Published in the San Diego Union-Tribune, February 25, 2019
An active investor I know told me about a potential deal he was considering. He goes to see the CEO, hears the pitch, and he calls me to share his thinking. The bottom line — he did not believe in the business model, but more importantly, what he said next was — “I thought the CEO was an arrogant millennial.” Now, not all millennials are arrogant, just as all rectangles are not squares. But it struck me as cautionary. I have written in the past about humility, and this story reminds me once again of its value.
In the same vein, I would like to recommend a book written by Pulitzer Prize-winning journalist John Carreyrou titled “Bad Blood.” The story is about of the rise and fall of the biotech, Theranos. It is a monster, can’t put down read. It is the story of true believers and fraudsters, secrets and lies, hype and misrepresentation, resulting in the flushing of a billion dollars down the drain, all based on a single drop of blood. At the heart of the story, there is an attractive, charismatic woman, Elizabeth Holmes, (complete with a Steve Jobs black turtleneck) who took the mantra of “fake it until you make it” to its ultimate illogical conclusion.
There are multiple story lines, but one of them is the board of directors and their total inability to understand the science (or lack thereof), coupled with their complete unwillingness to confront Holmes with her deceit and an equal lack of courage to replace her.
The board was made up of famous, powerful men (Henry Kissinger, Jim Mattis, David Boies, George Shultz, etc.) who did not know a molecule from a molehill. They were on the board as window dressing to raise more money. Also, they thought they would get richer, (the greed molecule at work). Holmes and Theranos is a tale for the ages. It is the culmination of the Silicon Valley ethos.
The theme I want to reinforce is the obligation of a board. I get lots of startups that wander in, either looking for money or advice (sometimes both). When I ask them who is on their board, they usually wave their arms and say that they don’t have one.
Note to all entrepreneurs — you need a board of directors. And it would be nice if they had some experience in your area of endeavor. The fact that your dentist invested $50,000 does not make him a good candidate if your company is building a 3-D printed rocket engine. Carreyrou calls the Theranos board “make-believe; they took her at her word.”
I have been well served by many previous boards, and I have also been fired by some of the same. My current software company has a board, and for now, I am in good standing, but there are no guarantees. May I suggest a way to keep the dogs of war at bay — start every board meeting with a review of the financials. Do not start with an eloquent dissertation on product or market fit. The only question the board needs answered early is “When do we go broke?” Next, is “budgeted vs. actuals”, and then you go to revenue — do we have any? If you dodge those bullets, then, and only then, can you float your vision and show unicorns dancing on the head of a pin.
Our town is awash in great companies and great CEOs, young and old, but it is always nice to be reminded of the pitfalls and dangers of crossing the line between hype and lies. If your board relentlessly makes you go over the details, if they want to understand the real cost of goods or the technology stack, don’t just indulge them, instead embrace them. It’s like Mary Poppins says, “… helps the medicine go down.”
Lastly, I am the poster child for smart, powerful women. I married two of them. And I want to be sure that no woman in technology is tarred with the Holmes brush. She was a con, but the fact that she was a woman should not influence backing the next smart woman. We all know the statistics about women CEOs and the lack of venture money. My hope is that is changing and for the good.
Rule No. 598
Never bored of directors.
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