At the Corporate Directors Forum conference in January here in San Diego, we heard from John Carreyrou, the author of Bad Blood: Secrets and Lies in a Silicon Valley Startup. I picked up the book from the gift table, and took it home to read.
I didn’t crack it open for about a month. I knew the plot pretty well. I had seen first hand how ambition, greed, megalomania and self-deception can create such organizations. My consulting firm had dozens of clients in the biotechnology, biopharmaceutical and medical device fields, over the 23 years I led the company. I also co-founded a diagnostics company. I invested in another and served on its board for seven years.
During years serving the industry and my entrepreneurial efforts to raise capital for those two startups, I heard a lot of advice from people who presumably knew how to bring in venture capital. Their advice to me, which I didn’t heed, was essentially, “Sell the sizzle. Not the steak.”
The principle they espoused was to create a future that excited investors, played to their personal interests and, of course, their desire to hit a “home run”. I was supposed to appeal to their egos as experts in picking big winners, and provide them the opportunity of cementing their ability to attract future capital to their funds. It’s all about reputation. Who’s on your board? What boards do you serve on? Who do you have influence with? How much money have you raised? What was the IRR and exit value of your funds?
The irony was that a business plan that had huge projections and a plausible story, even without any evidence, was more attractive to such investors than a business that had moderate projections but also demonstrated performance.
To succeed in that kind of environment, as a business leader out raising money, you eventually have to give up your principles of honesty and integrity, in order to achieve your “vision”. You have to play the game. Along with that submission of your ethics, you must also sacrifice the truth. And once begun, the sacrifice becomes all-encompassing.
Bad Blood is probably one of the most extreme examples of sacrifice of ethics and morals in the name of a grandiose scheme that is at its heart self-centered, not virtuous, as Elizabeth Holmes wanted others to believe. But the old adage rings out loud and true: “In order to lie successfully, the first person you must lie to is yourself.”
Not everyone in Silicon Valley, or any other valley for that matter, tries to create a story from nothing, sell huge upsides to investors and then proceed to deceive their way along a Ponzi path of passing on the next lie to the next investor. Lots of good entrepreneurs with good ideas are creating value and providing returns to their investors. Interestingly, though, most of the successful new companies formed in this country, which account for 80% of new jobs created, don’t solicit outside investors. They do it with their own money, with borrowed funds, living on peanuts and dedicating countless hours to the success of their dream. Over 90% of new businesses are built without a slide deck selling a sparkling future to venture capital or private equity investors.
I did open Bad Blood and the story I found there was not new, as expected. What did strike me as new, was the depth of depravity. The Theranos story is a new low, compared to when I was involved in that industry. And it was by no means confined to Holmes and her boyfriend/colleague, Sunny. It takes a village, as they say. Lots of people contributed to the subterfuge, even when they knew that there was nothing behind the curtain. They allowed themselves to be used in the complicated and systematic obfuscation of the truth.
As I finished the book, it occurred to me that the pursuit of the grand scale in life, the desire to be above the fray, to be widely known and envied, comes with it the seeds of one’s own destruction. If we find ourselves, in small and large ways, selling the sizzle instead of the steak, we will perish from malnutrition of the soul.