Features & Columns

Elizabeth Holmes exits the federal courthouse in San Jose with her attorney on Jan. 14. Photo by Dan Pulcrano

A gaggle of photographers stands in the courtyard of downtown San Jose's federal building on a cold January day. It's clearly a bigger deal than the hacker trials or corporate battles, such as Apple v. Samsung, that unfold there and sometimes attract media attention.

"Which case?" I ask. "Theranos," a paparazzo replies.

A reporter spots the 35-year-old founder and former CEO in a hallway, before she ducks into a room by the exit.

"She's fixing her hair," the reporter speculates.

A few minutes pass and Elizabeth Holmes emerges with her attorney. She's dressed in an all-black pants suit, with hair tied back. She looks straight ahead as she takes long, purposeful strides and the cameras follow her to the crosswalk by Original Joe's.

In Silicon Valley, heroes are celebrated with books and movies and even losers in a "fail fast" culture get a break. It the story's inflated or a promised product didn't deliver, that's all part of a hype-driven system where the winnings offset the losses and truth-stretchers are forgiven. There's been plenty of vaporware before.

Between 1981 and 1984, celebrated computer pioneer Gene Amdahl sucked up $230 million of the region's venture capital to create one of the valley's most spectacular failures. The architect of IBM's wildly successful System/360 and founder of competitor Amdahl had sought to build a revolutionary superchip that would stuff the computing power of 100 chips on a single supersized wafer. Only problem was, the chip never worked. Its layers delaminated and the chip overheated.

"We almost did it," Amdahl explained when I asked him once about it at a social function. He traced an electron's path in a circle around the palm of his hand. "It only needed to go around one more time."

Apple Computer could have similarly wound up in the dustbin of history in the early 1980s when it shipped computers with incorrectly installed chips on its motherboards. Hewlett Packard engineering manager Wil Houde was brought in to fix the personal computer division, and Apple survived.

Dotcom boom era grocery delivery pioneer Webvan blew through $800 million in investors' money and couldn't even get tomatoes to its customers without its drivers surreptitiously stopping at Safeway and paying retail.

"Fake it til you make it" builds valuations but invites fraud. I've seen startups present software demos that later turned out to be built in hypercard, not actual code, and companies knowingly rip off customers with software and hardware that didn't work to build revenue or hornswoggle investors.

Refugees from the political sector are easy dupes and convenient window dressing. Holmes built credibility by recruiting fans like Bill Clinton and former Secretaries of State George Schultz and Henry Kissinger, former Defense Secretary William Perry and future Secretary of Defense Jim Mattis, all of whom were seduced by her pitch of cheap, painless phlebotomy enabled by miniaturized blood testing equipment, much as mainframe computing power had migrated from server rooms to desks, then laps, pockets and wrists.

The political influencers presumably would come in handy as Theranos prepared for FDA approval of its dubious technology, Rupert Murdoch invested $125 million for a Theranos stake that he sold back for a dollar to capture a tax loss. Patriots owner and massage parlor patron Robert Kraft fared better; he only lost $1 million.

Journalists fell for the story too, placing her on the cover of business magazines and declaring Holmes "the next Steve Jobs." Even people who should knew better, people with technology industry experience like venture capitalist Tim Draper, Oracle founder Larry Ellison, Apple veteran Avie Tevanian lined up to write big checks.

The combination of good marketing and bad science with cheerleaders in the political, media and venture sectors added up to a toxic formula. The spin machine operated like a centrifuge that separated smart people from their better judgment, and their money.

In the end, Theranos couldn't build a machine that would perform 200 diagnostic tests on a160 microliter blood sample with a lab scaled down to the size of a countertop kitchen appliance.

One scientist committed suicide. Another Theranos inventor protested, according to his on-camera interview in HBO's "The Inventor: Out For Blood in Silicon Valley, declaring, "We can't do that, like the laws of physics will not permit us to cram all that stuff that needs to be in there to be in the box."

The curriculum of technology disruption, in which brash inexperience trumps the cautious culture of fact-based life sciences, may require some reevaluation. Digital technology first moved from hobbyist and game applications to business automation and personal productivity, then upended the media and retail sectors. In mission critical applications, the uncritical embrace of the new new means a bicyclist can get run over by a computer driven car, or a patient dies because of faulty test results.

Silicon Valley can by no means be singled out either. Junk science, lying political leaders, financial fraudsters, faux news peddlers or law enforcement professionals who don't follow the law are all part of more broad-based societal credibility crisis. Ethical lapses and outright fraud can occur in any profession. Sometimes, though, the stakes are higher.