Case study: Lessons learned from Theranos’ corporate culture

By Jessie Ying

Elizabeth Holmes, founder of Theranos (Credit: Vanity Fair)

Theranos, the infamous biotech startup, has been the topic of many conversations in media. The firm which was once valued at $9 billion was exposed to have lied repeatedly about the ability of its device to run blood tests using a tiny amount of blood from one’s fingertips. After the exposure came out, the company was shut down and liquidated. Its founder Elizabeth Holmes was indicted for wire fraud and conspiracy. Yet a closer look at Theranos would reveal that it wasn’t a fraud to begin with. So what went wrong?

A group of UC Berkeley undergraduate students had a heated discussion regarding this issue in their CS 195: Social Implications of Computer Technology class. Professor Lee Fleming from the Master of Engineering program (MEng) led the business school style case discussion in the hope of giving undergraduate students a taste of the MEng curriculum which offers not only technical courses, but also business courses that help engineers become better leaders.

Lee Fleming in the CS 195: Social Implications of Computer Technology class.

The students discussed several prominent aspects of Therano’s corporate culture that turned the company from a beautiful vision to an ugly lie.

First, Theranos was very competitive internally.

At one point, Holmes hired two engineering teams and had them compete with each other to come up with the best solution for their blood-testing device. Undeniably a healthy level of competition will motivate employees to work harder, but when the competition becomes too hostile, employees will feel stressed and detached. In the case of Theranos, many employees either resigned or were fired, leaving the company without talent.

Second, Theranos was set on an ambitious stretch goal — making a device that can run 70 blood tests on only a 25–30 microliters blood sample.

On the one hand, setting high goals might lead to amazing outcomes but on the other hand, employees might feel burned out and demoralized. The latter was what happened at Theranos. Employees were forced to work overtime every weekday and even had to go to the office on the weekends sometimes. This also led a lot of top engineers to leave the company.

Third, Theranos also strongly emphasized a shared and unified vision.

“The miniLab (name of Theranos’ device) is the most important thing humanity has ever built. If you don’t believe this is the case, you should leave now,” Holmes once declared in a speech to Theranos’ employees.

Such a declaration could boost the morale of the company and make employees more committed to their work. However, it also pushed out all deviants. Employees who had different but important insights went silent for fear of losing their jobs. And the ones that did voice their oppositions indeed got fired. This kept Theranos running firmly along Holmes’ vision which ultimately led to its ugly outcome.

But the most important aspect of Theranos’ culture that led to its downfall is its centralized command.

Unlike a typical Silicon Valley company which values delegation of decision-making powers and flexible processes, Theranos operates more like an army. Everyone, from entry-level hires to department heads, all report to Holmes herself. One could argue that there is a benefit of such a system: decisions can be executed quickly which saves time and resources. However, the problem with this system is also obvious: it’s highly vulnerable because the fate of the whole company depends on the single person at the top. Also, there is no accountability of this person and can thus easily cause frauds to happen. In the case of Theranos, Holmes’ power over the entire company meant that all her decisions to lie about the device got carried out. Fake demos were presented to venture capitalists, test results from other companies’ devices were claimed to be run on Theranos’, false results were passed as correct ones — the list went on. None of these would have happened if the company had a more decentralized command system and more check and balance.

This case discussion showed the students with a real-life example the importance of ethics in developing new technology. They also learned what it takes to launch a successful business is more than just a great idea.

“Think about the culture you want to create when you start your own company,” Lee told the students. “Take what you’ve learned in this class and apply it when you are going into the world and become engineering leaders.”

The Berkeley Master of Engineering program accepts applications once per year for a fall semester program start. The Berkeley MEng application opens in September and is due in early January for Fall enrollment. How to apply.