When Companies Lie

There are so many companies springing up all the time in the US, each in turn claiming to want to change the world. Some do eventually succeed against all odds but most of them are doomed to fail.

I mean, I do get it, it’s not only tough to start a company, but to then grow it until it becomes established in the minds of consumers and achieves self sustaining growth? Now that’s really really hard. Running a business is complicated and companies can fail for a variety of reasons; maybe their business model wasn’t viable or the product just wasn’t as revolutionary as they’d hoped. It hurts to shutter a company but if the people involved did their best work, they can at least learn from the experience and walk away holding their heads high.

But to resort to deceit in order to sustain your companies massive growth — now that’s downright wrong. But that appears to be exactly what the Theranos and Hampton Creek founders have done.

Hampton Creek

I know little about Hampton Creek. But the desperate actions taken to create false demand for the product sure makes for an interesting case study, if not an entertaining read:

1. How Hampton Creek Sold Silicon Valley on a Fake-Mayo Miracle

“In April employees at Hampton Creek, in San Francisco, received a stunning e-mail. With Earth Day coming up, Sofia Elizondo, vice president for business operations, wanted colleagues to know about some changes in the vegan-food company’s sustainability profile. For years, Hampton Creek had trumpeted its environmental credentials, crafting a story that had produced a cultlike following among green-minded foodies and a wave of excitement among Silicon Valley investors. The company’s Facebook page said a 30-ounce jar of Just Mayo, its signature product, saved 80 gallons of water, a full bathtub’s worth. It also makes vegan cookie dough and cookies: A Cookie Calculator on the company website showed that a single egg-free, dairy-free Hampton Creek chocolate chip cookie saved 35 grams of carbon emissions and almost 7 gallons of water, compared with a nonvegan cookie.

Except, the e-mail said, that was wrong. Hampton Creek had hired a consulting firm, Lux Research in Boston, to do a full audit of the environmental impact of its products. Lux found that, as a colleague of Elizondo’s said in a later e-mail, “the numbers look pretty different to the ones we’ve previously been using.” Lux had examined the footprint of all of Hampton Creek’s ingredients, not only the egg and dairy replacements. Employees were told to trash the old numbers and start limiting claims to individual ingredients. “You can say something like: ‘Pea protein saves 1.3 gallons of water for every jar of 30 oz Just Mayo,’ ”  Elizondo wrote.

Hampton Creek never publicly admitted its numbers were wrong. It scrubbed its site of sustainability claims, and the Cookie Calculator vanished. Such quiet backpedaling might be forgivable at many young companies—overeager math isn’t unheard of in Silicon Valley. But at Hampton Creek, it fits a pattern of mistaken or exaggerated claims that may prove to be deliberately deceptive.”

Read on, because the whole thing just gets weirder and weirder.

Theranos

But to me the more interesting of the two companies is Theranos.

There’s already a lot stuff written out there about the company and, more famously, how it’s founder, Elizabeth Holmes, drew inspiration from Apple founder Steve Jobs. But in recent months there’s been a continuous stream of articles questioning the viability of the firm’s technology.

This one, published by Vanity Fair does a good job, summarising all that’s happened:

2. Exclusive: How Elizabeth Holmes’s House of Cards Came Tumbling Down

It was late morning on Friday, October 18, when Elizabeth Holmes realized that she had no other choice. She finally had to address her employees at Theranos, the blood-testing start-up that she had founded as a 19-year-old Stanford dropout, which was now valued at some $9 billion. Two days earlier, a damning report published in The Wall Street Journal had alleged that the company was, in effect, a sham—that its vaunted core technology was actually faulty and that Theranos administered almost all of its blood tests using competitors’ equipment.

The article created tremors throughout Silicon Valley, where Holmes, the world’s youngest self-made female billionaire, had become a near universally praised figure. Curiosity about the veracity of the Journal story was also bubbling throughout the company’s mustard-and-green Palo Alto headquarters, which was nearing the end of a $6.7 million renovation. Everyone at Theranos, from its scientists to its marketers, wondered what to make of it all.

