One of the big headlines recently has been about Theranos and Elizabeth Holmes. Elizabeth was considered an upstart and high achieving female leader until she fell into some trouble with her investors, customers and eventually the SEC. For all of her incredible accomplishments, she was unable to deliver the product and vision she sold to many people. Now, the SEC has charged her and Theranos with Massive Fraud and has damaged her reputation permanently.
Fraud is a serious issue. As a person who fully understands the sell-first mentality of creating good businesses, this decision was actually really interesting. Many firms around the world often have to “make markets” and as a part of that — there’s a level of selling before you build that needs to happen. At times, it’s necessary to convince a customer to take a chance on a new product, and at other times, it’s to create a sense of momentum in the company. As a community, technology companies often claim their products do and are a lot more than they really are. In this case, a legitimate argument can be made that Holmes was selling a “future world” and building the product while building a community around it.
Now, obviously she was selling something probably much further from reality than most technology companies do, but it begs the question on whether there is a “line” for how much you can sell ahead before it’s considered fraud. Unfortunately the SEC hasn’t set a strong precedent for this, and for younger companies the incentives still aren’t lined up in a way that curtails this type of behavior.
This is a case of bad governance — Elizabeth Holmes had way too much control and no one stood in her way on her path — but it is also one of the dangers of selling too hard — it’s critical to strike a balance between pitching the grand vision and future for something and having a technology underpinning. The Holmes case now sets an interesting benchmark in what’s considered too much selling, and it’s incumbent on the technology and business community to take measures to align incentives in a way to balance claims with real products.