Bad Blood: Secrets and Lies in a Silicon Valley Startup

Bad Blood, by Carreyrou, is an exemplary tale of a business going bad. It is in line with two other classics, The Deal of the Century by Coll and Barbarians at the Gate by Burrough and Helyar. The former depicts the beginnings of the collapse of AT&T and the second the complex takeover of Nabisco. Both of these tales result in a massive restructuring of businesses, for better or worse. In this case, it describes probably the worst behavior seen in a startup ever and the destruction of whatever business was conceived.This is a tale of people who seem to have been brought into a techno-cult, many smart young people who got proselytized by an even younger individual who managed to present herself as super competent but who was fundamentally was intellectually and morally flawed. This book does not depict a tragedy, except perhaps for the young employees who wasted years of their lives and frankly may be forever scarred. It is a book about the ability for a perverse individual and a co-conspirator to convince a significant number of allegedly competent people to dismiss their fundamental judgments regarding reality. There was an induced suspension of belief on the part of many otherwise highly competent people and the acceptance of this almost cult like persona.I approached this book having done about 35 start-up and turn-arounds, as the principal or investor. Many did well, many were stalled mid-stream, and none went bankrupt. In the process I often saw that my initial premise was altered and thus the business model changed. However in almost all there was a need for a plan and a reporting on the plan to a Board who had a modicum of confidence. In some cases I had Directors call first thing Monday to see what the cash flow of the prior week was and compare it to plan. Reality was always at the fore. Plan and actuals, and interaction with hands on boards.I have seen deals where one had to pull the plug when reality and expectations were dissonant. In one case an entrepreneur in an investment could not reproduce the core result and worse yet even if they could they had no way to manufacture it. That is not a way to run a business.I also approach this book as one who has spent time in and around the health care field. Unlike the more common areas of start-ups, health care, including biotech, must live in a highly regulated environment. Human lives are in the balance. Thus one sees the high costs of clinical trials and the failure of many reasonable therapeutic efforts. The FDA and similar entities control with an iron hand the ways and wherefores of these entities. This control system never came to play here until way too late.Now this can be a tale of many entities: (i) the principals themselves, (ii) the employees, (iii) the investors, (iv) the Directors, (v) the customers, or (vi) the consumers or patients. The author focuses upon the first two giving some limited understanding of the other participants. In particular this is a book presenting the work and hardships of many of the employees over time. It would be interesting at some time to examine the many other dimensions, but this presentation is a well presented self-contained effort.Now, fundamentally, any investor, and especially a Director, must have an understanding of their Fiduciary Duty to the other shareholders and must execute themselves in any efforts of the company to adhere to that duty. That means effecting a process of due diligence. Due diligence is demanded in any investment and it fundamentally entails: (i) that the product or service can be real and deliverable, (ii) that management has the competence to do so, (iii) that the price point is highly competitive and that the margins are appropriate, and finally (iv) that the people one is dealing with are ethical, honest and competent. It appears that in the case of Theranos, as the author recounts, that many never did any Due Diligence. What is truly amazing is that the venture investors involved would never allow themselves to invest in any other deal without doing their due diligence. Furthermore, the “big name” Directors represented in the book most likely had no idea what due diligence entails. In my experience of the 100 companies I would look at, 2-3 would ultimately pass the test, 80-90 would be dismissed out of hand and the remaining would never pass Due Diligence. It appears that if one accepts the author’s tale, and why not, then there never was any due diligence. “Trust me” is not the basis for major investments, by investors, Directors or joint venture partners.The author describes in full detail the creation and buildup of the company and how it managed to go through hundreds of millions of dollars and at the same time achieve nothing. The battles between the top managers and the staff, the high rates of turnover and the outright prevarication of the principals are presented. What is most astonishing is the tale of how the principals dealt with an attempted sale to the DOD. One military officer managed, presented as a highly qualified and competent one, dared to ask a key question of the principal and that principal in turn manages to go to a four star general, now a prominent