Published in the San Diego Union-Tribune, October 4, 2021
by Neil Senturia
Recently I completed celebrating the 10 Days of Repentance, which start with Rosh Hashanah and end with the conclusion of Yom Kippur. So, first off, let me apologize to anyone who has been offended by anything written in this column in the last year. Seeking forgiveness is a key element in repentance. God does not forgive sins between individuals, he leaves that for us to clean up, so please accept my apology.
Since it’s only been a short time, my in-basket of new sins is not yet completely filled, so once more into the breach.
I was a guest on a podcast about what to look for when you invest, etc., and I tried to give thoughtful and semi-rational answers. You know most of them by heart. But then the conversation veered off into Theranos and Elizabeth Holmes territory. She is accused of a massive fraud, and her trial is currently under way.
One of the defenses that has been advanced for her is that faking it until you make it, in effect telling a series of lies, hoping you can figure it out before the whole thing blows up at your feet, is just how business is done in the Valley. In other words, the defense is that everybody does it, everybody shades the truth, and in the wild, wild West, it is investor beware, because truth is not a fixed planet, it moves around based on the weather or financing. Welcome to the Big Lie.
Now let’s turn to professors Adam Galinsky, Columbia Business School, and Maurice Schweitzer, Wharton, who have written a book, “Friend or Foe,” with the goal of “improving your ability to detect workplace lies.” They say that executives are in the business of making decisions in many areas, and what gets in their way is often “overconfidence.” Said another way, we think we have enough information to get it right, but it turns out that most of us are “really bad at detecting deception.”
Galinsky contends that we are “inherently trusting creatures, and our default assumption is that the other person is telling the truth.”
Was Holmes a grifter from day one or did she actually believe in the technology? Or were the investors merely blinded by the blond hair and the black turtleneck? Who is conning who? The professors offer some suggestions.
“Establish a baseline.” Like the lie detector polygraph, responses to the questions need to be compared to a baseline. Does it make any sense or is it an outlier? With Bernie Madoff, who ran the largest Ponzi scam in history, wouldn’t it be “suspicious” that investors had positive returns 96 percent of the time? With Holmes, was it a red flag that she never let the investors actually see the machine in action?
The most recent Ponzi is Zach Horwitz, a 34-year-old wannabe actor, who recently pleaded guilty to a $690 million scheme connected to making Netflix and HBO movies that never materialized.
Hollywood is home base for the art of the con, but ask yourself, how does a C-list actor buy a $7 million mansion and spend $137,000 on private jets?
“Ask the right questions.” This is a classic. Make them open-ended. “What problems does this used car have?” That is right up there with, when did you stop cheating on your wife? I try to stay on the hard questions with founders and not allow for deflection or obfuscation. Tell me how you make money, explain the numbers, don’t wave your arms at me.
“Increase cognitive load.” Ask questions out of sequence. (“Did you ever pick your feet in Poughkeepsie?” — Popeye Doyle.) When the slides on the pitch deck start to go by too fast, ask a non sequitur.
“Watch for unusual behavior.” You’ll know it when you see it, that’s why they call it unusual. The twitch, the tell.
“Keep an eye on the exit.” Why is the guy so eager to leave the room or check his watch or shift eye contact? What’s your hurry? Holmes was famous for never having time to meet.
“Scrutinize over-doers.” They tell you their story with certainty and increased repetition. Say it once, not 12 times, and watch for hyperbole.
The baseline danger for the founder is when you are good at lying and actually believe what you are saying.
Rule No. 681
“If it weren’t for lies, there would be no sex.” — Jerry Seinfeld