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Fall of Theranos

13/12/2020

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When we want to be inspired, we head towards stories of the people who made it big. But sometimes being inspired is not all that is needed to be successful. Avoiding the mistakes others have committed in their journey have an important role to play. And to learn the lessons from the mistakes others have committed, we head towards the stories of failures. So, we bring you the story of one of the famous startups, Theranos and its founder Elizabeth Holmes who climbed the ladder of success at an unbelievable pace but fell down from that ladder a bit faster. 

Theranos was a healthcare technology company founded by Stanford dropout Elizabeth Holmes when she was 19. The company claimed to have built a revolutionary medical device that can conduct hundreds of blood tests by just a small blood sample. With such an innovative device, the startup grew at a tremendous rate but something happened that made the company to cease its operations. 

What Happened?
Before moving on to the Why part of the fall, let’s see what exactly happened with Theranos. How it reached the highest peaks of success and how it hit the rock bottom:

  • Theranos was founded in 2003 by Elizabeth Holmes as a startup aiming to revolutionize the healthcare industry by its innovative blood testing device. 
  • In 2007, the company was valued at $200 million
  • The coming years brought a huge amount of media attention to Theranos. There were features in magazines like The New Yorker. She also delivered a TED Talk in 2014.
  • In the year, Theranos was reported to have a valuation of $9 billion.
  • But during the same period, the startup and its founder started facing a lot of questions and concerns from the media community.
  • In 2015, FDA investigations started and they found inaccuracies in the startup’s technology.
  • Wall Street Journal reporter John Carreyrou published a report damning the inaccurate technology of Theranos. 
  • This marks the beginning of the fall of the billion dollar company. 
  • In the coming years, the company faced various legal actions like fines, closure of healthcare centres and barring the founder from being an officer in a public company for a period of ten years. And with such major blows the company dissolved on September 4, 2018.
  • Elizabeth Holmes and Sunny Balwani (Ex-COO) will face a trial for their indictment on wire fraud and conspiracy charges, date of which is postponed due to covid-19.


Why did it happen?


1. Inaccuracy of their technology
Theranos failed in delivering what they promised. They promised a revolutionary medical evice, able to perform a number of blood tests from a small finger-prick sample. But their device was not working accurately and was producing wrong results. They claim to have a device that can perform hundreds of blood tests but in reality the device was still under the testing stage. 

In such a situation, the growth becomes temporary. One day or the other, the inaccuracies reveal themselves and once they are out in the public, there is a steep fall both in revenue, growth and reputation.

2. Company’s Culture
The work environment of Theranos was of complete silence. No employee was allowed to speak against the company and its workings. If done so, they were shown the exit gates. Scientists and employees who raised their concern about the company’s wrongdoing were fired and few were charged with stealing intellectual property. 

A proper flow of information from the lower level to the upper level and vice-versa is necessary to diagnose the problems in the company’s functioning. A restriction on employees’ speech and turning deaf to their concerns can lead to what happened with Theranos.

3. Manipulation of Numbers
There was misrepresentation and manipulation all over the company then be it claiming the annual revenues thousand times more than the actual figure or the results of the blood tests. Such fraud and fudging with numbers was revealed after a number of lawsuits and complaints were filed by various stakeholders. 

4. Bad Management
The company’s top management was inexperienced when it came to medical knowledge. They did not have any experience or professional degree in the medical field. Holmes dropped Stanford and the COO Sunny Balwani did not have any training in medical or biological science. Due to this, management lacked the ability to take the concerns and the issues seriously and went on with the ill doings. 

5. Obsession with Success
​
Holmes had a kind of success complex. She was a great follower of Steve Jobs and wanted to be as successful a person as he was. Her obsession to reach the peak of success as soon as possible made her commit mistakes and frauds. She chose the wrong path that destroyed a young entrepreneur like her. 

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