Some years back, Michael Lewis authored a book on Silicon Valley, entitled “The New, New Thing”, which follows the travails of Jim Clark, co-founder of Netscape, and his development of a new website to “revolutionize” healthcare. In it, some of his colleagues – software engineers — claimed that they would make $20k per doctor, or by doing the math, billions of dollars. Finally, that company merged with WebMD, and Netscape, a simple portal for the Internet simply became another footnote in Silicon Valley’s short term history.
Silicon Valley is replete of young founders claiming to “revolutionize” some market – from taxis to hotels – to medicine. They claim that abandoning the “old” model of doing things, they have found a “new, new” way that is more effective, and, hence, more valuable than it was done before. By abandoning or even ignoring the ways established for many years, they have revolutionized a newer model. But is that really so?
Recently, the phlebotomy company, Theranos, founded by a 19 year Stanford dropout, has become the lightning rod to growing criticism about such claims to “revolutionary”. First, even though it raised over $742 million in 10 years, it never vetted its technology under the medical community practice of “peer review” as related by the WSJ. Meanwhile, the Washington Post claimed in a follow up article that the Theranos product was not so-revolutionary.
The purpose behind the peer review process is to demonstrate that the putative drug or diagnostic process can be confirmed by third party experts. Yes, many startup companies, even established ones, develop and finalize their products discreetly prior to marketing to the public – to avoid competitors’ early entry. But medicine and healthcare cannot be equated with selling shoes or software. Lives are not at stake. Yet, these decisions were being made by medical non-cognoscenti like its founder.
Second, one populates the management team with experienced personnel in the industry. Both the WSJ and Fortune did refer to this particular omitted characteristic of Theranos. In my personal case for my healthcare startups, I quickly identified 3 specific experienced medical device marketing individuals. And I had my technology being vetted by doctors. In the case of Theranos, there seems to be lacking a medical officer as senior management with direct experience in hematology.
In NorCal, advisers promote the concept of the “lean” startup. It is O.K. to fail. Don’t worry about the many issues addressing your company and product. Simply create a company, call yourself “founder”, and introduce whatever and call it new, revolutionary technology. I even had some doctor tell me that one should not bother writing a business plan since so many variables can occur that will change the direction in the business.
But Tom Brady, the New England Patriots’ QB, summed it up recently when he revealed that every football game is a battle with each unique opponent – “It is hard to win.” Every business, from healthcare to software, etc., has its own peculiarities that impact revenues. And, as the New England Patriots prove, preparation is key. In football, like business, the coach looks at every variable that will impact the team – from the opponent’s tendencies to its own strength and weaknesses, and even the weather. (New England practices outdoor during the winter to prepare itself under the worst conditions.) There are no shortcuts to winning.
As I address in my earlier blogs, I rely on my detailed business school outline with unique bullet points that I must address prior to create a company’s business plan. Those bullet points raise every potential issue I must handle prior to starting a business. And, if I leave any one item out, I will later suffer the consequences.
Had the Theranos founder followed that same format would she fallen into that trap? Well, one bullet refers the business environment, in her case, healthcare. Healthcare firms invariably solicit peer review, which is used to confirm the results from a study or the efficacy of a therapy. Strangely, Theranos kept rejecting third party evaluations. The other point being regulatory – FDA approvals prior to marketing. Again, Theranos claims that its technology was revolutionary, and regulators do not understand its product (In reply, the Washington Post published an article disproving its “revolutionary” technology.)
The company did raise over $740 million dollars, now with a major portion to pay the high priced legal fees from its lawyers. And, instead of hiring a chief medical officer – a very common position in every established healthcare company, it now straps down to wage war against the media. Now this battle will be time consuming as well as expensive. Not a way to manage a company. There is one thing that Michael Lewis did get right in his book about Silicon Valley: how much greed and industry ignorance motivate to produce something called the “new, new” thing – and whether any of it really works or sells.