5 signs you’d better stay away from that startup. What ‘Bad Blood’ teaches us

You are about to join a startup, but your intuition keeps telling you that something might be wrong. Here are some signs that you’d better listen to your intuition and stay away from that startup.

At PitchMe, we read a lot of books on startups, marketing, psychology, people management and artificial intelligence. Books are a brilliant source of knowledge offering useful insight about the industry, but there are so many, that it is simply not possible to read all of them.  That is why we’ve decided to share some of the best ideas from non-fiction books on the PitchMe Blog.

Today we want to share the insight expressed in the book Bad Blood, an award-winning book on Silicon Valley unicorn startup Theranos written by journalist John Carreyrou and published in May 2018.

In order to deliver a thorough journalist investigation on one of the hottest and most-discussed Silicon Valley startups, Carreyrou interviewed dozens of former and current employees of Theranos. As a result of Carreyrou’s investigation, the foundations of Theranos’ technological achievement were deeply questioned by government institutions, the general population and its own investors. A MedTech startup was found guilty of not having what it was communicating and eventually ended up in complete bankruptcy.

The story was widely discussed in the media, and we don’t think it would be necessary to repeat the headlines here. We want to focus on another matter. The Theranos’ story can be insightful for those of you who might want to join a startup, but are having doubts. There are several lessons that can be learned from Theranos’ deplorable narrative.

So here are our top five things to consider when deciding if they should join a startup.

Exaggerating vs Lying

It has been widely and publicly admitted that most startup founders are not completely honest with clients and investors when it comes to their product and financial projections. Because of the tense competition many startups see the strategy of exaggerating as the only possible way to survive: receive funding, sell a product and/or establish a partnership.

However, there is a difference between exaggerating and lying. Constant lies to investors and clients is one of the first signs that a startup is doing something wrong. In Theranos’ case, providing misleading information was especially unacceptable and unethical – at the end of the day, the company’s clients were adjusting their treatment plans based on the incorrect information provided by the startup.

Secrecy

Signing numerous non-disclosure agreements (NDAs) is a common practice in the startup environment. Given the potential value of founder’s intellectual property, it shouldn’t be surprising that many companies refuse to share their ideas or business specifics to the public or even to some of their own team members.

However, it should be worrying if the founders are unwilling to share anything or involve key team members into the decision-making process related to their area of expertise. Excessive secrecy could often be a sign of serious troubles within the company.

At Theranos, the product development was under the strict secrecy and employees were forced to sign exigent NDAs. As a result, the product, its current stage of development and its actual functionality (or dysfunctionality) were unknown to the majority of team members. Even ex-employees could not share their concerns about the company’s internal challenges because of the contracts they had signed.

Working environment

Startups, as any other companies, can have different working environments. At some, employees are allowed to come to work at midday or work remotely from a deserted island anywhere in the world. At others, workers are expected to work 24/7, not leave the office until 11pm and always be available with a laptop opened.

At Theranos, employees used to work long hours every day and come to the office on weekends. Generally speaking, there is nothing wrong with that approach. However, the employees who are unable to keep up with the company’s 24/7 work environment should not be pressured. Otherwise, employee retention rate will be very low.

Nepotism

Elizabeth Holmes, the CEO, has decided to hire her younger brother Christian to the team, even though he had zero experience in medicine or science. Christian even brought four other friends to the company from his fraternity. They have formed their own team inside the company and were treated better than other colleagues.

Nepotism is a dreadful phenomenon for any kind of business. It is simply wrong and against the company’s long-term benefit to hire people because they are relatives, friends or family members. Another dangerous but natural consequence of nepotism is favouritism, which is highly damaging for the communication within the team. Startups should be run on the principles of meritocracy and equality.

Board knowledge about the product

Inviting famous and prosperous people to join the board of directors is surely a great advantage. Those people definitely add status and recognition to the company they are involved with. From the very beginning of their journey, Theranos was able to build a board of especially famous advisors including highly ranked government officials and successful businessmen who are actively engaged in the business of a startup. Unfortunately, they had  not worked in the sector before and didn’t have enough knowledge to assess company’s real value.

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