreyrou said. “The paranoia went into overdrive.”

He added, “If the culture had been more wholesome, then maybe Theranos would have actually made some headway toward achieving Holmes’s vision.”

Here are 5 takeaways from the scandal about the importance of company culture — and the consequences of underrating it.

Lesson 1: Workplace perks do not equate to company culture

While many founders agree that company culture is important, not many understand what it actually means.

Company culture is about “the way we do things around here”. It encompasses everything from the organisation’s values, mission, and ethics, to its expectations and goals — in short, culture is what brings a company’s purpose to life.

According to David Sturt, Executive Vice President of O.C. Tanner, company culture mainly encompasses 6 things:

1. Purpose: What is your organisation’s reason for being or what difference do you hope it makes in the world?
2. Opportunity: How well do you nurture your employees? Do you allow them to develop as professionals and help them expand their skillsets?
3. Success: Do you give your employees opportunities to innovate, do meaningful work, and build winning teams?
4. Appreciation: How often and sincerely do you acknowledge and recognise your employees’ outstanding work and unique contributions?
5. Well-being: Do you see your employees as human beings, whose physical, social, emotional, and financial health you care about?
6. Leadership: How well do your leaders connect with your employees and empower them to do great work? How authentic is the sense of camaraderie that is created?

So while the work environment does play a part, fancy designer furnishings, free snacks in the pantry, a monthly catered lunch, and even medical coverage do not a culture make.

Perks are great, yes, and can boost employee morale for a short period of time, but in the long run it’s the intangibles — purpose, values, principles like respect and integrity — that keep employees loyal and motivated.

Lesson 2: Company culture has a direct impact on your business objectives

Because culture shapes how decisions are made and how inter-personal relationship function, it dictates whether a company is innovative or conservative, value-driven or task-oriented, risk-averse or risk-taking.

When employees are aligned with their company’s culture, the result is greater innovation, better talent attraction and retention, and improved performance across the board.

On the other hand, when there is a gap between a company’s desired culture and its employees’ experience, it becomes much more difficult for the business to achieve performance goals and fulfil customers’ needs.

“The most important thing for your speed, your company, and your service is internal culture,” Gary Vaynerchuk vehemently asserts.

In his controversial address, he says that you should always do what’s best for your company culture — even if it means firing your most productive employee (if they are the source of toxicity in your organisation).

So central is the role of culture that there are even those who believe it will be the defining factor in identifying the next billion-dollar startup. That’s because allowing toxicity to fester in your company will cost you, literally.

In short, culture has a very real impact on whether you will achieve your business objectives. It is ultimately one of the things that can make or break a business.

The next time you think about your bottom line, think about how your company culture plays a role in whether you will — or won’t — achieve it.

Lesson 3: When it comes to culture, founders need to lead by example

It’s not enough for founders to dictate company culture — they need to lead by example. Showing a good face to the public, whether at conferences, in newspaper interviews, or at company events, means little to nothing if there is no follow-through.

Preaching equal opportunities while using discriminatory language in the office? Speaking about empathy in the papers while verbally abusing your staff in private? That’s no longer going to fly.

Employees know who you are on the daily, especially in a startup where the team is small. In a digital world of increased transparency (whether through Glassdoor reviews or good ol’ social media), emotionally or verbally abusive bosses no longer go unchecked.

Founders who create a culture of fear, intimidation, or anger will find that their best employees will drop them faster than a hot potato.

So while you may have some star ambassadors on your team to champion your company brand, at the end of the day, you need to have a direct hand in building the purpose, values, and culture of your business.

This is especially important if you aspire to become a leader that people will rally behind.

Lesson 4: Company culture is mainly about checks and balances

According to Carreyrou, the culture of Silicon Valley created one of the best conditions for someone like Holmes to thrive in. There have been numerous incidences of startup founders lying, raising millions of dollars in funding on nothing but air.

The mantras of “fake it till you make it”, “fail fast”, or “go big or go home” allowed much of Theranos to go unchecked — as long as they were distracting people with seemingly huge leaps in technology or prodigious funding.

Because the culture of Theranos vehemently blocked any internal criticism, the company had no devil’s advocate, no checks or balances, no oversight. This is a huge blind spot for startups, where the company seems to swivel and shift at the whim of its founder.

Which is why smart founders know to use their employees as a form of check and balance — they don’t get defensive in the face of honest feedback and are willing to own up to their mistakes.

After all, you can’t fix something until you acknowledge that it needs fixing.

Lesson 5: Gathering employee feedback alone is not enough to improve company culture

When it comes to employee engagement, many organisations go through the motions, whether it’s the mass anonymous employee survey, the awkward exit interview, or the company lunch where everyone ends up chatting in their own private circles anyway.

The two main reasons employees don’t bother giving feedback? Fear and futility, which both contribute to a lack of trust in leadership.

So if you’re genuine about improving your company culture, the first step to getting honest and constructive feedback from your employees is to establish trust with them. The second step is to actually listen and do something about it.

The worst thing a founder can do is let their ego get in the way of their own progress. Rather, foster a culture of continual learning, co-operation, and support, and watch your employees thrive.

The bottom line: treat your people right, because engaged and motivated employees will equate to more satisfied customers, and everyone knows it’s the customers that have the final say in the success of any company.