Illustration by: Lauren Stilwell

The Wolf in Steve’s Clothing

Theranos, Elizabeth Holmes, and the lure of fakery.

“If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them.
But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?”
― Aleksandr Solzhenitsyn

Theranos started out as a noble quest to change the world.

The fraud emerged later on — when a damaged moral compass met a vicious survival situation.

Her device was named the Edison, after one of her heroes. The name is fitting, as Edison himself played equally fast and loose with his own invention propaganda.

Edison’s 999 unsuccessful attempts to make a sustainable filament are not the surprising part of that particular story. The surprising part was that the next one actually worked.

Most crazy ideas, business models, and experiments are failures. The magical day when the lightbulb doesn’t burn out never happens for most inventors. At least not before investors pulled out.

But the thing about the life of an inventor, is that unlike investors, all their eggs have been dropped into a single basket. The’ve often even assimilated their self-worth into the success or failure of their idea.

And as Holmes herself put it:

“The minute you have a back-up plan, you’ve admitted you’re not going to succeed.” –@Theranos CEO & Founder Elizabeth Holmes

I thought in exactly this manner when I left school. I felt I wasn’t courageous enough to build something on my own, and the only way I could redirect my life in an entrepreneurial direction was to deprive myself of a safety net. I subconsciously wanted to have no fallback options so when I wanted to quit I couldn’t.


Perhaps if Theranos had indeed achieved its own 1000th lightbulb moment, we’d all hold Holmes up as a founder who did what she had to do on behalf of patients.

We’d see her quirky voice, turtlenecks, and glassy gaze as the flip side of innate genius, not as tell tale signs of psychopathy. We’d see her in the same reverent glow we view Steve’s management style and Elon’s childlike Twitter behavior.

That didn’t happen, because her gambit fell apart.

What leads a founder to fakery?

Humans are naturally built to earn payoffs in small daily doses, marked by brief moments of tribulation.

Most of history is peacetime, and the flashes of war are intense but short lived. Our stock portfolios pay us quarterly distributions and only occasionally are hit with large losses.

We are not built for payoff environments with small daily losses interrupted by occasional massive gains.

To see what that feels like, go watch Michael Burry’s character in The Big Short.

This is the environment that founders put themselves in. A daily diet of failure-in-series, perhaps eventually vindicated by a Nobel Prize or IPO.

Most humans don’t have the pain tolerance for this. As Jack Ma says:

“Today is brutal, tomorrow is more brutal, but the day after tomorrow is beautiful. However, the majority of people will die tomorrow night .”

When humans subject themselves to this life, motivation functions go haywire first. We start out intrinsically motivated to change the world. We hitch our mission to some childhood origin story or whatever else soothes us.

But then shit gets hard. We’ve gotta pay bills regardless of how well the technology is working. So, many founders subconsciously replace internal motivations for the low hanging fruit of external validation.

This is when inventors start A/B testing the boundaries of the ‘fake it till you make it’ mindset. We stop caring about substance and science, and start caring about flare and Forbes.

We use vanity metrics to rationalize our sunk costs.

The bet is we can purchase additional runway with fraudulent claims in order to increase the probability of an Deus ex machina ‘1000th lightbulb’ moment that will exonerate all prior black magic.

Founders with high identity association and external sources of motivation are most attracted to fakery. They are so addicted to the next injection of validation that they stoop to lower and lower forms of moral reasoning to get what they desire.

The Reality of Distortion

In Dante’s Inferno, the lowest level of hell is reserved for those who commit betrayals. When externally motivated struggling founders find an audience desperately clinging to their web of stories, betrayal is inevitable.

Trust is what enables long term peaceful collaboration between parties. Trust in each other, trust in currency, trust in government, trust in medicine. The degree of trust in a culture is highly correlated with per household wealth.

Marketplaces like eBay and Airbnb are microcosms of the broader trust economy, and serve as useful case studies. In such trust-based systems, there exists a latent fraud per transaction rate that must not be exceeded if the system is to be sustainable.

The shortest path to crossing that saturation percentage is for regulators to fail to prosecute those who betray the trust of the system.

Never let those who cry wolf get away with it.

Instances of betrayal make collective consciousness brittle. In nature, brittleness equates to fragility. Long lasting systems are flexible, adaptive, and pliable. An abundance of ‘Wolves’ and shortage of ‘Steves’ creates a regressive, hostile environment for new ideas.

This allows entropy to chip us to bits. Clearly we need to build cultures where the cost of fakery is prohibitively high.

Moral Fortification Through Tension

In the recent HBO documentary on Theranos, Dan Ariely explains when people feel they are fighting for a good cause (as opposed to individual greed), they tend to lie more often.

His research revealed lie detectors stop working when tension is not present in a subject’s mind. It turns out that cognitive dissonance between behavior and virtue forces subjects to close that gap through increased moral action.

Founders are sometimes too heads down to notice when their own behavior begins to go malignant. They aren’t experiencing that cognitive dissonance because they are drunk on their own “change the world” Kool-Aid.

This is why founders need accountability baked into their environment. To put it more fancifully, if founders are Wilbur in Charlotte’s Web, the ones that succeed all found a special spider like Charlotte to channel their greatness.

Consider the environmental factors that differentiate Elon Musk from Elizabeth Holmes. Elon surrounds himself with people like Gwyneth Shotwell. She tempers timelines and checks grandiosity. Watch her TED talk to see this plain as day.

Holmes on the other hand tapped the unscrupulous Sunny Balwani, who reinforced her dark side. She had no moorings to tie her down, thus her lesser demons prevailed.

Every Wilbur needs a special Charlotte.

Steve Jobs started his career equally unmoored. You could claim that he was fired initially because he was going the way of Holmes. It was during his exile that he learned how to lead from Ed Catmull (Pixar) and married an accountability partner in Laurene Powell Jobs. Through these two influences he learned to channel his gift of storytelling and reality distortion in a healthier way.

The difference between a nuclear bomb and a nuclear reactor is the building, not the uranium.

It is very difficult to have an intuition of how you’ll behave when the ordered boundaries you’ve constructed yield to a chaotic void. Memories, fears, and behaviors surface in unpredictable ways in stressful survival situations. Accountability environments add robustness into entrepreneurial careers by hedging against unpredictable tendencies of founders.

If you’ve never grappled with darkness, you haven’t the faintest notion of how you’ll react in a Theranos style void.

Ultimately, those that can be trusted to lead risky ventures are those that have found their own evil tendencies, tangled with them, and immunized themselves against them.