person in Washington. The General then believing this principal proceeds to call-out his own person. Marines should not, must not, do that; it demonstrates, in my opinion, lack of judgement, and lays the ground for questioning any subsequent judgement of such a person. But the author shows that this example was not in any way unique, if anything it was a pervasive behavior on the principal’s part.Overall this book is a tale of one individual after another interacting with the principals and how they were manipulated and then thrown aside.What this book does not do is more important. This is not a criticism since answering these issues may fall into the criminal and civil litigation forthcoming. But specifically:1. Why did none of the accredited investors perform due diligence? Or were there some who tried and then walked away? The book alludes to many of the investors but they seemed to like sheep, just following the herd. This were all competent people. It would be important to understand why they did investments, often of significant amounts, and not due the due diligence and furthermore not demand Board rights.2. Why did the Directors allow themselves to sit by and have management do what they did? Directors have a fiduciary duty and it appears that none of them were either aware of what their duty was and/or did they have the competence to even ask the questions. The Directors were all prominent people in the fields, but unfortunately none appeared to be experienced in this area. The book does not in any way address the Directors in any detail. That would be an important analysis.3. One of the most significant “red flags” in any business is the loss of a CFO. When the first CFO left abruptly, the Board should have individually met and questioned him as to why he left. One can understand that the CFO was bound not to speak to others but he can and must speak to the Board. The question is; why not? Perhaps the Board was not qualified to even ask the questions.4. The fact the young principal owned a tremendous controlling interest and as such could block anything she desired from happening should have raised red flags as well. One must ask; why not? This seems to be a case of true distortion of reality. The question is; why?5. The biggest unanswered question seems to be; where did all the money go? They seemed to have Safeway and Walgreens pay their own way, the attorneys clearly cost a small fortune, but if the company had a running number of employees of say 100, and the fully loaded costs per employee were say $200,000, then the annual burn rate for the company less CAPEX was $20 million, Even at large CAPEX and attorney fees, one must ask where the money went?The author tells the tale via the many employees and their interactions with the two principals. But the other dimensions, namely the investors, Directors, business partners, must be folded into the mix. Again it is perhaps too early to get this tale told properly, but if one is to gain anything from this fiasco, then one must understand those dimensions as well. If only someone had been able to do due diligence. Its lack was the classic red flag!

Bad Blood is an excellent example of how to write a true story and make it sound as exciting as a thrilling page-turning novel. Few true accounts have the bite that author Carreyrou has with this narrative. If you’ve read enough true accounts of companies, organizations, or people who go bad, you know how easy it is for the author to get tied up with so many “facts” and minutia, that the finished product can significantly lose its edge. I’m reminded of a book titled “The Smartest Guys in the Room” about the Enron scandal. Although that book was a best-seller, there were times when I felt as I was reading an expanded version of the company’s 10k report. It simply wasn’t very interesting a lot of the time. Fortunately, this isn’t the case with Bad Blood.This is the story of the failed start-up company known as Theranos and its CEO Elizabeth Holmes. Elizabeth Holmes was young, brilliant, attractive, and incredibly ambitious. She dropped out of college at the young age of nineteen, not because she couldn’t handle it nor didn’t like it, but because she was too impatient. She was ready to take over the world and didn’t want to waste time waiting to get a college degree. The company she founded, Theranos, had a very attractive idea that would revolutionize healthcare. The premise? When patients needed extensive blood work, they would no longer need to subject themselves to long needles that would drain a substantial amount of blood to fill up multiple test tubes to perform tests. Holmes set out to create a device that would simply prick a patient’s finger, take a miniscule amount of blood, hook it up to a relatively small box, and within a short amount of time, this little box could perform the extensive tests and give the patient their results in a fraction of the amount of time.Well, to sum it up, the idea may have been revolutionary, but it simply couldn’t work. Holmes was so persuasive, though, that she convinced many of the wealthy that it could, and managed to raise millions and millions of dollars to try to make her dream a reality. When you end up spending the