So one of the business ideas I’ve been massaging lately is to stuff Peter Dinklage inside a twisting cylinder and have him make beeping sounds in cadence with the contraption’s exterior lighting. That in and of itself isn’t a business, per se. However, if enough wealthy investors can be gulled into believing my R2-Dinklage is actually something other than a dwarf in a trashcan I may be able to monetize my stake in the enterprise via IPO, and let shareholders run with the company from there.
The only reason I’m revealing the plan to you is that I’m once again late to the racket.
Have you heard of Elizabeth Holmes? She is the unnervingly lifelike 32 year-old CEO of Theranos. This being the company Holmes founded as a college sophomore drop-out and, after growing it into a sizable Ted Talk, is now valued at $9 billion. Her own personal stake is reportedly north of $4 billion. This being even more than Hillary earns in a year of droning for bribes from Wall Street.
Though before discussing how this young lady became a billionairess, a couple of notes on what that figure actually means in context of private equity. If I agree to sell a 1% interest in the Kakistocracy to Haim Saban for a million dollars, the financial press would report that “Bigot blogger worth $100 million!” But that would be only technically true. And technicalities often interfere with big-ticket purchases. For it is just Mr. Saban who has valued this enterprise at 100 million, no one else. And that doesn’t spend at the yacht-yard. So what I would actually have post his investment would be a zero-revenue blog and one million in working capital to fertilize our proprietary posting technology. Which is, again, only a pedant’s quibble from having nine-figure liquidity in my own name. This is why, as you will come shortly to understand, Miss Holmes should remain frugal with her purchases of various island chains.
The Theranos business model, in simplest terms, was to offer the public cheap blood tests from very small samples, with quick direct-to-patient results. Expanding slightly, the company marketed a vision of walk-in diagnostic centers where patients would suffer only the loss of a few drops of blood via finger prick, and receive prompt, accurate results at a fraction of current industry pricing. That’s, in Wall Street parlance, disruptive.
And innovative disruptions are the engine of prosperity. Though the blood diagnostics industry is mature and not particularly inefficient. Thus Theranos was obliged to concoct some revolutionary combination of process and/or technology to upend it. That the company apparently did possess these elements was the thesis behind investor enthusiasm that catapulted Miss Holmes (however temporarily) into the #121 slot on the Forbes 400.
The coveted core of Theranos’ proprietary technology took shape in two forms: miniaturized vials called nanotainers, and a secret diagnostic machine called Edison. Used in combination, these would defenestrate the existing industry template and have millions checking their cholesterol levels while in the Starbucks drive-thru. As it turns out this plan landed, as Bob Uecker might say, juuuust a bit outside.
First there were the nanotainers, which is quite an impressive-sounding name for hollowed-out Christmas tree lights. Miss Holmes made a point of always presenting one between thumb and index finger as if in tribute to Mictlantecuhtli.
For bulk purchasers, nanotainers also come in unlit three-paks.
Unfortunately, cutesy containers carry credulous investors far more effectively than they do blood samples. As a result, the heralded nanotainers were approved for only one of the company’s 240 available tests. And if you weren’t interested in learning your herpes simplex 1 status, then your blood took coach like everyone else. I only watched half her Ted talk (linked above), though it would have been amusing to see Miss Holmes present her Christmas-light to the rapt audience and aspire that within a year nanotainer functionality would double to two out of 240 tests.
But the company’s true magic was found (or rather asserted) in its Edison machines. Apparently these have never been publicly photographed, and so we have only artist renderings.
These devices were alleged to require only the nanotainers’ modest sample volumes while producing accurate results at fractions of the standard lab costs. And, unlike the dust-gathering nanos, these machines were actually put to use–in 12 of 240 tests. Though not actually in the past year, since the company ceased using them altogether in June 2015. To cast the technology in even dimmer light, Theranos has recalled all Edison results from 2014 and 2015 in what is essentially a concession that Peter Dinklage doesn’t know the first goddamn thing about analyzing blood samples.
The remainder of tests, that being the vast majority, were performed using completely standard laboratory protocols. Which doesn’t sound very disruptive at all in hindsight. So what accounted for the company’s documented price advantage? If they didn’t possess any comparative technology advantages, how did they undercut competing labs? I’m only going to speculate on that…
There is a difference between what a thing costs and what a business charges. Revolutionizing the industry required Theranos to materially lower the former. But because it appears they had no viable technology to do so, they instead lowered only the latter. Which means investor seed money was likely spent on subsidizing the illusion of lower costs. This in the hopes their technology would mature without scrutiny to meet its present marketing promise. Basically it was Holmes grandiloquently assuring my company can do X, before turning to her engineers and hissing: now go make X happen!
As you can imagine, when one of these corporate shooting stars returns to Earth as a lump of clay the recriminations are intense. Class action lawsuits are already spinning up. In response, Theranos seems to be pulling into its shell with standard Dindu Nuffin disclaimers. One of the more amusing of these being the assertion that “no patients suffered harm due to inaccurate results.”
This is the sort of logic hurdling that only the most gifted con men dare attempt. If you offer your company as the provider of a critical medical service necessary and beneficial to consumer health outcomes, you can not then say that the erroneous results of that service are harmless. Because if they are harmless, then your legal defense is premised on the business as mere frivolity, and the results of its testing being a matter of entertainment only.
Will Elizabeth Holmes actually testify that her $9 billion company was never meant to be taken as anything more serious than medical astrology? I’d be fascinated to watch her investors’ reactions as she does so.
I have no personal knowledge of Theranos or Miss Holmes, though am not inclined to let that interfere with further musing. I’m doubtful that this literally young girl founded a company at 19 with the intention of perpetrating a scam. I also find it likely Miss Holmes wields a precipitous IQ and deployed it in service to what she considered a worthy vision. My guess is that she formed an idea, wrote its narrative, and then set about to make it happen. And in the process learned that reality wasn’t nearly as elegant as her imagination. Faced with an ugly truth she chose a pretty lie.
And without knowing an iota of her politics, the perspective strikes me as the core of white liberalism. It doesn’t work and its results are deeply flawed, but the idea is beautiful and necessary and no one is really harmed and if you racist critics would all just shut up or die everything would eventually come around perfectly.
I think plaintiff’s attorneys will have an entirely different viewpoint. And Dinklage will be freed of his trashcan.