What the demise of Theranos tells us about PR vs. hype
Last week, the SEC announced that Elizabeth Holmes, former CEO of Theranos, along with ex-Theranos President Ramesh Balwani, have been charged with defrauding investors. To settle the charges, Holmes has agreed to pay a $500,000 penalty. She will also give up majority voting control of the company and will be barred from serving as an officer at any public company for a decade. This latest turn in the story of Theranos and the story of its founder and CEO represents a staggering fall from grace.
For the few people not acquainted with this story: Elizabeth Holmes was once considered one of the US’s most successful female entrepreneurs with a net worth of $4.5 billion. She founded the medical testing start-up Theranos in 2003 with a plan to revolutionize the diagnostic industry, claiming the company could test for 240 diseases from a few drops of blood. The story of a young woman thriving in a male-dominated industry and transforming an antiquated and expensive medical system was just too alluring for journalists to resist. Holmes was featured on countless magazine covers, Henry Kissinger sat on the company’s advisory board and in 2013 Theranos entered into a partnership with Walgreens, agreeing to put blood-testing centers in thousands of its drugstores across the US.
A 2015 Wall Street Journal-led investigation loosened the thread that ultimately unraveled the company’s entire premise, exposing it and founder Elizabeth Holmes as little more than snake oil salespeople. The story claimed that Theranos’ tests were inaccurate, triggering an inquiry from the federal Centers for Medicare and Medicaid Services and a criminal investigation by both the SEC and the US Attorney’s Office. As this week’s SEC statement week revealed, the misleading claims and fraudulent activity eventually unmasked were breathtaking in their scale and audacity.
Stories like the fall of Theranos might seem like aberrations, and certainly the scope of hype and fraud in this case is highly unusual. But for those of us in the PR industry, such stories serve as an important reminder of the dangers of prioritizing marketing buzz over quality storytelling.
Storytelling is the foundation on which all PR campaigns are built. The components of a solid, compelling storytelling strategy with long-term impact are hardly controversial: name the problem that’s getting in the way of your customer’s happiness; paint a vision of what success looks like and develop a scenario in which your customer pain points are resolved; identify obstacles to achieving this vision, then explain how your company overcame them; and, most importantly, back up your story with facts. You must give your audience evidence that the future you’ve laid out is, indeed, attainable.
It easy to see that while Theranos fulfilled almost all criteria, it was missing one crucial component: facts to support its claims.
All of this may sound like common sense. Of course any right-thinking company will build its storytelling strategy – and ultimately its PR and marketing strategy – on solid facts. But I can say from experience that marketing hype can be a potent drug, and in the climate of Silicon Valley it is compounded by a very really fear of missing out.
Although the scale of the Theranos debacle is unusual, the story is hardly unprecedented. I have seen people who should have known better get swept up in a rush to embrace what they perceived to be a life-altering technological innovation. It’s almost embarrassing to read of the feeble efforts to question Theranos’ value proposition by investors and media, who are almost universally eager to accept the company’s vague claims with little to no evidence. The warning signs were everywhere; they were just ignored.
That is why those of us in PR place a premium on fact-checking. We work with clients to understand what is real, what is possible and what is not, and we build our storytelling strategy from there. The saying that you never get a second chance to make a first good impression is true, at least when it comes to PR. In the climate of fake news, media and customers have become savvier and more inclined to ask probing questions than ever before, and if they discover your claims are untrue – or only partially true – the damage to your brand and corporate reputation will be almost impossible to overcome.