Gone in a puff: Lessons of Theranos and its lying promises


Theranos founder and CEO Elizabeth Holmes. Source: Getty.

The trial of Elizabeth Holmes, founder and CEO of disgraced blood-testing startup Theranos, has begun in a San Francisco courtroom. Holmes sits accused of defrauding patients, doctors, and investors of more than $700 million — charges which she denies but which may land her in jail for up to 20 years.

It’s a story worthy of a Hollywood writers room. A young woman (Holmes) gets anointed by the media as the next big thing and falls for her hype. Then alongside her partner, Ramesh Balwani hoodwinks nearly everyone until John Carryrou reveals the sham in a Wall Street Journal article.

Whether Holmes is an accomplished liar or someone merely blinded by her mission, she was undoubtedly naive in thinking she could get away with a ‘fake it til you make it’ mindset when dealing with people’s health.

Still amid the gobsmacking hubris is a more profound question. The recent investor land rush to find unicorns has turbo-charged founder’s puffed up aspirations until, instead, they flip into a dance with lying promises. 

Shooting for the stars might serve to inspire and motivate people. But, unfortunately, pretending you’ve got seats on the rocket when you know it can’t fly, is a one-way ticket to ignominy.

Yet it happens repeatedly. Adam Neuman, the self-anointed deity of WeWork, and Travis Kalanick, architect of the frat boy culture that almost destroyed Uber, are other recent examples. And the mindset isn’t reserved for the high-flying few. 

Point in any direction, and you’ll find a sexy story without a plan for profitability burning billions, with outlandish valuations as a reward. It’s no wonder people think a grand vision is all it takes.

In a Harvard Gazette interview, professor and author of Why They Do It: Inside the Mind of a White-Collar Criminal, Eugene Soltes, comments about the Holmes case:

“… the defense is presumably going to focus on the difference between what is often called fraud versus ‘puffery’ — general statements of opinion that people are supposed to reasonably interpret as not being factually true… Silicon Valley is notorious for touting their innovations. In fact, people really want that kind of excitement, that’s what people are attracted by and that’s accepted …”

Puffery is a particular kind of problem. Because while companies have legal cover for using hype. There is no moral cover when people’s claims fail to meet the expectations they create.

Even when millions of lives and billions of dollars aren’t at stake, it’s worth considering the question, “Am I making a promise I know I can’t keep?”

Setting aside the criminal charges, Elizabeth Holmes made lying promises about what her products could do and seemed willing to trade people’s lives in the process.

Puffery should come with a buyer beware label. Because there is always a casualty when the only fuel is hype and hope. Every unmet expectation erodes value and when there’s nothing left to trade, the organisation ceases to exist. 

Which is what happened. Lying promises laid bare, capital and support exhausted, Theranos collapsed, and in a puff, they were gone.


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