millions and millions of dollars on your idea that never comes to fruition, what do you do? Author Carreyrou argues that Holmes hemmed, hawed, lied, deceived and stole to masquerade this unpleasant fact. I got the impression that she wasn’t really that bad of a person (initially anyway), yet got so sucked in by her ambition and greed, that she simply couldn’t accept failure as being an option. This kind of behavior, sadly, isn’t that uncommon. We read stories all the time of successful entrepreneurs who plow ahead after continuous failures. Those who make the headlines are the rare few that actually succeeded against insurmountable obstacles. What we don’t read about are the failures; which probably outweigh the successes by a ratio about 100 to 1. Who wants to read about failures? Unless, of course, you have a story as compelling as this one.The author is a journalist for the Wall Street Journal, and is actually a part of the story. He pens a piece for his paper that exposes much of the fraud, yet we don’t read about his first-hand recollections until probably 2/3 of the way through the story. Each chapter that he writes is captivating in that he focuses on so many of the key players. Not only do we read about Holmes and her lover/business partner Sunny Balwani, but we read about disgruntled employees, employees who are terminated, employees who are threatened by high pressure lawyers, doctors, patients, lab technicians, investors, and acquaintances. All of them are crucial when reading about this train wreck.For me, the highlights are what goes on within the walls of the company. Holmes and Balwani run the startup as authoritarian dictators, and you get the impression that working for this company would be a nightmare. I couldn’t understand why so many of the employees stayed as long as they did. Example: Not only were the different departments not allowed to speak to one and other, but when outside people were brought in for meetings, they weren’t even allowed to use the restroom without being “escorted” to do their business. They didn’t trust outsiders roaming the hallways. Another example: We read about an engineer who worked for the company who designs a lighting system for his bicycle on his free time. When Holmes finds out about this, she’s exasperated. Why? Because her employees should not have any “free time”. She expects them to spend every waking minute of their lives at the office trying to make her impossible dream a reality. This book, I think, could also serve as a case study for companies in teaching management how NOT to treat their employees.When employees quit, they’re threatened by Holmes and Balwani not to say ANYTHING about the company. They then spy on ex-employees, and if the individual makes a passing comment, say, to a friend over dinner, the ex-employee next finds a team of threatening lawyers at their front doorstep with a 25 page lawsuit. In fact, the author himself was threatened many times by these intimidating malcontents. Fortunately, he’s been in the business long enough to know about these scare tactics, and isn’t in the least bit afraid to write about what he knows.So another story about a high-profile company that failed, and all of the dirty deeds done to cover it up. What makes this story a bit scary is that the author alleges that such unethical activities happen all of the time when startups are trying to blunder their way to the top. What makes this company unique, however, is that it’s dealing with the health of people. So it’s ok if you design a piece of software “full of bugs” and somehow deceive the public, but it’s a definite no-no when your errors can cause a faltered result on a patient’s blood test. I say “scary” because it really does cause one to be wary of any kind of “new” technology being implemented. Who are we to trust?As I write this review Homes and Balwani have yet to go to trial. Of course, Holmes maintains her innocence. I don’t see how anyone could believe her based on what this story uncovers. It will be interesting to see the eventual outcome. A really sad story. Sure, it’s great to be young, ambitious, and chase big dreams, but when those dreams don’t come true, one needs to admit failure and not try to consistently cover it up. So many people still can’t seem to find the courage to admit that they just might be wrong about some things.

Drop everything you're doing and start reading it. It's an utterly engaging mix of genres - investigative journalism, psychology (at times psychiatry), organisational behaviour, business & science reporting, and a story of worst and best of the humankind. I've cancelled meetings and events, delayed going to bed just to keep reading this book - the story is almost surreal, and it's hard to believe it really happened, and yet it did.I'd like to compliment the author. The depth of the investigation is extraordinary; but most importantly, the narration is done in this perfect documentary style when even the most chilling events are described with high precision but without falling into emotional judgement.I also would like to say a big thank you to all the sources and contributors who made this book possible. You're very brave people; I applaud your courage and ethics.

