The Theranos Startup Story: From $9 Billion to $0 With Criminal Charges

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Growth Story is a weekly podcast that breaks down the strategy and tactics utilized by high growth companies, in a short case study format hosted by Scott D. Clary (@scottdclary)

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Welcome to success story, the mostuseful podcast in the world. I'm your host, Scott D clary. Thesuccess story podcast is part of the hub spot podcast network. The hup spotpodcast never is the audio destination for business professionals who seek the best education andinspiration on how to grow a business. Hub Spot podcast never costs acts ondemand mentors two entrepreneurs startups and scale ups to practical tips and inspirational stories.Listen, learn and grow with the hub spot podcast network at hub spotcom.Slash podcast network. Today I am going to break down the story of Thearaknows. You've heard it in the news, you've heard about Elizabeth Holmes, you'veheard about the incredible growth and all the scandal. Now you're going tohear from me. We're going to start off with the origin story. We'regoing to speak about how they grew so quickly and then the rise and thenthe fall of the seat and everything that's still ongoing and all the things thatare still unfolding even as this podcast episode airs. This is normally a businesscase study that leads into a growth story, but realistically this is the story ofFara Nos that went from nine billion...

...dollars to a zero dollar valuation andcriminal charges, from nine billion dollars to zero dollars with criminal charges. Andif you don't know the story, I'm happy that I'm the first one bringit to you. But it is a good chance that if you are involvedin tech or you have been paying thing to the news and you've heard thethe name of Zabeth homes, you would have heard the parahnos story before,because it's still ongoing. So it's not even done yet. But let's bringyou up to speed. So where does para nos start? Where does thisstory start? This idea, this concept? Well, the dramatic improvements in medicineover the past hundred years or so have been some of the most definingfactors in modern civilization. Will used to be life threatening diseases are now mildannoyances that we only wait out because of modern medicine. UNDIAGNOSABLE diseases back hundredsof years ago are now identifiable because of...

...modern techniques and testing. This isa story of their nos a company that claimed to be on the forefront,on the bleeding edge of modern medicine. They claim to be able to revolutionizehow blood testing is done. But we will see how the company grew,how it ultimately crumbled and how now it is in a massive amount of legaltrouble. Will most notably the founders and a massive amount of legal trouble becauseof some of the claims that they made. So how did there knows begin?Well, imagine if you are taking a blood test, general diagnostic thestandard practice is to take multiple draws of blood to accomplish several tests. Theirnose, however, offered an alternative to this. As a Health Tech Company, Para Nos claimed to be able to conduct a multitude of tests with onlya few drops of blood. Only using a few drops of blood means amore efficient healthcare system, one that is cheaper and faster. This was allsaid to be possible through the ARENOSI's proprietary...

...technology, through Farrens's invention, quoteunquote, air quotes invention, the Edison, up to two hundred tests can beperformed using only a few drops of blood. A breakthrough like this hadincredible implications for how healthcare is accomplished globally. So with such an impressive piece oftechnology under the hood, of course, they grew quickly, so within arelatively short period of time, the arens blew up expanded with the company'sclaims. A lot of people had their eyes on the potential of their knowsthere were practical applications and financial opportunities that people wanted to achieve with Thearahn Nos. But how did this all start? Well, let's talk about the founder, Elizabeth Holmes. So back in two thousand and three Elizabeth Holmes was takingup a degree in chemical engineering at Stanford University. Eventually, in that sameyear, she dropped out of Stanford to pursue her idea of new ways ofdoing blood tests. Homes was a founder of the start up real time cures. This startup eventually became Parrenos as we...

...know it today. While serving asCEO for thearahns, homes was wellknown for her charisma, image and aura.She was an incredibly personable, likable person. Holmes proved to be crucial for howthe arens grew. She was the one that championed and evangelized the vision. She had the Steve Jobs esque start up founder allure. It was throughher commanding presence she took Para Nos forward. It's how she evangelize the product,how she raised money, how she made people believe the claims. Shewas serving as both the face and the leader for Para Nos, and becauseshe was so confident in her vision and she had such an aura around her, she raised a lot of money from a lot of significant people. Sheknew that approaching the right people would lead to the right investors, the rightmoney and, of course, ultimately to growth of her vision and her company. So Elizabeth Holmes Approached Different Venture Capitalists to fund her vision for the Arens. A key point here is that homes...

...approached venture capitalists that were not wellversed in medical technology or health technology. The arens got around six million dollarsin funding by late two thousand and four. The promise of a revolutionary way ofdoing blood work enticed different entities to partner up with their nos at homes. Besides the original venture capital funds which funded Para Nos, others helped thearens grew to a top valuation of nine billion dollars. Partners included safe wayand Walgreens, plus, of course, other funding firms, venture firms,angels stakeholders. This was enormous, and she did this by bringing in dumbmoney and building in quote unquote, stealth mode Pararen Nos was secretive. Homeswas secretive, not only with the technology but also how the company worked,as it was known in the industry. They worked in what's called a stealthmode. This means that they did not generally publicize their findings of research orhave many press releases associated. It was...

