If the trial of Theranos founder and CEO Elizabeth Holmes is a referendum on fake culture in Silicon Valley, the mixed verdict should send a powerful signal to startups and their advertising teams: When it comes to health care, there’s a fine line between exaggeration and public deception.
After a 15-week trial in federal court in San Jose, Holmes was convicted Monday on four of 11 counts. Jurors found it carried out a years-long scheme to defraud investors while operating Theranos, which promised new technology to make blood testing simpler, cheaper and more efficient, but which ended up likely as the most notorious meltdown in Silicon Valley.
Theranos was closed down in 2018 following investigations, motivated by the reporting of The Wall Street JournalJohn Carrillo, prove the company’s allegations untrue. Holmes and her incoming captain Ramesh “Sunny” Balwani were indicted on 12 counts of fraud in 2020; Number one was later dropped. Al-Balwani’s trial is scheduled for later this year.
Prosecutors did not directly link Holmes to Theranos’ marketing efforts to lure patients, and she was cleared of several charges related to charges that her company deceived patients who relied on the company to provide accurate blood test results. The jury is deadlocked on three other charges relating to diverting money from investors.
But the jury found mostly against her on the accusation that she fed investors a steady stream of fabricated allegations about the company’s technology. She was convicted of three counts of fraud and one conspiracy to defraud count.
It has been argued that the Theranos saga will not have a very frightening effect on the tendency of the venture investment community to buy into the often lofty expectations of entrepreneurs. First, there is a lot of capital going after too few trades. Moreover, in the world of high-tech investing, many over-optimistic ideas have never been proven. Announcing the next Uber or Zillow is just part of the game.
What prevents this culture from stirring up another Theranos? Holmes’ misleading sales presentations falsely claimed that the company’s hardware was being used by the military and that the company was on track to make nearly $1 billion annually in 2015.
The assertions might seem outrageous in hindsight, but keep in mind that in 2013 and 2014, Holmes had a pretty good idea for improving healthcare, a compelling personal story and great backers. Investors estimated Theranos at $9 billion. Journalists from Business Insider, luck And Forbes I took it at her word.
In the end, it was Theranos employees who created the technology gaps. The charge should have stopped working much sooner than it happened. For example, Theranos has never appeared in the peer-reviewed biomedical literature.
No matter how attractive the founder is, or how stealth the research is, medical claims must be properly examined. In health care, where the line between bloating and outright deception is finer than in other industries, this necessitates rigorous scientific evidence.
To find out what health care marketers should shake off this week’s divided verdict against Holmes, mm + m Speak with Stan Fiorito, who was the group’s account manager at TBWA/Chiat/Day when Theranos hired the ad agency. The Fiorito Experience, which was narrated in the ABC News documentary leakageContains some valuable lessons.
(The following interview has been edited and condensed a bit.)
mm + m: After a decade with TBWA/Chiat/Day, she left in 2016 and is now Chief Marketing Officer for TerraCotta Group, a private investment firm specializing in commercial real estate credit. Have you considered working with a healthcare client again?
embellished: I have never worked with a healthcare client until Theranos nor have I worked with Sensation once.
mm + m: Is this because of that experience perhaps?
embellished: is not checked. In the world of agencies, there are a lot of very specialized companies. There are groups dedicated to health care marketing. I did health and wellness, but not Medicare or Medicaid.
mm + m: As healthcare becomes more consumer-facing, marketing work is often handled by major advertising agencies. In 2013 and 2014, this wasn’t necessarily common. Did Holmes ever think of a medical marketing store or was she pretty on TBWA/Chiat/Day?
embellished: She really wanted to come to us because of the track record of TBWA/Chiat/Day – obviously a very well known agency within Silicon Valley – with previous clients like Apple. They saw themselves, as we all know, as a transformative company and were looking for an agency to help with that, not your usual medical agency.
mm + m: Thus TBWA/Chiat/Day was hired by Theranos circa 2012-2013, with an $11 million agency, to develop an advertising campaign for their blood testing devices. This was too much to spend on marketing.
embellished: We’ve been asked to do a whole host of marketing tasks, not just consumer-oriented advertising. We were asked to help create a website, mobile app, and in-store items. We have been asked to create marketing materials that are either B2B or physician-related, both in terms of hiring physicians and giving physicians the ability to promote the product within their practice. It was a veritable laundry list of the various marketing activities and initiatives we were working on. In general, you work an hourly pay. So it was very costly, given the amount of work we were asked to do and the seniority of the people involved.
mm + mTBWA/Chiat/Day did the famous 1984 Apple Super Bowl ad, Think Different campaign and Mac vs. PC ads. How did you view Theranos in terms of your mission to promote disruptive tech companies?
embellished: We really thought the proposal was groundbreaking when we first came across it. I was personally excited by the transformative and destructive nature of it. Besides, the idea was that Silicon Valley might finally have found a leader besides that [former eBay CEO] Meg Whitman.