I missed this book when it launched, but Alex Gibney's excellent 2019 HBO doucmentry 'The Inventor: Out for blood in Silicon Valley' prompted my purchase.Carryrou's book covers three and a half years of investigation into Theranos, its founder Elizabeth Holmes and her meteoric rise and spectacular fall in the obsessive pursuit of a dream. Its a fascinating read and Carryrou uses his research to tell the story from the beginning. The story of his investigations as a Wall Street Journal reporter follows the cronological order of events and is documented towards the end of the book.Essentially, Elizabeth Holmes developed a start-up in Silicon Valley where she attempted to develop a device which could provide multiple blood test analyses for a range of conditions and diseases in a box not much larger that a large bread-bin. For the user only a small pinprick of blood was required to complete all these tests.This would be a game changer. Some day, every home could have one and for a small charge could carry out blood tests and have them analysed almost immediately, providing early warning of developing conditions. What's not to like? Nothing it seemed.What makes this book so fascinating, as well as the central characters and story, are the themes it explores such as:Greed and denialThe historty of Silicon Valley start-ups is one where investors always try and get in at the beginning of potentially novel ideas and make a killing. Think Google, Facebook and Uber. Two things drive this. The idea and the confidence/ expertise/drive of those taking it forward. In the case of Theranos Elizabeth Holmes force of personality outweighed any doubts about the concept or the execution. However at the time she started Theranos, she was 19 and a Stanford dropout with no experience in blood testing whatsoever, beyond a grand idea and good connections.Holmes exerted an almost Svengali like hold of the people in her orbit. This is partly to do with her physical appearance. Tall; striking blue unblinking eyes; dessed in black turtle necks (a la Steve Jobs) and speaking in a baritone voice. Supremely confident in both her idea and herself she managed to persuade and recruit a Board of former ex- Government Cabinet members; a 4 star General (Jim Mattis of Trump fame) and big name investors, who blinded by either the promise of the idea or the money to be made from it, were sufficiently incurous as to seek the detail of how this invention actually worked. People and organisations such as Walgreens were happy to put hundreds of millions of dollars investment into Theranos without demanding independent expert due diligence of the product.At the time of Theranos's demise it was valued as a private company at $9bn, with Holmes's share of that valuation at $4.5. Up to that point no investor in Theranos had seen the inner working of the product or questioned the fabulous claims made for it. Neither had any member of her company Board.Secrecy and liesHolmes and her senior executive partner were secretive to the point of paranoia over their idea. Two reasons for this. First they were genuinely concerned about their ideas being stolen, but as time went on and they could not get their invention to work the secrecy hid a raft of corner cutting, false promises and outright lies as to how the equipment was performing. Only those in Theranos working on the project could see how far from the truth the claimes Holmes made for the product and its readiness to market actually were. Some turned a blind eye while those with professional or ethical concerns were either fired or left, all under rigourous confidentiality clauses.This secrecy coupled with an agressive management style also stifiled the creative initiative of the Theranos team. Knowledge was power and developers were deliberately siloed to ensure they only worked on their own area so the ability to share thinking across the firm was severly limited.Weaponising the lawWhat I found perhaps most shocking of all is the way the agressive use of the threat of litigation is used to force compliance, especially against those who cannot financially afford to fight their corner. The lawyers who command the most fees are the legal pit bulls of the industry. Holmes spares no expense in protecting her secrets and covering her lies with the determined use of agressive legal firms and the threats of legal action to force whistleblowers to keep silent. This extends to Carryrou as well. Of the $900m raised by Holmes in her third funding round, $300m went on lawyers fees!Regulatory incuriousityThe FDA and other regulators seemed broadly incurious about the claims for this machine and remained so until things started to go badly wrong when what was essentially an idea at prototype stage went live to the public. The degree to which private companies can avoid such scrutiny is alarming. The debate is still ongoing as to whether Holmes deliberately misled or had sociopathic tendencies. The story is not over. She is now charged with alleged Federal and SEC crimes which carry up to 20 years in prison.I highly recommend this book, which I think will become a textbook on leadership, governance failure and greed.I also recommend Gibney's HBO documentary which brings to life the people and events in the book, not least Elizabeth Holmes herself. It also adds visual detail on the development of the blood testing device in the way Carryrou's book can not.Hope this is helpful.

