Posts Tagged ‘Theranos’

My Thoughts on the Systemic Scam Underlying Tesla Motors: 2

June 30, 2018 37 comments

In my previous post in this series, I made the point that there many similarities between the overall career trajectories of Elizabeth Holmes and Elon Musk than most want to acknowledge. Based on the comments section of that post, it appears that some of you think that comparing a now-disgraced con artist with your favorite secular prophet du jour is unfair. Some of you might also think that Theranos, unlike SpaceX or Tesla Motors, was a complete con-job based on an unsound idea and totally fabricated results. The reality, however, is far more complex and nuanced.

But before we go there, let us talk about another facet of the almost uniquely american scam known as a technology based startup based in, or around, Silly Valley. To be more specific, let us focus on the type of people who start or are the public face of such corporations. I recently came across an interesting article which made an argument about entrepreneurship in USA that I also made in the past. To summarize, the article says that all entrepreneurs who achieve any lasting level of success in USA are scammers and con-artists who just got really lucky.

In other words, all those Silly Valley entrepreneurs constantly promoting their “disruptive” and “innovative” product or service “which will change the world” are just scam artists who have found the right elevator pitch, facial mannerisms and organisational image to sell to gullible fanboys and cynical banksters who will lend them other people’s money. Being a successful entrepreneur in USA is now almost exclusively about having the right image and sales pitch in addition to pushing emotional buttons in rubes rather than delivering even a fraction of what was promised.

To be fair, none of this is really new and american rubes have been enthusiastically buying snake oil of all types since the nation was founded. What is, however, different now is that real world technological progress (as in improvement) has stalled for at least a decade (and more) in many fields. Don’t believe me? Look at trends in life-expectancy (even for the super-rich), increasingly crappy quality of your smartphone and laptop, the almost complete lack of any major medical advance (to treat common diseases) for well over a decade.. I could keep go on.

This combination of very obvious (if largely unspoken) technological stagnation combined with sequelae of 2008 financial crisis has drained public faith from most american institutions. It is also partially the reason why Trump was elected in 2016. Another consequence of this (richly deserved) loss of faith in traditional institutions is that any slick con-man or con-woman with some TED-Talker skills can successfully start a new corporate cult. Even recycled scam sellers, such as Alex Jones and Mike Cernovich, can make tons of money and gather an army of “followers”. And those two are not even the worst offenders of their sub-genre.

So how is the scam perpetrated by somebody like Elizabeth Holmes, Elon Musk or any other Silly Valley CEO different from the dietary supplements and self-help books hawked by Alex Jones and Mike Cernovich. Well.. for starters, Silly Valley scams are based around a core of truth or plausibility. For example, lithium-ion battery based electric cars with decent performance have been feasible since late 1990s, United Launch Alliance (ULA) was abusing its rocket launch monopoly in USA by charging outrageous rates and advancements in medical diagnostic technology have reduced the specimen size necessary conducting each test.

It is therefore reasonable to start corporations to explore development and commercialization of better electric cars, cheaper rocket launchers and diagnostic tests which are faster and can use a smaller specimen size (or volume). So what makes Tesla Motors, SpaceX and Theranos scams rather than somewhat respectable businesses? Well.. as I have said in previous posts, it comes down to the dreams they are selling to their fanboys and investors. For example, SpaceX would be a perfectly normal business if it promoted itself as a launch company with cost-competitive rocket launchers. But that is not what its public image and market valuation are based on.

Instead the market valuation of SpaceX is based on believing their hilarious claims about lunar tourism, colonization of mars and monopolizing the global space launch market. To put it another way, they are selling a series of highly implausible dreams. Similarly, as I mentioned in previous post of this series that, Tesla Motors public image in USA and stock valuation are based on the belief that it will displace Toyota, GM, Hyundai etc as the premier and other dominant automobile manufacturer in the world. It also presupposes that electric cars will somehow magically replace gasoline/diesel cars throughout the world, within the next 15 years. If you don’t believe me, have a look at market valuation of automobile manufacturers (including Tesla Motors) versus the number of vehicles they sell per year.

But what does any of this have to do with the saga of Elizabeth Holmes and Theranos. As it turn out.. a lot. The idea underlying Theranos, namely miniaturizing medical diagnostic tests such that they require very small amounts of blood or other bodily fluids, is fairly reasonable. In fact, some technologies that it was trying to incorporate into its own system has been previously shown to work well- perhaps not well enough or with very small volumes- but work well enough to merit further development. The problem with Elizabeth Holmes, her ‎Svengali (Ramesh Balwani), and the upper management of that company was that they over-promised to the point where they could not deliver anything close to what they promised.

It did not help that they apparently had an insufficient grasp of the technological aspects of whatever they were trying to promote. To make matters worse, they tried to scam their way out of this self-inflicted disaster by doing a variety of illegal things- from using diagnostic systems from other manufacturers to make it appear that their own system worked, abusing and threatening their employees and a whole lot more. But more importantly, through all of this Elizabeth Holmes continued peddling the scam under the guise of “female empowerment”, dressing like the next Steve Jobs, speaking in a fake voice and much more.

Curiously (or not), she had no trouble finding tons of rich, famous and allegedly smart people who were willing to invest millions and billions in her scam. Theranos started to implode only after it became too obvious that she pulling an enormous scam. Even then, many of her rich financial backers kept expressing confidence in her abilities. So what was the reason behind the now divergent fates of Elizabeth Holmes and Elon Musk. Well.. in my opinion, Elon Musk got lucky because he built his companies around ideas which could survive a quick back-of envelope calculation.

Electric cars with decent performance and relatively inexpensive RP-1/LOX rocket launchers were either already feasible or mature technology for at least a few years before he started Tesla Motors and SpaceX. Elizabeth Holmes, on the other hand, tried to pull of a scam in an area which lacked a similar base of proven technology. She chose poorly and was unlucky. But make no mistake- their main business model was, and still is, selling people and investors on their dreams of “technological disruption, “unlimited profits” and “market monopolization”. And that is why Elizabeth Holmes is an unlucky female version of Elon Musk.

What do you think? Comments?