The recent HBO documentary about Theranos CEO Elizabeth Holmes, "The Inventor: Out For Blood in Silicon Valley," is a strong and accurate depiction of startup culture's moral issues — the blurring of the lines between truth and reality.
The Theranos story contains important lessons for founders in the early stages of a startup's lifecycle. Theranos promised to create Edison, a technology that would revolutionize the health-care system, offering minimally invasive bloodwork and, ultimately, preventative detection. The ability to access your health future sooner rather than later — that was the dream. Amid the buzz and hope, everyone wanted to be a part of this next big thing. They believed that Theranos was telling them the truth. But a promise of this magnitude is a slippery slope when a company can't deliver.
The fall of Theranos in 2017, and the scrutiny of Holmes today, is increasingly relevant. The Canadian startup ecosystem is thriving generally and within specific sub-sectors like fintech, life science and health, AI, big data and analytics, advanced manufacturing and robotics, gaming, cleantech, blockchain and cybersecurity.
For some startups, failure will occur when they are unable to obtain the external buy-in and capital investments they need to get through the first year. Others will achieve too much success, too soon, and rapidly grow unsustainable. Theranos had everything it needed to hold steady and, for nearly a decade, produce unsuccessful prototype after prototype.
The temptation to overforecast or oversell is very much a reality.
Things began to unravel for Holmes and Theranos when Walgreens became a prominent client. The pressure to deliver on Holmes' promised machine compounded significantly. Up until then, Holmes' persona, passion and vision were enough to keep investors sold on the technology she was promising. But the company's engineers knew that the design of the machine proposed by Holmes could not perform the testing they had promised. They knew that they could not deliver in excess of 200 various blood tests and provide accurate results. Technicians were being asked to skew data, and used third-party machines to achieve the accurate lab results the Theranos machine couldn't.
Internally, many associates of Theranos were struggling with the boldface lies that they were delivering to outsiders. Misdiagnosis and failure to detect illness were commonplace. Theranos was misrepresenting its effectiveness in violation of the ethics they were expected to maintain.
Making a promise... and living up to it
As someone who has been in business and consulting for nearly two decades, I know the pressures faced by startups. With the fate of a company — for many a major personal investment or the sum of their wealth — the temptation to overforecast or oversell is very much a reality.
Startups begin with a strong belief in a product or service, just as Holmes' had. Then comes the rigorous task of getting others to believe in your company. The "hype" represents the most grandiose vision a founder has for their company, and it's this hype that hooks others and helps secure capital. Investors will provide capital based on research, data and the statistics a startup offers — all of which can unfortunately be manipulated and misrepresented to make the startup seem more enticing.
There often comes a time in a startup's lifecycle when founders must decide how far are they willing to stretch the truth to continue forward and make their fiscal ends meet. Some will call it quits, the risk of fraud and potential downfall being far too great. Those unwilling to surrender will push the envelope, hoping they'll land a big payoff before anyone's the wiser.
It's easy to convince yourself that any decision you make to keep a company afloat is the right one.
It's easier than you think. A startup is a gamble. Some founders will convince themselves that if they hang in there just a bit longer, they will eventually reap the rewards. They also truly believe in their mission and want to see it realized. With such a mindset, it's easy to convince yourself that any decision you make to keep a company afloat is the right one. The risk of losing it all, personally and for investors, is another powerful motivator. It can drive a founder like Holmes to go to great lengths to hide the truth from the outside world.
This is the fear and stress that plagues most startups. How far do we have to go before people stop believing in us, and how close to materializing our dream will we be when we reach that point? Can we risk it all by being transparent?
Being uncomfortable is a condition of growth; seldom can one build a startup without leaving their comfort zone. For Holmes, this meant being open and honest. Her failure to do so cost her.
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For those in a startup or wanting to create one, the lesson is that transparency and patience are a key part of the success of your business. Hype creates much-needed momentum at the outset, certainly, but you must be able to recognize when you have extended your startup beyond what is realistic and deliverable. In such a situation, receiving more than you ask for is not always a blessing.
They say "fake it 'til you make it" is the unofficial motto of Silicon Valley. But if you tell the world you've made it and go public with a startup, be ready to back it up.
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