5 ways to grow (and fail) a billion-dollar startup business

Everyone starting a business knows that 90% of startups fail within the first years of their operation, but only some of them understand why. While most startup business might have innovative ideas and profitable products and services that could revolutionize the market, only a few succeeded because of their correct operational execution.

Theranos, for example, was already a billion-dollar company even if it had yet to release its product on the market. Founded by a 19-year-old Steve Job-inspired Stanford dropout Elizabeth Holmes, Theranos became Silicon Valley’s unicorn startup, growing its value to $9 billion

But then, it went downhill from there. Holmes, 37, once an inspiring young businesswoman, was found guilty on 4 of 11 charges, including three counts of fraud and one count of conspiring to defraud private investors in the blood-testing startup.

How and why did this happen? Here are the five ways a billion-dollar startup company grow and fail:

#1 WAY TO GROW A BUSINESS: INTRODUCE A GROUNDBREAKING SOLUTION

If there’s a thing a startup business should follow from Theranos, it is coming up with a game-changing solution that big investors won’t hesitate to give their trust quickly. After all, investors won’t even book an appointment with a startup if it could not offer something innovative that would challenge the industry’s big players.

This issue was never a problem for Holmes and her Theranos. Its business model claimed it could run blood tests using proprietary technology that required only a finger pinprick and a small amount of blood. Holmes also said the tests would be able to detect medical conditions, such as cancer and high cholesterol.

If accurate, it would provide people with outstanding medical care, as this supposed innovation would be cheaper than today’s medication. In addition, the technology promised to cover everything a patient has to know about their health in a single transaction with a hospital.

Showing this value, some of the biggest hospitals even volunteered their patients for a test. And somehow, this gave investors the confidence they needed that Theranos would score huge deals with hospitals globally.

At that time, it was so game-changing that big investors put in their money, trust, and reputation even before they saw how the product worked. Some of the prominent investors of Theranos were Oracle founder Larry Ellison and Tim Draper. With this, Theranos raised more than $700 million.

Forbes even named Holmes the world’s youngest self-made woman billionaire⁠—worth $4.5 billion in 2014, when she was 30 years old.

#1 WAY TO FAIL A BUSINESS: LIE TO YOUR INVESTORS ABOUT YOUR ‘INNOVATION’

A business’s lack of capital and entering a saturated market are the top two most common reasons startup business failed. But, no matter how good your products and services are, your business will fall if no investors are willing to put a money bag in your capital.

Knowing this very well, Holmes disguised her lies as an attitude to secrecy to protect her business. For example, she explained that when she was still at Stanford, she filed a patent application for a “medical device for analyte monitoring and drug delivery.” It is a wearable device that administers medication, monitors patients’ blood, and adjusts dosage as needed.

Holmes was also extremely strict with security at Theranos. She asked anyone who visited the company’s headquarters to sign non-disclosure agreements before being allowed in the building and had security guards escort visitors everywhere, even to the bathroom.

However, it seemed that the company made all these ‘secrets’ to hide something else, as Wall Street Journal reporter John Carreyou exposed Holmes in October 2015.

Carreyou published his investigation into Theranos’s struggles with its technology, marking the beginning of the company’s downward spiral.

The journalist found that Theranos’ blood-testing machine, Edison, couldn’t give accurate results. Hence, the billion-dollar startup ran its samples through the same devices used by traditional blood-testing companies.

Holmes denied the allegation, saying, “This is what happens when you work to change things, and first, they think you’re crazy, then they fight you, and then all of a sudden you change the world,” on CNBC.

Fast forward to 2022, Holmes was found guilty of three counts of fraud and one count of conspiring to defraud private investors in the blood-testing startup. 

#2 WAY TO GROW A BUSINESS: ADD VALUABLE TALENT TO YOUR TEAM

To ensure that your business strategy and operational execution are permanently aligned, you must add valuable talent to your team—those who understand your business and its goal.

Hiring the right talent is crucial to success of a startup business, while recruiting the wrong person costs you more than just money. In fact, a report showed that having a large team working for you is not better. Instead, finding a few capable employees work best for startups.

In addition, having talent management allows team members to feel engaged, skilled, and motivated, enabling them to work in alignment with the company’s goals. As a result, the right talents help increase client satisfaction and business performance.

#2 WAY TO FAIL A BUSINESS: MAKE YOUR TEAM YOUR FAMILY…LITERALLY

Business owners, especially those just starting their company, should value their team and treat them as partners throughout their journey. Hence, many managers and business owners choose to hire people they can fully trust.

This dilemma goes the same for Holmes when building an A-team within Theranos. But she took it to a much more personal level, adding ‘trustworthy’ peers to her team, even if they were not the right fit.

For instance, shortly after dropping out of college at 19, Holmes started dating Sunny Balwani. Holmes met Balwani during her third year at Stanford, where other students bullied her, and he defended her.

Holmes then made Balwani the president and COO of Theranos despite having little experience in the field. Moreover, staff claimed that Balwani was a bully and often tracked employees’ movements.

There’s more.

In 2011, Holmes added her younger brother, Christian, to Theranos even if he didn’t have any experience or background that could help scale the company or launch its revolutionary product. Employees also revealed that Christian spent his first days at the company reading about sports news and recruiting his fraternity brothers to Theranos. Later on, employees tagged them as the “Frat Pack” and “Therabros.”

