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Bad Blood by John Carreyrou.
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Bad Blood: Secrets and Lies in a Silicon Valley Startup is written by John Carreyrou, the very Wall Street Journal reporter who first exposed Theranos. It covers all known history of how Theranos started, maintained its lies, and fell.

The story is an incredible demonstration of the weaknesses of human psychology. Even very sophisticated investors, whose job is to sniff out these exact situations, fell completely for the fraud until it was exposed.

Beyond just detailing the chronology of the story, our Bad Blood summary covers three major questions:

  • How did the deception begin?
  • How was the deception allowed to continue?
  • What finally led to Theranos’s downfall?

We’ll focus on the themes of why so many sane, professional people were completely taken in and ignored the warning signs until it was too late.

How Did the Deception Begin?

It has to start with Elizabeth Holmes, who dreamed big. She clearly had large ambitions. When asked what she wanted to be at 10 year old, she answered “a billionaire.”

Theranos had a vision people wanted to believe in - “detect diseases early so no one has to die unnecessarily.” All types of stakeholders saw what they wanted to see in it, allowing large suspension of disbelief.

  • Investors saw a huge financial opportunity. The medical testing market is huge - allowing patients to test at home, and using the resulting data to inform medical decisions, makes it even bigger.
  • Patients and their families saw better decisionmaking and less pain.
  • The public saw a thrilling female founder who could be the next Steve Jobs. They wanted to celebrate a brilliant female innovator in an age of female empowerment.
  • Partners like Walgreens and Safeway saw a way to compete against competitors like CVS, and to rejuvenate their financials. So they partnered with Theranos to roll out

Elizabeth Holmes practiced charismatic techniques to win over supporters.

  • Elizabeth spoke sincerely and enthusiastically about the mission. It gave the impression that there was no way someone with this sincerity could be beguiling.

Stakeholders used pattern matching to jump to wrong conclusions.

  • On paper, the technology fit the pattern of disruption - dramatically lower cost replacing the dinosaur incumbents, leading to massive adoption and market expansion. The story was intoxicating and irresistible.
  • Holmes looked like the stereotypical genius dropout founder. She even...

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Bad Blood Summary Bad Blood Guide Part 1: How Did the Deception Begin?

It has to start with Elizabeth Holmes, who dreamed big.

  • She clearly had large ambitions. When asked what she wanted to be at 10 year old, she answered “a billionaire.”
  • When her dad suggested she get a PhD, she declined. Instead, she said, “I want to make money.”
  • It might be reasonable to assume Holmes started with good intentions. After a summer in Asia during the SARS period, she researched the patent literature and proposed a way to test blood with small amounts of blood. Her adviser was impressed and encouraged her to start a company.
  • But this same ambition brought her down a slippery slope of deception.

Theranos had a vision people wanted to believe in - “detect diseases early so no one has to die unnecessarily.” All types of stakeholders saw what they wanted to see in it, allowing large suspension of disbelief.

  • Investors saw a huge financial opportunity. The medical testing market is huge - allowing patients to test at home, and using the resulting data to inform medical...

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Bad Blood Summary Bad Blood Guide Part 2: How Did the Deception Continue?

It’s common for early stage startups to raise money without a product. But typically, when they don’t show meaningful progress, their investors back out and they shut down.

How could Theranos continue its operations for over a decade, when its product did virtually nothing it claimed?

In summary, it was a combination of active deception by Theranos management, combined with psychological biases preventing outsiders from pushing further for the truth.

To hide the fact that their proprietary machine that didn’t work, Theranos crossed the limits of scientific legitimacy. These were non-standard distortions of scientific practice.

  • Theranos’s pitch was they could diagnose diseases on far less blood than normal blood draws. But it didn’t actually work. To process microliters of blood on standard third-party machines, they had to dilute the blood sample to have enough sample to read. However, this lowered the analyte concentrations below what the machines were qualified to handle, below their sensitivity and causing distorted results.
  • In coefficient of variation studies (a measure of precision and repeatability), deviant results were repeated until they got...

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Bad Blood Summary Bad Blood Guide Part 3: How Did the Deception End?

Theranos overreached in ambition, causing them to require delivering at some point.

  • They promised too much to Walgreens and had to deliver. This prompted them to cheat.
    • Why not wait until the miniLab was ready? Elizabeth Holmes: “When I promise something to a customer, I deliver.”
    • Thus, Theranos continued lying to the public, pretending it had a working device and giving real lab results in Walgreens centers, when really the results were flawed.
  • Elizabeth wanted to achieve the vision of a small device that did everything (immunoassays, general chems, hematology, DNA). The form factor came before the underlying technology worked, and ultimately they couldn’t design something that had a chance...

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Bad Blood Summary Bad Blood Guide Shortform Conclusion: Applying Psychological Biases

Warren Buffett’s partner Charlie Munger has a list of 25 cognitive biases to be aware of in decisionmaking. As he says, when multiple biases are in play simultaneously, a “lollapalooza” happens leading to extremely distorted results. This is as true in Theranos as it is in cults.

Here’s a rundown of major biases that played into perpetuating Theranos’s fraud:

  • Reward tendency - anyone who had a financial stake in Theranos clearly wanted it to succeed. This included its advisory board, investors, and employees.
  • Liking tendency - Elizabeth Holmes was charismatic and seemed genuine. People wanted to follow her and execute her vision.
  • Disliking tendency - Its supporters disliked incumbents like Quest Diagnostics and...

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Table of Contents

  • 1-Page Summary
  • Part 1: How Did the Deception Begin?
  • Part 2: How Did the Deception Continue?
  • Part 3: How Did the Deception End?
  • Shortform Conclusion: Applying Psychological Biases