Nowadays it seems that you can’t open an Internet browser without reading about some scandal involving some scitech biz.
First, it was Volkswagen’s fraudulent emissions tests. Then Martin Shkreli bought the rights to an $18-a-pill AIDS medication and jacked the price up by 5,000 percent. Now, the once-revolutionary blood testing startup Theranos is facing regulatory sanctions and even a criminal investigation (and Entrepreneur Magazine even declared founder Elizabeth Holmes the Worst Entrepreneur of 2015), while wireless charging pioneer uBeam’s former VP of Engineering accused the startup of making false promises to investors and significantly misrepresenting its technology’s capabilities to journalists.
Now, business scandals are nothing new. One of the earliest business scandals in recorded history took place in the year 1494, when the Medici Bank in Florence became insolvent because of the Medici family’s reckless spending and failure to control expenses. The first Ponzi scheme took place in 1899, when William Miller’s Franklin Syndicate in New York defrauded investors out of $1 million.
Of course, it’s not uncommon to encounter people who only want an easy payday, and who will stop at nothing to get it. But if you want to strike it rich by any means necessary, there are a lot of faster and easier ways to do it than starting a business.
I don’t believe that Elizabeth Holmes started Theranos with the idea that she’d use the company to deliberately defraud investors.
I also understand why she’s changed her tune a few times when talking about whether or not she was aware of the problems with her blood tests. Her first instinct would’ve been to vigorously defend her business and refute allegations of impropriety.
Holmes was 19 when she started the company. She started her first business when she was just 9 years old – and it wasn’t just some lemonade stand, either. She was selling C++ compilers to Chinese universities. Being a science entrepreneur has been ingrained as part of her identity since she was a child. So when you suddenly find that your business – which you founded on science and technology and facts and formulas – isn’t meeting the need you sought out to solve, that’s a big threat to your identity.
uBeam’s story is the same. The energy startup sought to change the way we charge our electronic devices by harnessing the power of sound. And on paper, it’s not a bad idea.
Technically, sound is just a form of energy expressed as a wave. And powering electronic devices essentially relies on harnessing electrical energy and channeling it into said device in a controlled manner. So it should make sense that it should be at least theoretically possible to harness sound energy and turn it into electricity – after all, the human brain does it thousands of times every single day. Even the MIT School of Engineering acknowledged that the idea holds some promise, at least in theory.
And it’s not like the company’s leadership is totally inept. uBeam founder Meredith Perry isn’t a complete moron. She’s an educated woman. She used to be an astrobiology researcher with NASA, for heaven’s sake. So it’s reasonable to say that she has at least some idea of what she’s doing.
So why is it that smart, educated, ambitious, talented people – people you’d expect to be the next Arianna Huffington or Mark Cuban – are suddenly crashing and burning?
Part of it has to do with the tech startup industry itself, with investors being so focused on creating “unicorn” companies (startups with at least a $1 billion valuation) that they overlook critical details regarding the how of the business in favour of getting caught up in the why. It’s important for investors to support emerging businesses, yes, but it’s also important to do your due diligence.
One big problem is that Theranos’ investors didn’t consult with independent medical professionals before investing. If they had, they would’ve learned that running a variety of different tests on a small sample – especially in the absence of symptoms of disease – can produce false positives. They would’ve learned that the FDA had only approved Theranos’ proprietary nanotainer for just one medical test. And if they’d consulted with a phlebologist or hematologist, they would’ve learned that the blood samples that come from fingertips also include a concentration of tissue fluid, which can confound the test and produce false results.
Another big problem is startup founders’ emphasis on secrecy and their instinctive drive to protect their businesses by shrouding their proprietary tech in secrecy. Never once before being funded did Holmes ever publicly explain exactly how the Edison machine works. Instead, she relied on the power of her story and her considerable charisma to blind investors to her shortcomings, convince them to forego due diligence, and woo them to her startup.
There’s a lot of money being thrown around in Silicon Valley and a lot of other startup-rich areas, and everyone wants to get their own piece of the pie. And that means it’s tempting to want to exaggerate what your product can do, make your startup out to be more than it is, in order to attract investors.
But the investors and the startup owners aren’t the only guilty parties here. Yes, big money does draw hucksters, and yes, hucksters can easily dupe billionaires, but there’s more to the story.
A big part of the problem is the media – online and off – and how we collectively run the conversation about startups, about entrepreneurship.
We play up the monetary rewards, we play up the “getting funded” side. We idolize the people who fundamentally alter the way we think of the world. And you know who we denigrate? The second-to-market startups. The independent service providers who are relying on small changes to proven ideas.
There’s a common quote attributed to Henry Ford that goes, “If I’d asked people what they wanted, they would’ve said ‘faster horses’.”
And there’s definitely something to be said for the rebel, the innovator, the artist, the visionary, the gutsy dreamer who comes up with something so new and useful that they forever change the lives of millions of people, and they go down in the history books as a hero.
But we can’t all be the next Mark Zuckerberg. Some of us have to be the next Eduardo Saverin.
For those of you who didn’t see The Social Network, Saverin was a co-founder of Facebook whom Zuckerberg cut out of the company’s profits.
(Saverin has since recovered financially. He founded Aporta, an online portal for charities that has received an undisclosed amount of funding from four investors.)
But I digress.
The point is…we’ve put such tremendous pressure on startups that we’ve created a culture where it’s acceptable to manufacture success.
It’s the win-at-all-costs mentality that led to the implosion of Theranos and uBeam. We’ve started giving our startup founders an Icarus complex.
But what we’ve left out of the picture – what we’ve forgotten to tell our new young entrepreneurs – is that you don’t have to fly into the sun in order to shine bright.
You just have to fly as high as your wings will safely carry you, and trust in yourself to reach new heights when you’re ready for them. Because if you’ve been running a profitable business for over 18 months, then you’re already ahead of the 80% of startup owners who didn’t make it that far. And chances are, if you’ve made it through Year 1, you’ll find your way to Year 20 and beyond without having to put so much pressure on yourself that you crumble into dust.
Am I saying you shouldn’t give your business your all? Hell no.
But what I am saying is that before we strap rockets to our asses and light the fuse, we should take some time to plot the trajectory, make sure we’ll land on the right side of the moon, and add some extra padding to our space suits so that we can actually stick the landing without breaking something.