Episode  MSP70  Fake It Till You Make It
Episode  MSP70  Fake It Till You Make it
Are you selling the dream or running a long con? How to sort the Silicon Valley spin from the outright lies.
Produced by Jeff Sandhu for BFM89.
These shows are dictated to and transcribed by machines, and hurriedly edited by a human. Apologies for the typos and grammar flaws.
Technology can be a harsh business. You spend years and millions of dollars developing a product, only to find out no one wants it, or that another innovator has turned your invention from a product into a feature.
With the release this week of The Inventor, a documentary about the failed startup Theranos, we thought it was time that MSP took a deeper look into the industry’s fake it till you make it ethos.
Matt, I can’t believe that you are going to be the one telling people about the dangers of faking it.
· Who better than me?
· I’ve spent my entire life faking it.
· I’ve got a masters degree in faking it from Stanford.
That’s a lie!
· Exactly. If you want to catch a conman, you get a con man.
· If you want to talk about lies, find a liar.
· That kind of the point about today’s show.
· There’s a fine line between promoting your invention, giving it enough hype to get yourself some media coverage and some venture capital and flat out lying.
· Exactly. Now Juicero wasn’t a lie.
· But it was very weird. And it was a great example of giving customers exactly what they don’t want at a price they can’t afford.
· Which, in Silicon Valley speak, is the perfect business model.
We haven’t talked about this for ages. Go on. Remind everyone what’s it’s all about.
· People like juices. And I imagine, people who have millions of dollars of stock options can afford to buy really fancy juicers.
· Juicero was an attempt to meet the market’s need for slow pressed juices.
· So they marketed a really expensive juicer – I think it was USD700 or something – which had to be connected to the Internet.
· And you could only use it with really expensive bags of the company’s own pre-mulched juices.
· Which, incidentally, thanks to reasons of perishability, they could only supply to around half, or even less, of the continental USA.
But still. It’s a smart juicer!
· Fairly dumb in reality. Unless it connected to the Internet it wouldn’t juice your juice bag.
· The juicer would scan a barcode or QR code on your juice bag and then it would go to work, slowly pressing your juice.
· Its smart capability simply reduced its functionality: it was a way to stop you using it with juices of your own blend or creation, or even worse, from some non-existent piratical who wanted to sling his juice bags under Juicero’s machine.
Sounds like a winner to me.
· Yes, exactly.
· What the makers forgot was that the vast population of America doesn’t consist of stock-vested millionaires.
· It consists of hard working and over-indebted folks who are worried about paying the Internet bill, let alone a juicer to connect to it.
· And then a media outlet – Bloomberg I think - discovered something interesting in a review unit sent to them.
· You could simply take the juice bag and squeeze it into a glass.
· Not only that, squeezing it by hand was faster and arguably more effective than using the machine.
I’m going to rob you of your punchline. Juicero was an epic fail.
· This literally was the case where you could make it if you faked it.
· If you squeezed the bag yourself, in other words, you faked being the machine, you had a juice.
· And you didn’t need to be connected to the Internet to do it.
· But that didn’t stop the company from picking up around USD150m in investment from leading venture firms and investors.
I know we’ll talk about Theranos and other failed startups after the break, but do you think the popularity of crowd-funding sites is increasing the number of scams and failures?
· That’s actually a really hard one to answer.
· Or rather it’s an answer that has a lot of parts.
· When you look at a company like Juicero or Theranos, they have very little impact on ordinary people.
· When it gets to Theranos it’s even more complicated, because the accuracy of consumer blood tests is so important.
· But for consumer products like Juicero there isn’t much impact.
· When stuff’s rubbish we just don’t buy it. Simple.
· So when we talk investors and these huge sums of money, by and large they are coming from institutional sources.
· Companies or individuals who are used to betting big.
That doesn’t mean they’re used to losing.
· That’s a valid point. No one wants to lose money.
· Certainly, the people who invest at the really early stages are people who can be badly burned.
· Parents who have bought into their kids’ destructive vision and mortgaged their houses.
· And convinced family and friends to part with some of their savings.
