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Six Takeaways Founders Can Learn From Theranos



At GSD Venture Studios, I’ve worked closely with hundreds of startups and have been in the trenches with founders at all stages. I have helped startups pivot around tough obstacles and celebrated many successes. Most recently, GSD has successfully launched our fifth accelerator cohort, which means we have seen over 50 companies pass through just this program alone. Additionally, I have read multiple books and articles on Silicon Valley’s trial of the decade, the Theranos/Elizabeth Holmes case. The founder of med-tech company Theranos, Elizabeth Holmes, has been accused of fraudulently raising $9 billion of capital to fund knowingly faulty technology, originally designed to test blood and diagnose disease. Holmes’ catastrophic fall from grace has many lessons to teach aspiring entrepreneurs. Below are six takeaways that all founders should synthesize to avoid the pitfalls of launching their startup and securing investors.


1. Choose smart investors.


Elizabeth’s investors were neither vertical-specific nor were they the right investors for Theranos’ stage. It would have been in Theranos’ best interest to work with a combination of tech, medical device and strategic investors that would have helped bring Theranos to regulatory compliance and obtain product-market fit. Choosing investors is like a “marriage”— you can’t be star-struck looking for famous Sand Hill investors. Instead, find investors you click with, that will roll up their sleeves and help you reach each round’s objectives. Also, always seek out and develop relationships with investors one round ahead of the round you are raising. This tactic ensures the investors you will be calling on are intimately familiar with your journey and are up to speed to provide laser-sharp guidance.


2. Advisors can help.


Too often, startups think of advisors just as headshots on their pitch deck. In medicine, you must have a medical advisory board. With tech companies, you must have experts that can help you with domain, stage and product. Failing to cultivate and heed the advice of advisors will result in slow progress and extra mistakes. Conversely, bringing on a rock star advisory team will help you develop a road map to success and guide you through rough patches entrepreneurs face on their journeys. For more help, check out this YCombinator company called Cabal that makes it easier to organize and utilize your advisors more effectively.


3. The CEO can’t do it all.


By many accounts, Holmes micromanaged all the facets of Theranos. A CEO is not a manager, but a leader. A CEO should only do three things.


1. Set the mission, vision and values of the company.

2. Attract and maintain talent.

3. Raise funds.


When founders try to do it all, they can quickly burn the candle at both ends. Their vision becomes unclear, and they lose fundraising traction, resulting in mistakes and likely leading to failure. Instead, founders must choose their team wisely and trust them to get the job done. This is largely why venture capital investors are biased toward multiple co-founder companies.


4. Lead with optimism and facts.


Being an optimist is an essential aspect of most CEOs’ leadership styles. However, it must be coupled with the understanding of the realistic situation on the ground. Ignoring expert guidance, data and facts is not leadership — it is foolish and breeds a false sense of optimism. When product challenges inevitably arise, stay positive yet realistic about what needs to happen to make changes. Admiral Stockdale discusses this principle in his book Good To Great, and I wrote an article expanding on leadership for founders concerning the Stockdale Paradox, “Five Leadership Tips For Founders.”


5. Show, don’t tell.


It is widely known that Theranos had absolutely no third-party validation. Startups need industry experts, early adopters, established customers and others to back up and vet their claims. Listening to someone tell you how excellent their product is will fall on deaf ears after a while, but if a credible source talks about or demonstrates your product, it is all the validation needed to get others to listen. Early on, you should also think about things like streamlining product demos, compiling case studies and testimonials as additional forms of validation. Then, become intimate with your target audience to understand their needs and develop your product around those needs to speed up adoption and validation.


6. Feedback is more important than intellectual property.


Theranos was very secretive, just as Apple continues to be. There is a time and place for secrecy (once you scale). Startups usually fail because they don’t get the help and support they need out of fear of sharing their ideas, not because their IP gets stolen. This cannot happen if you are open and honest about what you are building and its strengths and weaknesses. Beyond working in tech, I served in the U.S. Army. The military is at its best when teamwork, collaboration and information are synthesized in unison. This is how battles are won and how startups are built.


In conclusion, the Theranos scandal teaches us that when we focus on the six key areas of importance, we end up light years ahead of potential competitors. Choose smart investors and an expert advisory board to create a bulletproof marriage for your startup. Assemble a rock star team so that you can focus on your role as a CEO, be optimistic, but realistic, (think Stockdale Paradox) and focus on transparency over secrecy. Lastly, validate your product as often as possible and remember to let go of the fear of failure so you can focus on building your startup the right way.


Originally published in Forbes