The Death of a Unicorn

Only a few companies have generated more hype than Palo Alto-based Theranos.

Led by a media-savvy Stanford drop-out, backed by VC powerhouses as well as Henry A. Kissinger and George P. Shultz (who are evidently connected to the founder's wealthy parents), Theranos * is soon to become an MBA case study that contains leadership analyses, venture lessons and the power of valuation for sub-prime offerings. 

The probem is that access to the "Unicorn" club (companies with a valuation above $1 billion), has become less exclusive in the last couple of years. CB Insights publishes information on unicorns which shows the number of companies valued at $1 billion or above in 2014 exceeded previous years by quite some margin-since 2007, the number has nearly quadrupled. This trend shows no signs of abating. There were 32 new unicorns as of June 1, 2015, all above 4bn in valuation.

Theranos looks like it might be the first of these "Unicorns" to die. A warning letter that the US Centers for Medicare and Medicaid Services sent to Theranos last week could have serious consequences for the blood testing company.

The problem is not just one of faulty investment architecture.

If it is not entirely evident from the now famous "no backup plan" meme that made the rounds last week, this generation of entrepreneurs is quite different in their approach to profiteering than their Hippy and early Gen X parents. Even more ironic is the fact that Stanford Business School created the meme to begin with to advertise a talk Holmes gave there.

Indeed, everything we have read about them is wrong. The "cult of the individual" is stronger than ever, and we are beginning to see a few cracks in that facade. Namely in lieu of actual strategic thinking, we have gigantic egos and unrealistic expectations galore.

I've written about this phenomena before. I have encountered every variation of start-up Silicon Valley cliche creature imaginable, from the "purpose-driven" CEO, who was chronically absentee, Illuminati conspiracy theorists, to completely out-of-whack growth projections nearing 200mm, from an owner who did not have a value proposition and was doing 75k in revenue.

"We often lack the real humility of recognizing the 'harmony of contained conflicts' in which we cannot exist at all without the cooperation of all the organisms around us.... In the same measure, we lack the proper self-respect of recognizing that I, an individual organism, am a structure of such fabulous ingenuity that it calls the whole universe into being." ~ Alan Watts

Regardless of the media's incessant worship of the new "Zucks", and the President's desire for "every kid to code", there is something to be said for an individual that views themselves and their efforts as a part of the bigger picture. We tend to lose sight of the greater work of humanity when we prop up another millennial "rock-star", who ignores the limits, no matter what the cost.

Building a strategy for massive returns is certainly not a new frontier, but getting there with a modicum of honesty and humility certainly is. G-d forbid the word humility is mentioned to the children of "helicopter parents" whose hovering and coddling convinced them of their invincible worth. That might be fine while vetting kids for which boarding school they might attend, but not so good when a company is in the business of testing blood.

Market analysts like Henry Blodget and tech leader Marc Andreessen have long since begun to prepare us to adjust downwardly for an impending bubble-burst in 2016 based on overleveraged tech-asset economics. However, I believe there is a qualitative measure that is being ignored. The millenial jet-set has had too many victory laps, is biased by sky-rocketing valuations and plainly, too much success is not a good thing.

In stark comparison, even the WEF is advising entrepreneurs and corporate CEOS to begin thinking more carefully and deliberately about whether or not it is worth the risk for their business to pursue outsized returns as opposed to sustainable profit and realistic goals for their companies and their employees. If this is not enough to bring people back down to earth, then the noxious sounds of yet another college drop-out whose valuation soars only to plummet later.

Hopefully.

The Raging Ego of a Unicorn

Something slightly more complicated, and a lot more nuanced than results or the lack thereof presses the individual to become more, not less human. Let's be honest, as alluring as the new pandemic of "unicorns" and "big hairy audacious goals" might be to anyone and everyone who can spell "entrepreneur" correctly, the monster return > gargantuan risk equation is slowly becoming meaningless. Spend enough time with start-up folks and you'll soon see that "big dreams" accompanied by absurd projections and rampant narcissism are the norm, not the exception.