There was also an uncomfortable chill in the room. At Theranos, Holmes preferred that the temperature be maintained in the mid-60s, which facilitated her preferred daily uniform of a black turtleneck with a puffy black vest—a homogeneity that she had borrowed from her idol, the late Steve Jobs.

Holmes had learned a lot from Jobs. Like Apple, Theranos was secretive, even internally. Just as Jobs had famously insisted at 1 Infinite Loop, 10 minutes away, that departments were generally siloed, Holmes largely forbade her employees from communicating with one another about what they were working on—a culture that resulted in a rare form of executive omniscience. At Theranos, Holmes was founder, C.E.O., and chairwoman. There wasn’t a decision—from the number of American flags framed in the company’s hallway (they are ubiquitous) to the compensation of each new hire—that didn’t cross her desk.”

The whole article is pretty damning.

I can’t think of a worse company that Apple would want to be compared with. Yes, Apple is famously secretive and does not release information about their research. But no, Apple does not release products that don’t do exactly as advertised nor are they afraid to reverse direction when it’s not possible to achieve what they’ve set out to do.

Based on this article alone, it appears that the very goal of the company — to effectively screen for different medical conditions with just a drop of blood — was never achieved by their products, causing them to have to void thousands of medical reports.

That’s not just bad science that’s going on here. If true, and Theranos has not publicly disputed the reporters findings, then I think this is both morally wrong and a blatant disregard for the well-being of the many customers who trusted Theranos with their health.

Theranos has willfully mislead their clients into adopting their machines which have resulted in inaccurate blood testing and reports. This action alone could have endangered the lives of those who’s blood was tested. In fact I’m surprised no one has sought to sue them for what they’ve done! Digging deeper it’s hard not to be disappointed by the secrecy that surrounds the company which appears to be in complete lock-down. It doesn’t look good on them that till now there’s still no data to support their ‘science’. However the story ends now, it’s not going to be good.

My Thoughts

I think these two companies are an indication of the changing nature of entrepreneurship. It’s no longer good enough just having a plan to execute your vision, it helps if you’re attractive, a college drop-out, defy conventional wisdom and endlessly challenge the status quo in order to change the world; the media just goes crazy for companies like that because such stories are really inspiring and people can’t get enough of them.

And in both articles it comes up again and again that the vision of the firm (Vegan mayo that can save the earth! No more scary needles for blood tests!) that appears to have taken precedence, even in the face of overwhelming evidence against it. The atmosphere at Hampton Creek has been described as cult-like, which is disturbing to say the least.

At the same time venture capitalists are so desperate to find the next big thing that they’re throwing millions of dollars at these companies just so they can ride the next wave of disruption. However, rather than being good for these companies, these millions of investment dollars, are putting them under increasing pressure to deliver on their promises. That, I think, is where the problem starts.

In Hampton Creek’s case, their unique product probably wasn’t the one hit wonder they were hoping for. Without any evidence of demand, the company could never scale to the point where their production methods really made a difference to the environment. Ironically, the actions taken by the firm to falsely drive up demand, have resulted in needless waste and resulted in exactly what they had sought to mend.

For Theranos, the narrative of the firm was so convincing that attracting investment was not the problem. I do believe that Holmes wanted to achieve her dream, but having been largely influenced by her instant celebrity and eager to establish her credentials she has rushed to sell a faulty product that should have been kept under development until the science finally caught up to her vision (if it could at all).

Whatever the case, lying and cheating your way to success is not true success at all, but a sham. Should either of these firms make their way out of the mess that they’re in — and it will certainly be interesting to see how they do that — their founder’s credibility have already taken a huge hit.

The road ahead will not be easy, but there are only two choices they can make:

  1. They can open up and apologise, losing their investors trust and money, possibly opening themselves up to litigation but in doing so, regain their dignity.
  2. Or, they continue to hole up, and work behind the scenes for some rebuttal to all the negative claims against their company.

The latter solution might work in the short run, by delaying any real investigative action or legal action, but unless there’s some miracle cure-all solution in their pocket, which I don’t believe there is, they will still ultimately lose everything along with their dignity. And then they’ll see how merciless the media, which once favoured them, can be when it’s turned against them.

 

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