I just finished Eliot Brown and Maureen Farrell's new book on WeWork, The Cult of We, and while peeling back the layers of that onion smells pretty nasty no matter when you read it, it was especially poignant reading it in advance of this week's Theranos hearings.
I don't think it's any stretch to say these are two of the most catastrophic startup implosions in business history. The vaporization of market cap was something very few people not named Jeffrey Skilling had seen before. But while both companies were "frauds," they were both frauds in very different ways, so much so that I would argue the main problem here isn't the deception itself.
Compared to WeWork, Theranos' sins are pretty obvious. They claimed they had a machine that could perform 200 blood tests accurately with just a single drop of blood; in reality, they were either running these tests on other commercial lab equipment or running tests on their own Edison machines that had the accuracy of an archer on shrooms. There's little to defend there. Even if you exonerate this behavior with a "fake it 'til you make it" pass, that still means Elizabeth Holmes was faking it, and isn't that the definition of fraud anyways?
WeWork didn't tell as many lies as it did very misleading truths. Their numbers were normally "honest" but calculated in a way that was EXTREMELY generous to WeWork's cause. But investors who dug deep enough into WeWork's data often found all the information they needed to get an honest picture of the company's financials. They just decided not to care until it was too late.
So what's the seed of the issue here? Well, it'd be easy to say lying, self-interested, misleading founder-CEOs are the problem, but once this happens a certain number of times — and I think twice in the last six years is more than sufficient for two such high-profile companies — you have to ask yourself, "Is the problem here the CEO or the semi-toxic American business environment that allows these CEOs to thrive?"
The Cult of the Founder is real. We idolize and romanticize the idea of the billionaire startup founder in American culture until we see him or her as infallible. In the case of either WeWork or Theranos, basic due diligence could likely have sniffed out these main issues of concern, but too many people were infatuated with Elizabeth Holmes and Adam Neumann that questioning their gut instinct was incomprehensible. How could they be wrong? They founded the company, didn't they?
This is the seed of the issue. So long as there is money to be made and fame to seek in business, there will be frauds, phonies, and idiots. But the "Cult of the Founder"is providing fertile soil for these characters to grow more powerful. We can shame people like Adam Neumann for being pompous purveyors of meaningless cliches disguised as revolution, but when you tell a man every day that he's this generation's Steve Jobs, he's bound to think he's infallible too at some point. Unless we want to see another hot-shot startup CEO in the courtroom next year, it's high time we start paying a healthy level of skepticism toward these founders.
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