Making matters worse, leaders like Elizabeth Holmes tend to ignore the toll they have on those around them, and the parameters the markets prescribe for them, read Uber's long-standing flaunting of the law for a perfect example of this. As loathe as we might be to admit it--outsized returns put outsized demands on employees and stretch rules to their limits. You can read my long-form post, The Real Dilemma of the Knowledge Worker for more on this topic.

What of acceptable returns, reduced risk and return on investment?

That is a novel idea and for more reasons than making your investors happy. Imagine the effect this will have globally. Imagine if businesses were to operate more synergistically with the cultures and ecosystems around them-that includes legal ones. Corruption, ladies, and gentleman are a word associated with more places than Nigeria. 'Acceptable returns' does not mean you run your company like a commune, in fact, money has nothing to do with it. What might change minds about corporatism globally is if there was something more compelling, and less risky on the whole--to how we do business.

I am not the first person to suggest that ROI ought to be tempered by pragmatic humanism, but less risk can translate as less harm. We must learn to transfer and adjust knowledge to achieve a kind of completeness; to get integration and critical thinking in proportion so that we remain "human" in the management of people and business situations, inculcating our services and products with these values accordingly. We might consider this as a guiding principle for AI as it takes center stage in innovation.

The core of a more sustainable, long-term strategy is that we must place return on the relationship for humanity at large in front of return on investment.

A great deal of chaos in the world occurs because people do not appreciate their place in it-nor the impact they have on others. Perhaps this is because they have never developed sympathy or gentleness towards themselves, and cannot experience harmony or peace with themselves, and therefore, what they project towards others is inharmonious and confused. ~ Chögyam Trungpa

Though the reader might find it odd for me to reference a Tibetan meditation master here, the insight Trungpa mentions is valuable. Consider that this lack of self-awareness translates into greed in the business world-because the individual's effort, no matter how humanistic on the outside is really about getting as much from the market as one can, and as quickly as possible. Developing a more human acumen with one's self first leads one to a stronger, more grounded strategy overall.

While the WEF urges businesses to be more sustainable, this will remain verbiage until we realize that moving towards a broader set of business behaviors includes a profound understanding of our core intentions and a more precise understanding of what it takes to achieve organizational goals and objectives in more than one context.

Namely, other than profit motives. Impact perhaps, on the bigger picture.

To this extent, and because change is not only inevitable but occurs so rapidly in today’s hyper-market, it is of crucial importance to be able to equip people with broad and appropriate understandings of the bigger picture of functional business processes and inter–relationships. Leaders must develop and practice specific inter-personal and leadership skills. It is essential that we remain human in spite of the speed of the marketplace.

Competitive strategy is indeed about commitment. However, commitment necessarily exposes a business to strategic risk – the possibility that it has committed reasonably, but wrongly. If the corporate strategy is nothing more than the attempt to decrease the frequency of such mistakes, then we are sure to be disappointed: there is good reason to think that the CSO is more clairvoyant than CEO. Commitment matters – but commitments are not for strategists to make. The strategic role is not to magically see over the horizon but rather to imagine what challenges one might find there, and prepare accordingly-to have contigency planning in place.  This frees the team to focus its full attention on the relationships that are already in view and to work as a unit towards what are reasonable, achievable and realistic goals.

Making progress in the next ten years will require leaders to adopt a fundamentally different mindset. Rather than attempting to squeeze investment capital at every turn, leaders can begin to manage strategic uncertainty differently. The hyper-market we live in demands that we embrace our ignorance of the future, and place human relationships and pragmatism at the center of the strategic conversation. I can think of no better way to quell the tide of untidy chaos and incoherence disguised by gleaming smiles and unbelievable valuations.

~

* Theranos says it will revolutionize medical testing with an array of fast, accurate lab results that need just a few drops of blood from the prick of the finger — at a fraction of the cost of conventional tests. That is the value proposition that gained a 9bn valuation.

 

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