· We’ve talked about how this is a numbers game for a lot of the VC funds, but you’ll often get investors who for some reason are giddy about the product or believe in the vision of the founders to an incredible degree.
· And those are often – like the family members – people who put in more money than they should and have a physical need for it to be a success.
Whereas the crowd-funding sites are aimed at people like us – consumers – and the money comes straight out of our pockets?
· Exactly. It’s like Amazon for stuff that doesn’t exist yet.
· And that has these incredible positives and disadvantages.
· Positives in that people can bypass that tricky, I’ll take half your company for the price of a donut stage.
What is it about you and donuts? It’s not the first time you’ve used that analogy on the show?
· Hunger and a lack of imagination.
· This may go out during the post-breakfast glow period but it’s recorded in the never ending wasteland of post-apocalyptic rumblings between lunch and dinner.
· But yeah, crowdfunding is great in principle.
· All these people who are willing to back your idea, and actually give you the time to ship your product.
· We keep being told that we live in an age of instant gratification, but the crowdfunding sites are proof that we are willing to reward and wait for great ideas.
· And perfectly balanced brass fidget spinners.
Do you think most people understand the element of risk?
· No. A lot of people do think it’s a product warehouse.
· They don’t seem to understand that this is a punt and not a guaranteed product.
· And I think it’s fair to say that both you and I have been burned on crowdfunding.
[Jeff talks about some of the products that have disappointed him or never arrived]
· It’s still important to put these things into categories.
· There are the wild, probably wasn’t ever going to happen, ideas, like the magnetic Moonwalker shoes I purchased.
· If they had been real it would have been awesome. Every step cushioned by a layer of polar opposition.
· I know they ran out of money but I’ve got a feeling that if they were going to work they’d probably need magnets as strong as an MRI machine.
There are plenty of ideas that are strong but simply don’t get as much money as they need…
· And also because the inventors underestimate what they need to get to market.
· I bought into a personal cooling system, probably 3-4 years ago.
· I knew their campaign goal wasn’t enough. And they’ve been struggling with funding ever since.
· But they’re still beavering away. Will I get it? I don’t know. I don’t really mind.
· The technology has the potential to make life easier for people with chronic conditions like MS, so even if it goes another way and my money has helped to help those people, then I’m happy.
And then there are the out and out scams…
· Even here, there are a few types.
· A couple of years back, the last time Malaysia had really poor air quality, I invested in a product called breathe, which was supposed to be a portable air purifier that created a bubble of nice breathable air around you.
· Anyone who’s lived through the Haze here and throughout Asia would be more than happy to sink a couple of quid into that.
· It certainly helped that it looked fantastic – milled from solid aluminium.
· Did it ever work? Was it real? Who knows?
· They kept missing their deadlines and, from what I understand, the guy behind the company essentially disappeared himself from social media.
· Was it real or was it a scam? I don’t know.
· Yeah. You know, one thing I would never buy on these crowdfunding platforms is earphones.
· Getting headphones to sound good is really tricky. It’s way easier to get them sounding like a set of 1 dollar night market clones.
· Kanoa wanted to beat Apple and its airbuds to the true wireless crown.
· The company claimed to have over 50,000 pre-orders at USD 150 a pop.
· What’s the math on that?
· You see, that’s a lot of cheese to try and turn into ice cream.
· Yet, according to reports, it only ever produced 25 pairs as prototypes, and those were not well reviewed.
· The company went under in 2017 and its customers-slash-investors have been looking into class action suits to recover the money.
When we come back. What happens when your company raises billions of dollars but the idea never works.
Now we’ve talked about some of the heroic failures that mark the tech game. Theranos is in a different league.
· As you said, the documentary about the company came out this week on HBO. The Inventor: Out for Blood in Silicon Valley
· I haven’t watched it.
· But I have just reread Blood Money, the expose by Wall Street Journal investigative journalist John Carreyrou and listened to ABC great investigative podcast The drop Out.
· And, of course, the US DOJ has 11 criminal charges, with possibly more pending, against CEO Elizabeth Holmes and her former boyfriend and Theranos COO Sunny Belwani.
