UPDATE (1/03/2022 08:30 p.m. E.T.): Theranos founder Elizabeth Holmes was convicted of four federal fraud charges Monday for defrauding investors. Holmes was acquitted on all of the charges relating to patient fraud and one charge of conspiracy; The jury remained deadlocked on three remaining charges.
Elizabeth Holmes, the founder of the late, unlamented company Theranos, was once one of the country’s most acclaimed (and youngest) CEOs and a business press favorite, frequently gracing the covers of magazines like Fortune, Forbes and Bloomberg Businessweek.
On the way up and on the way down, one thing about Elizabeth Holmes has stayed consistent: People are fascinated by her.
Now, she’s going on trial on wire fraud charges, accused of misleading patients, doctors and investors about the effectiveness of Theranos’ technology (she has pleaded not guilty). Her public reputation has been so tarnished that her attorneys just filed a pretrial motion saying they needed to expand the jury pool because Holmes has gotten so much bad press. She’s been the subject of thousands of stories, a bestselling book, a major documentary and a long-form podcast. In other words, on the way up and on the way down, one thing about Elizabeth Holmes has stayed consistent: People are fascinated by her.
This speaks to the fact that Holmes is the quintessential American antihero. From the start, American culture has been one where people, as the historian Walter McDougall has put it, pride themselves on being “hustlers,” a culture that has a soft spot for hucksters, spinners of tall tales and snake-oil salesmen who promise miracle cures. (Think, after all, about who we elected as president in 2016.)
Holmes was one of the most brilliant, and successful, snake-oil peddlers ever. She founded Theranos in 2003 as a 19-year-old, and over the next 12 years or so she built it into what was at the time one of the most valuable startups in U.S. history. And she did it all on the basis of what was, in retrospect, little more than a cool idea.
Holmes said Theranos had testing technology that could get information about a wide range of health conditions from a few drops of blood. But the company never managed to build a machine that could do what she promised. Yet until Wall Street Journal reporter John Carreyrou revealed, in 2015, just how flimsy Theranos’ sole product was, Holmes managed to keep the house of cards she had built standing. As Carreyrou’s book “Bad Blood” makes clear, people along the way saw that there was no reality beneath Theranos’ hype, but they were no match for Holmes’ ability to sell investors, partners and reporters on a dream.
Making promises that you’re not sure you can deliver on is something technology companies do all the time.
How did she get away with it for so long? In part, it’s because Holmes defined Theranos not as a health care company but as a technology company. And making promises that you’re not sure you can deliver on is something technology companies do all the time. Indeed, the history of Silicon Valley, and of the tech industry generally, is littered with companies that promised fantastic new products and features that they ended up delivering years late — or, in some famous cases, never delivered at all. It’s such a common phenomenon, in fact, that there’s even a phrase for it: “vaporware.” And the most famous tech executives in history, like Bill Gates and Steve Jobs (upon whom Holmes modeled herself), were adept practitioners of it.
Holmes was well-versed in this history and adept at framing criticisms of Theranos as, paradoxically, evidence that it was on the technological cutting edge and that the doubters simply didn’t understand what she was doing. Holmes told CNBC’s Jim Cramer on the very day Carreyrou’s first big Wall Street Journal piece appeared, “First they think you’re crazy, then they fight you, and then all of a sudden you change the world.” The line (which is often falsely attributed to Gandhi) sounds like mumbo-jumbo, but then so does a lot of what startup CEOs say.
Holmes also benefited from the fact that she had identified a real problem and appeared to be offering a product that would have solved it. Medical testing in the U.S. is slow, expensive and cumbersome (and, for people who hate needles, intimidating). For people to be able to get lots of valuable health information from tests requiring only a finger prick would, in fact, have been a radical improvement. At a time when many tech startups seemed to be built around frivolous or trivial business ideas, Theranos seemed to deserve the label of “the next big thing.” Or it would have, had it been real.
What Holmes leveraged was people’s fear of missing out.
Above all, what Holmes did was make investors and partners believe that the pain of not benefiting from Theranos’ upside would far outweigh any regret they might feel if the company failed to deliver. In 2010 and early 2011, for instance, Walgreens began exploring a deal with Theranos to offer its tests in its stores. "Bad Blood" chronicles how it did so even though an outside consultant Walgreens had hired to vet the technology told the person in charge that Theranos had failed to deliver the data they’d promised and that he couldn’t verify that Theranos’ machines actually worked. The reason? Walgreens didn’t want to take the risk that if it walked away from the deal, CVS would end up signing a deal with Theranos instead and that the tests would end up working.
In other words, what Holmes leveraged was people’s fear of missing out. That has a lot of currency in a culture that has historically put a high premium on risk-taking and ambition and has, as a consequence, been fertile ground for fraudsters, as historian Edward Balleisen documented in his book “Fraud.”
In hindsight, we might see a clear line between a fraudster and an honest entrepreneur — between Elizabeth Holmes and Steve Jobs, for example. But in the moment that line is often fuzzier, since even honest entrepreneurs are often at first selling little more than an idea of what they hope to accomplish.
More than that, the skills that define a successful entrepreneur — the ability to convince others to believe, to get investors to part with their money in the hope of a large return down the road, the ability to get workers to invest in what may turn out to be a pipe dream — are not all that different, ultimately, from the skills of the con artist.
We call scammers confidence men (or, in Holmes’ case, a confidence woman) because they inspire you to believe in them, to put your confidence in them, in part because they themselves seem so confident in what they’re doing. That is precisely what any great entrepreneur does as well. That’s why Tom Wolfe described the legendary Bob Noyce, co-founder of Intel, as radiating a “halo effect” and why people talked about Steve Jobs’ “reality-distortion field.” They could make you believe what otherwise seemed totally improbable.
Holmes, too, had that ability — at least for a time. Even as she knew that she was spinning a fairy tale, she must have been thinking that if she just faked it long enough, eventually her engineers would figure it out and would make the fairy tale real. P.T. Barnum, the great master of hucksterism and illusion, once counseled, “Put on the appearance of business, and generally the reality will follow.” Elizabeth Holmes got the appearance of business part right. But in her case, reality refused to follow.