#3 WAY TO GROW YOUR BUSINESS: INSPIRE YOUR TEAM TO DO BETTER

Undoubtedly, Holmes was one of the most inspiring young businesswomen. She inspired her team and other tech women to do their best in the male-dominated industry.

And as Theranos started getting millions of funding, Holmes earned respect and the spotlight everyone thought she deserved. She even graced the covers of Fortune and Forbes, gave a TED Talk, and shared a stage with Bill Clinton and Alibaba’s Jack Ma.

These recognitions inspired Holmes’ team, as she led them to bag respect in the tech industry. After all, effective leadership is crucial to any organization, as 82% of professionals would quit their job if they had a bad boss

#3 WAY TO FAIL YOUR BUSINESS: MICROMANAGE YOUR TEAM

Holmes was a popular leader in her company and the tech industry. However, it is also vital for bosses to treat their staff with fairness and appreciation. But ultimately, leaders must be responsible for achieving the best possible results, which are not always dependent on popularity.

For instance, Theranos staff described Holmes as a demanding boss who wanted her employees to “work hard as she did.” So she also had her assistants track every member’s time in and time out. Moreover, she held dinner gatherings every 8 PM to make her people work longer.

In a report by Harvard, controlling bosses causes employees to be unproductive. Moreover, when employees feel that someone’s trying to control them, they tend to have adverse reactions and unconscious thoughts of protecting their freedom, even if it means going against their leaders.

It will be hard for a company to achieve its short-term and long-term goals due to high turnover rates.

#4 WAY TO GROW YOUR BUSINESS: SECURE OUTSIDE PARTNERSHIPS

Apart from receiving solid support from investors, another sign of a successful startup business is partnerships because it shows that your products or services are profitable and trustworthy.

Theranos knew this very well. Hence, it quickly looked for outside partnerships. Later, it teamed up with Capital Blue Cross and Cleveland Clinic, allowing them to test their machine through their patients. Walgreens also signed on to open Theranos testing centers in their stores. In addition, Holmes was also able to secure a deal with Safeway worth $350 million.

These partnerships with big names played a vital role in Theranos’ initial success, showing that if giants trusted them, small players (and even investors) should be confident to trust them, too.

#4 WAY TO GROW YOUR BUSINESS: FAKE IT UNTIL THEY CATCH YOU

Because of various partnerships with companies within the medical field, investors thought they could trust Holmes’s startup business.

However, they discovered that Holmes lied and added some pharmaceutical companies’ logos to Theranos’ reports without authorization. Investors said these reports gave them fake reassurance because, based on the logos, they thought major pharmaceutical companies had validated Theranos’ technology.

Holmes admitted this fraudulent behavior, explaining that she added these logos to convey that the company had partnered with those firms. Nevertheless, she said she wished she had done it differently.

#5 WAY TO GROW YOUR BUSINESS: DO NOT BE AFRAID TO STAND FIRM FOR YOU AND YOUR COMPANY

As decision-makers in a startup business, leaders are responsible for standing up for themselves, their staff, their teams, and the whole organization. And, they must be able to do this duty even when standing up against other decision-makers, like investors.

Holmes proved to have this outstanding quality for, in 2008, the board members wanted her removed as CEO in favor of someone more experienced. However, throughout a two-hour discussion, Holme convinced them to let her stay on top of her company.

#5 WAY TO GROW YOUR BUSINESS: LACK OF ACCOUNTABILITY

A corporation fails every 3 minutes, while an organization fires a decision-maker every 32 seconds. Now, what does this mean? First, leadership within an organization is crucial to its business success. They must also show accountability—not only for their work but also for their teams’ outputs.

However, the responsibility and accountability of CEOs have been a primary ethical concern over the decade, and Holmes is just one of many CEOs charged with fraud.

Holmes showed a disappointing trait when she ignored Ian Gibbons — chief scientist at Theranos and one of the company’s first hires —  warning that Theranos’ technology wasn’t ready yet for public use. Gibbons also shared that Theranos had inaccuracies, making it unethical to test it publicly. Other scientists outside the organization also voiced their concerns about Theranos technology.

However, instead of taking account of this irresponsible decision-making, Holmes argued that failure is not a crime. She also made an excuse that the alterations she did to Theranos machines were trade secrets that she must protect.

KEY TAKEAWAYS

With everything that happened to Theranos — a billion-dollar startup business, entrepreneurs and other decision-makers can learn that proper operational execution of business plans and strategies is crucial for business success.

CEOs, together with their staff and other executives, must remain trustworthy and aligned with the company’s values to achieve goals.

This is where The Sales Machine comes in.

The Sales Machine gives CEOs, decision-makers, and everyone in the team an overview of their business direction. It aims to keep everyone aligned with the company’s strategies and core values by providing accurate data based on team members’ performance and outputs.

It also helps teams become more accountable for their decisions and actions, preventing them from making moves that might put themselves and the whole organization at risk.

Want to learn more about The Sales Machine and how it can help your company? Contact us today at www.thesalesmachines.com to schedule a FREE, no-obligation demo.