· The SEC has also laid fraud charges against the pair over more than USD700m in investment.
What’s the Backstory?
· In a nutshell, Elizabeth Holmes, who had a fascination with Steve Jobs, dropped out of Stanford University where she was studying chemical engineering after a couple of years.
· She had an idea for a system that could revolutionise blood testing.
· Performing dozens of tests from a tiny finger prick sample of blood.
· And in 2004 she founded Theranos, which she took from the words therapy and diagnosis.
It’s not Greek?
· No. But it sounds it. And this is SV. Faking it is part of the game as long as It looks the part.
· It helped that Elizabeth was one of those force of nature people.
· She was young, very smart and she really seemed to have a heartfelt mission.
· And that was a great help when it came to parting early investors with their cash.
· She was great at networking, and one high profile investor led to another.
· In those circles She was hailed as a full-on visionary in the Jobs mould.
Where did it all go wrong?
· Despite all the investigations, book, newspaper articles, film and podcast, it’s hard to say.
· I imagine it will be the criminal trials – if they don’t plead out – where we get to see that side of the story.
· The bottom line is that the technology never worked properly.
· Some of the experts these sources quote maintain that the technology never could.
· That it’s simply impossible – given the kind of tech we currently have access to – to do what Elizabeth Holmes alleged. To test for so many diseases with so little blood.
Surely you have to do all kinds of medical testing?
· Theranos always seemed to manage to sidestep regulations or exploit loopholes that meant they didn’t have to submit the machines for approval.
· And Holmes complicated matters further by insisting that the device itself be a work of art, the iphone of med-tech.
· So you had all these counter-intuitive demands.
· You had a miniaturisation of technology that was typically put into very large machines.
· At the same time you were trying to do so much more than even the largest commercial testing machines by the likes of Siemens could do.
· There was an aesthetic requirement.
· And you still had to have the stability and accuracy of medical testing.
When do you think they realised it wasn’t working?
· I’m not sure. Hopefully that’s what the trials will determine.
· Was it a con? Or was it an idea that seemed elegantly simple yet was tremendously hard to actually achieve.
· Did they always believe it would work? That were weeks or days or hours away from realizing Elizabeth’s vision?
· Certainly they had experts working there. First class bio-chemists.
· Industrial designers poached from Apple.
· At one point the company had around 800 employees.
And they rolled it out commercially?
· That’s where they stumbled. When you bring in billions in funding, you’re under pressure to make some money. Even if the tech isn’t where it should be.
· They went into partnership with the supermarket chain Safeway and Walgreens Pharmacy in the US.
· Walgreens built blood testing suites in 40 stores and planned to roll out scores more.
· Yet, according to insiders, most of the tests that were drawn there were tested in Theranos’ lab on commercial machines made by other manufacturers.
· And tests that were carried out on Theranos first generation Edison testing machines were reportedly wildly inaccurate at times.
· The miniaturised iphone device was never completed as far as I can determine.
Why did none of this come out?
· Firstly, the company was extremely secretive.
· Employees were forbidden from discussing their work with colleagues in other departments.
· So news that the tech wasn’t working great didn’t even penetrate the company’s internal culture.
· And according to John’s Carreyrou’s reprting, Holmes and COO Belwani apparently had quite a domineering management style, where firings were frequent.
If no one had heard about the company, how could it have been so successful at raising funds?
· As I mentioned before, Holmes she was big news in SV
· So by the early twenteens the company was extremely powerful.
· 2011, 2013, 2015 etc.
· I’m trying to popularize it.
· The Theranos board was like a who’s who of the political elite. Names like Henry Kissinger, the eminence grise of 20thCentury politics.
· George Schultz a former Secretary of State.
· General James Mattis, who had a troubled stint as Secretary of Defence for DJT.
· Investors included Betsy DeVos, DJT’s education secretary and Rupert Murdoch.
· Not to mention a huge retainer with a first-rate ad agency.
· It looked really legit.
It sounds like the plot of a thriller…
· You can kind of imagine John Le Carre or Tom Clancy writing a story like this.
