Elizabeth Holmes and Her Confidence Game: A Fake-It-Till-You-Make-It Cautionary Tale for Every Entrepreneur

On Monday, after a three-month trial and 50 hours of deliberations, a jury found Elizabeth Holmes, the founder and former CEO of Theranos, guilty on four counts of fraud for making false claims to investors. Holmes was found not guilty on four charges related to lying to patients by providing them with faulty test results. The jury also deadlocked on three charges, for which the judge declared a mistrial. 

The verdict–barring an appeal–brings the final chapter in what was one of Silicon Valley’s iconic fairy tales. Holmes, a Stanford dropout who fancied herself in the mold of Steve Jobs, started a medical device company that promised the ability to run hundreds of tests from just a single drop of blood. It was–literally–too good to be true, but that didn’t stop plenty of high-profile investors from pouring money into the company, which was valued at $9 billion at one point. 

Holmes’s strategy was to “fake it till you make it,” except, there was never going to be a point at which Theranos would make what it promised. Holmes may have well believed it would, which is essentially her only defense for making false promises, but her revolutionary idea was a fairy tale only in the sense that it was made up. It wasn’t real. 

The most interesting thing as I’ve followed the trial is that Holmes isn’t as unique as most people would like to think. Whenever we see a high-profile person convicted of fraud, it’s easy to think they were an especially diabolical person. The thing is, the temptation she faced is common among entrepreneurs. 

None of that is to say that Holmes’s actions are excusable. None of it is to say that she shouldn’t have been found guilty. A jury of her peers heard the evidence and concluded that she intentionally lied to investors in order to separate them from their wallets. That’s fraud, a felony for which she was convicted.

It is to say that every entrepreneur wants to paint their idea in the best light possible. They wouldn’t have started a company if they didn’t believe they could change the world–or, at least, add value to it through their product or service. And starting a company is extremely challenging, even under the best circumstances. It takes a lot of effort and–in many cases–a lot of money.

Every entrepreneur–at least those who are trying to persuade someone to give them money–is tempted to make promises that they often have no idea if they’ll be able to keep. If we’re really being honest, investors encourage that type of wild speculation. Investors want to believe that you’re the next Steve Jobs, and your idea is the next iPhone, since it’s too late to invest in the original.

No one, after all, knows the difference between what ideas will succeed and which will flop. That startups feel the pressure to embellish and inflate the claims they make in order to get venture capital is an indictment of more than just Theranos, but it’s also an entirely different cautionary tale. 

Instead, at that moment when you’re sitting across the table from an investor, Holmes’s conviction should be a cautionary tale that some things aren’t worth it. Trading your integrity for an investment isn’t worth it, no matter how much money. 

That moment is difficult because the money is so tempting, and all it takes is a small embellishment. Holmes was convicted, at least in part, because she put logos of pharmaceutical companies on the pitch deck, giving the impression that they had endorsed Theranos’s technology. 

Holmes gave in to that temptation. She lied by painting a picture of her company that wasn’t real. She wasn’t honest with the people she was asking to believe her.