The agency’s philosophy, as defined by TBWA/Chat/Day President Jean-Marie Drew, was a disruptive one. We looked to work with disruptive companies and companies that love working with Chiat/Day to disrupt their markets.
Theranos looked really decent. We were excited to help them promote this new and exciting way to help people. The last promise was that, given how expensive it is purportedly, and hopefully, easily available through organizations like Safeway and Walgreens, you can get a blood test done on your own without a doctor’s order. Helping a person take action against their standards can be preventative.
mm + mHolmes’ defense argued, in fact, that the misinformation it inflicted on investors was a feature of overstatement in the tech industry and that investors were experienced enough to interpret its predictions as uncertain rather than fraudulent. What has Theranos taught us about the line between exaggeration and responsible marketing?
embellished: This is an intoxicating question. I have had the opportunity to work with dozens of startups in different stages. All created with a product, one that worked and you could touch, feel and experience. Some won and some failed. Not because there was no product trying to satisfy consumer needs, but sometimes it was financing, distribution, or pricing of the product. Sometimes it was adoption. All of these factors are really fundamental to starting a startup.
The problem with this is that after the first meeting I had with them in 2012, I never saw the “black box” [the Theranos proprietary-testing device] Again, which is similar to the Apple Next computer. [By exploiting a legal loophole, Theranos was actually taking back the blood samples to its lab to be run on conventional lab machines. -ed.] The idea that they were taking traditional blood drawn through vacuum containers and then trying to ship it via FedEx scared us shit.
So the lesson is, “Where is the product and product testing? Where is the due diligence on feasibility in terms of distribution, scope, peer review, and then medical review from the likes of the Food and Drug Administration?” These things haven’t materialized, and I’m not even talking about investor due diligence.
mm + m: In the documentary, you talked about checking all of Theranos’ assertions before letting ads go live. So here it was the advertising guys, not just Theranos employees, punching holes in the company’s story and holding them accountable. At one point, she told Holmes that she had to amend the copy regarding the unsubstantiated claims and reduce them to vague statements. It struck me that had it not been for those checks and balances, much more damage would have been done. Can you give an example?
embellished: The big event, which arose from the first time I met – a year before the start of the contract – with a member of the board of directors [and former Secretary of Defense] James Mattis. All she said that day and that day was that it was being used by the Department of Defense in the field. At the end of the day, we had a copy of the website and an additional copy using that as a prompt. I forgave that because I’m an ad guy. I’ve been through this. Would anyone from the mod allow you to use the mod as an endorsement? of course not.
So when they said, “No, we can’t use that.” Of course I drew it up to, “Well, yeah, it’s the Department of Defense. The Secretary of Defense is never going to come out and endorse anything.” So this was a crucial component of the farce that was created.
And then, as marketers, we don’t accept responsibility. We have to make the advertiser accept this responsibility. It is a very well known practice that has been around for decades. This had to be proven by studies and by their legal team before we could print anything. These checks and balances are really important. This is not sentimental. It doesn’t matter whether you like the client or not. These are just the rules of the road.
mm + m: Some have pointed out that this will not change the culture in Silicon Valley, that investors know that hyperbolic expectations are all part of the game and that they still allow themselves to be dazzled by the next confidence scheme encapsulated in the entrepreneurial package. How important is it for marketers to hook up their antenna, to have that support?
embellished: I do not think it will change. I want entrepreneurship and innovation to succeed and I want people to continue to meet the needs of consumers. What we’re specifically talking about is a medical device or a medical display. This needs a deeper level of organization.
The other thing is that these startups are in dire need of a big agency. A lot of audience and consumer demand are built through owned social channels. So there is less need for a partner. This can be intimidating because the chance of checks and balances by an outside agent is less, if you will, to help guide the brand.
mm + m: Which parts of your business saw the light of day?
embellished: The site and the application has been created. All advertisements were made to specification; Nothing has ever been posted. We did a lot of mockups for board meetings. The only thing for the public was in the store and the website, and some material that went to the doctors.
MM + M: As your former co-worker Mike Perdido said it leakageWhen TBWA/Chiat/Day hit the Theranos account, many people raised their hands for it. This underscores how confident everyone is in the kind of work that Holmes claimed to do. What is the legacy of the Theranos case to agency personnel?
embellished: Continue to be curious and ask questions about whether you believe in the product. And then you have to make sure that you use it, you believe in it and you can sell it honestly and with your own hands. And if you can’t do that, ask why.