I was desperately keen to read this book after following the story emerging in real time in the news channels a few years back, and also having spent more than 3 decades in the hi-tech industry myself, which included many jaunts to Silicon Valley. The hi-tech sector is a fascinating yet brutal place to be. It is a fast-paced, exciting, and dynamic industry rife with hype and frequently driven by unrealistic expectations which result from people spinning downright lies. These people are smart, intelligent, well-polished individuals who somehow mysteriously rise to great heights within organisations and public perception. Devoid of competence themselves, they leave a trail of destruction and hardship in their wake but personally survive to even bigger and better things by having golden parachutes and being long gone from their posts by the time the brown stuff finally hits the fan. It can also be genuinely argued that without such hype and expectations, many ultimately successful developments and projects which run massively over-budget and are considerably delayed would never have been funded in the first place if those backing the venture had known exactly what costs and pain they were committing themselves to.And so, we come to the story of Theranos, Elizabeth Holmes and Sunny Balwani. I have encountered numerous individuals like these two in my career and remain amazed that so many people continue to get taken in by such thoroughly disingenuous and reprehensible characters. There are a couple of pertinent factors at play here. Fundamentally, lying is a trait common to all human beings, and even in a case where it is prolific and sustained over a long period of time as here, it is not a criminal offence. It is only when harm of some kind results, be it physical or financial, that legal action can be taken, and even then those in the dock are innocent until proven guilty, which can be an insurmountable burden for the victims. The other factor seems to be that human beings in general instinctively believe and trust what they are told, based on their perception of the other party, and even when such perception is wrong, having been a carefully crafted lie, people only hear what they want to hear. I know from bitter experience that it can be near impossible to call these people out without getting yourself branded as negative, cynical, a glass half-fuller, not a team player etc. etc.This book goes into detail and one conjures up little sympathy for the high-profile investors who ended up with an early bath in this sorry saga. These were all intelligent educated people who should have undertaken appropriate due diligence on the opportunity they were presented with but didn’t. Either they believed the web of lies they were fed by Theranos or assumed without verifying it that their fellow investors had undertaken due diligence, thus negating the need to repeat it. Unbelievably, even when warning bells were rung directly under their noses by various Theranos employees, most failed to take notice or instigate any action to seek out the facts. Arrogance combined with ignorance is a powerful combination that is hard to tackle. And let’s be honest; these guys were in it to make a financial killing anyway so what does that say about their own greed.This book stands out as fabulous investigative journalism. It reads almost like a thriller. The reader can’t wait to learn what happens next, whilst continually wondering if the good guys are going to win at the end of the day. And who are the good guys in such a story anyway….?It will be remarkably interesting to see what happens in the aftermath. Holmes and Balwani are to be tried separately after being indicted on multiple counts of fraud for misleading investors, government officials and consumers about Theranos' technology. Balwani has said he will fight. Holmes denies any wrongdoing and has pleaded not guilty. She is awaiting criminal trial and has unsurprisingly attached herself to a new love interest from a wealthy family which gives her access to plenty of finance and top-notch legal firepower to mount her defence. She has already created a picture that government regulators overreacted when a reporter from The Wall Street Journal pushed them to investigate and misunderstood what was going on at Theranos. Her other line will be that she did not personally benefit from what took place at Theranos under her leadership; if there were no proceeds of crime, there is no premeditated crime to answer for etc. However, that seems contentious given the executive lifestyle she enjoyed at the company’s expense, including a full funded home and car, luxury accommodation, travel by private jet, and a gaggle of personal bodyguards 24/7.Read this book if you want an insight into the way that some hi-tech companies raise and (mis)spend money with gullible investors. It is both shocking and sad to see just how low smart and highly placed people stoop in pursuit of their own dreams. This is an excellently documented modern example of the outrageous lengths that unsavoury solipsistic individuals with dubious moral compasses and an overwhelming urge to attain personal wealth and recognition will go…. whilst destroying hard-working people’s lives and careers in the process. A thoroughly enjoyable read and highly recommended.

Read this in three days, couldn't put it down. If this was a work of fiction it'd be hard to believe, yet it's fact. The emperor's new clothes on steroids being funded by some of the biggest players in the US and fueled by a complete web of lies, deceit and some seriously shady business practices.Easily a five star, definitely a must read.Can't wait to see the film.

I must admit that having finished this book and put it down, I’ve had to take time and process what John Carreyrou has written.John is a journalist at the Wall Street Journal and he got a “sniff” that things weren’t right at the company, Theranos. It’s CEO, Elizabeth Holmes, in October 2014 was on the front cover of Forbes magazine and her net worth was $4.5 billion. Following Carreyrou’s investigation, Forbes revised this estimate to zero in 2016.So where did it all go wrong? Well, that’s why you need to read the book.Carreyrou details the culture of fear within the business, the culture of selling something that didn’t exist. Now remember, that what Theranos did was test blood.Now, if you went for a blood test, you would expect this to be with tried and tested technology and you would believe the result that came back. If the result came back and it suggested you might have prostate cancer, your world would change. Just think about the things that would go through your head. Playing fast and loose with patient’s data is morally wrong, but where did it all go wrong?