· It’s another of those occasions where reality outstrips fiction.
· At its height the company was valued at USD9bn and Elizabeth Holmes was giving Ted Talks, flying in private jets and had a retinue of security guards.
Didn’t people notice that the board for a med-tech firm didn’t really have any prominent medical personnel?
· Eventually. Apparently none of the big med tech funds would invest in Theranos either, which should have been an indicator.
· All these clues – plus a whistleblower in the shape of George Shcultz’s grandson, who worked for the company – led Carreyrou and subsequently other journalists to examine the company more carefully.
· And that’s when the carefully crafted story started to crack.
· Now of course, Theranos is no more and the hundreds of millions of dollars it burned through are gone, and its CEO and COO are facing charges.
Theranos is by no means the only company to go through this kind of experience though.
· As we said, fake it till you make it is kind of a tech battle cry.
· Theranos is an extreme example.
· Remember a couple of years ago we talked about end of life tech and services.
Sites that could archive your photos, keep your passwords and make it easier for family to control your digital life after you pass away?
· Yes. We joked that given the projected lifespan of today’s newest generations, those services would die long before their customers.
· One of the services I signed up for to research the piece, Safe Beyond, sent out a mail announcing its closure as I was writing the notes for this show.
· I’m certainly not alleging any untoward behaviour by the company, but it does illustrate how hard it is to come up with sustainable business models in the digital economy.
Sometimes it’s as simple as the right idea but the wrong implementation at the wrong time…
· The payment consolidation service Plastic is a good example of that.
· You had a card with a touch screen that essentially cloned all your credit, debit and loyalty cards into one device.
· Plastic pre-sold thousands of them at USD155 and reportedly raised around USD7m in the process.
· Only, they had trouble delivering and in the meantime, Apple Pay and all the e-wallet technologies started to take over.
· Suddenly, before you’ve even launched, you’re obsolete.
Or the wrong idea, entirely?
· Yeah. Secret was a social media service that was completely anonymous.
· You could see messages that your contacts posted, but they were anonymous.
· You didn’t know who was saying what.
Sounds like a recipe for abuse and bullying.
· It didn’t help that it came out as other social media networks from Reddit to Facebook were trying to tackle an epidemic of trolling and bullying.
· Strangers harassing you is bad enough but here was an app that turned your actual friends into bullying trolls.
· It died, and none too soon.
We’ve concentrated on so-called innovations from the digital age, but actually this kind of behaviour isn’t new at all, is it?
· There have always been fantastic cons, or ideas outside their time.
· A great one is the daylight motion pictures that were posited in the early 20thcentury.
· The dark movie theatres were a bit scandalous. Who knew what people would get up to in the dark.
· Some states in the US required that theatres be bright enough to see the face of the person next to you.
· Daylight movies consisted of brighter projectors, dark screens but the innovators of the so-called technology like Samuel Rothafel were peddling flim flam.
· Projectionists rebelled, saying the quality was too poor, and we’ve been watching movies in the dark ever since.
What should we end with?
· Look, one day, someone will probably solve the problems Theranos had with blood testing.
· Or like some of the med-tech we’ve featured on Geeks, we may bypass bloodtests for many conditions and use breath or saliva samples.
· The idea isn’t bad. It’s just that the science and the technology hasn’t caught up.
· So I’ll leave you with the helio motor from 1900.
· Invented by William Calver, it sought to use mirrors to reflect the sun rays into bricks and water to generate heat.
· He thought he could replace electricity and steam and heat the planet in the process.
Aren’t we trying to cool the world down?
· Like I said, right idea, wrong application.
· What Calver invented was solar power. He just didn’t have the actual technology to invent it.
· In fact, 120 years later we’re only really starting to get a handle on how to harness and store the sun’s energy efficiently.
· And that’s fine if you’re a company like IBM, Which has been around for over 100 years.
· Maybe then you can afford to take the long view.
· For a start up with series A funding, and an itchy CEO looking to divest, waiting 120 years to make your dream a reality might not be possible.