...just this growing entity that couldn't stopcouldn't be slowed down. This enabled theirness to inquire more and more partners,to expand itself without explaining what they were actually working on, and because theywere validated by some of these really impressive investors early on. Even though theyweren't health tech investors or medical tech investors, they were still impressive. You investors. This sort of got the ball rolling and it's started to snowball toa to an extent, by claiming there nos could not say exactly how theirblood testing works because it was a quote unquote trade secret, partners got intoagreements where they basically just took thearre nosis and Elizabeth Holmes Word at face value. By claiming to have revolutionized how blood testing was done, farns brought somethingnew to the table. Using Edison their nose, would have made traditional bloodtesting completely obsolete. This was a big deal. This would have carved anew practice in the healthcare industry. Test would not only be cheaper, butthey would also be automatically processed, more...

...accurate and portable. This attracted alot of attention from media, hype, investors business partners. But as thearens grew rapidly, multiple people became skeptical about the company. For example,a Stanford professor publicly race suspicions about the airness has claim because there were nopeer of viewed articles, but the ansis technology and health sciences. This wasa highly unusual practice. However, a turning point for Para Nos was whenjournalist John Carr you published his article about the arens and Elizabeth Holmes. Inthis article, he published that the arens was not using his technology for theirdemonstrations. Instead, normal blood test testing technologies and techniques were used, justunder the guise of being something new. There was never any innovative technology thatactually worked and the supposed Edison was never even real though thearanos tried to defenditself, the damage was already done. Other people within the company spoke outon theirnosis, false claims. The exposure...

...of thearnosis lies about their technology,severed ties with walgreens and safe way. Plus, thearaknos received repercussions from theFDA, the SEC and multiple investor lawsuits. Eventually, in two thousand and eighteenthey dissolved after years of legal trouble. From valuation reaching up to nine billiondollars, there nos dropped to being worth basically nothing. In that sameyear, Elizabeth Holmes and are Coo Ramesh Sonny Bel Wanni were charged by theUS Attorney's Office for the Northern District of California. Several accusations and charges weremade throughout the years and most recently in February two thousand and twenty one homeswas accused by federal investigators of destroying evidence during the last days of Parah Nos. So what can we learn from this story? The lies, the deceit, the rise, the fall, some of their progress, some of theirmomentum, but also the fact that it was built on a fake product.So theara knows did some things that we can learn from, also did alot of things that we should avoid. So what should we pick up fromthe story? The first is that bringing something to the table is crucial.So theara knows provided something revolutionary in their...

...industry. If they didn't try andpush the bar, there would be no attracting any customers, partners investors.So you do have to show up and push the bar slightly. However,you kind of have to back it up with the real product. Secondly,how you present yourself as important. Elizabeth Holmes let their knows as its faceand CEO, with a certain presence, charisma, image and aura will helpwith how people approach and think of you, to the point where apparently she didit so well that she didn't even need to have a working product.So imagine how powerful her personality could be with a company that actually delivered.The third thing we should learn from the Para no story is you should alwayschoose carefully who you approach for Your Business. Elizabeth Holmes got millions and funding earlyon by choosing people who did not understand the health technology industry. Well. Now, this is an interesting lesson, because she chose people that allowed herto raise money easier. Can you raise money easier from people that don'tunderstand your industry if you sell it potentially? But I'm going to argue that it'sbetter to raise money from people that...

...understand your industry intimately so that theycan actually help you when shit hits the fan, versus trying to raise dumbmoney. So learn that you can choose use different kinds of people to raisemoney for your company if you're an entrepreneur, but I would strongly suggest you defaultthe people that could be a little bit harder to raise money from,but they can provide more value. But the most important lesson out of allthese lessons is to back up your claims that you make. You can makeall the claims in the world, and fairness and Elizabeth Holmes continuously made falseclaims about is technology and what it could offer the world. Don't make claimsthat you can't follow up on. It's going to backfire in your face lateron. The bottom line is that the airness was a company that grew quicklybecause of the value its claims created. A new way of doing blood testsmeant drastic change for the healthcare industry. However, false promises lies de Seitlike the Farness, losing everything it had built up while claiming something to differentiateyour business from competitors is crucial. Making...

...claims you cannot follow up on willonly harm your business in the long term. There are nos rely on false claimsto create value. Once it's lies were exposed, everything was destroyed.How parawns grew its business, how it lost everything, is something that allbusinesses and companies should learn from as they try and build something that can growincredibly quickly, but do it from a place of ethics.

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