The Elizabeth Holmes Trial & the Problem with Silicon Valley’s “Fake It Until You Make It” Philosophy

Silicon Valley is notoriously built on vapor.

Sometimes called the “fake it ‘til you make it” philosophy, it’s the business of selling a dream instead of a reality. And why not? Silicon Valley is full of companies who have changed the world in profound ways, for good or for ill, and become fabulously wealthy in the process. That creates an allure of potential; billions and billions of dollars might be an app or a product away. So when someone comes along with firm eyes, unshakeable confidence, and a black turtleneck and makes bold claims about how they’re going to revolutionize human life, it’s easy to get caught up in it. After all, Steve Jobs did just that and today, everyone has a smartphone in their hand. 

George H.W. Bush used to call this sort of stuff “the vision thing,” the promise of the world they want to build. Sometimes you get people like Mark Zuckerberg who are able to, more or less, pull it off. Most of the time, you end up with the likes of Adam Neumann, the WeWork founder who made billions of dollars without ever generating a dime of real value for investors before the company crashed into a wall. 

Holmes had a vision, the charisma to sell it, and precious little else to recommend her. Her bold statement—preventing needless death by making it possible to identify and diagnose a whole range of illnesses off a single drop of blood from the convenience of your own home—never came to fruition. The technology wasn’t there. But she embraced fake it till you make it—black turtleneck and all—and in the process, defrauded investors of billions. She created a monster, and it was her. A jury agreed.

Now, I’ve been in PR for over 40 years, helping companies navigate every stage, from idea to startup to IPO and beyond, including the inevitable crises they face along the way. So believe me when I tell you that “fake it till you make it” doesn’t work.

On the one hand, there’s the insubstantial reasons; honesty and integrity and authenticity are things we value because they allow us to trust, and violating that trust by willful deceit hurts everyone. We need only look at the current pandemic crisis to see what that erosion of trust can do. 

On the other hand, there’s the hard truth of consequences; pride goeth before the fall, as they say, and the truth always comes out. When you build an empire of billions on a foundation of wisps and false promises, it cannot survive.

Sure, there is a degree to which many companies get away with a little fake it till you make it (though I still wouldn't recommend it). “The prototype will be ready in three weeks,” when it’ll really probably take six or eight; the technology is there, but it’s still being refined into something resembling the end goal. While this may seem like a good way to soothe impatient investors in the immediate, it’ll come back to bite you when three weeks roll by and impatience gives way to frustration and distrust; this is why transparency is always the better option. “The prototype exists, works perfectly, and we’re ready to start shipping it out to partner vendors,” on the other hand, when the technology does not even exist yet, as Holmes did with the Edison blood analysis device and its infamous “nanotainer,” is blatant fraud. 

Now, Holmes was in a pickle, because the nanotainer was the whole raison d’etre for Theranos; without it, they offered nothing beyond a complex, bulky machine that ran automated tests with high failure rates. If the nanotainer didn’t exist, there’d be no company, no billions, no founder-cum-visionary to grace magazine covers. Her company’s valuation was based entirely on a proposed technology that didn’t exist, was beyond current materials science, and yet the money came pouring in because she sold the lie really well. 

I’m not sure there is any version of Theranos that could have been honest about the state of things to properly manage expectations. The entire venture was predicated on a ghost of an idea; how do you sell investors on the stunning amount of work, time, and money it would have taken to actually develop the underlying technology behind the dream? How long would that have taken? Would anyone have been sold on it? That’s doubtful. 

But managing investor expectations has to be key, and that means being forthright about the status of the product, how you intend to build it, and whether the means to do so even exist. I could stand up here and sell you on a box that could generate endless electricity for free, but if I didn’t have anything to back that up, well, you’d be investing in hot air and little else. And word gets around.

Let’s imagine a different Theranos. In this world, Elizabeth Holmes started with the vision—but was upfront about why it didn’t exist yet, what obstacles stood in the way, why they hadn’t been overcome by others before you, and the applications of the underlying technologies beyond the vision. What else could the materials science produce? What else could generate income and value for investors? In this world, what she’s really doing is founding a research company specializing in miniaturization of medical devices. The Edison device is the vision, but the research needed to get there is the launchpad. It may not be as sexy. And it’s harder to get people on board. But it's an actual foundation to build upon. 

That Holmes would have a smaller group of investors who would require regular updates about potential applications of the technology, how much progress has been made, and how they intend to monetize what they have created. That Holmes would never be a generational wunderkind, but might have eventually reached the fabled, elusive machine of her dreams. She wouldn’t have graced magazine covers or attracted breathless interviews, but she could have built a stable company that made the world better. 

Companies are founded with the express intent of being sold off and shuttered. They call it “exit strategy,” as if the product itself was ancillary to the real goal of being a tech billionaire. Which, of course, it usually is. Holmes played the part and promised a quick machine without considering what it would take to get there, made billions off that lie, and ended up committing serious criminal acts in the process. She’ll never run a company again. Who would trust her with their money?

See, “fake it till you make it” is a gamble, and the hard truth of gambling is that, eventually, the house always wins. You cannot cheat the odds. You cannot change the truth. If your product or business model doesn’t work, that’s going to come out, and you will be caught in the chaos that follows.

But it doesn’t have to be that way.

Honesty and pessimism aren’t the same thing, although honesty and patience might be. If the last two years have taught us anything, it’s that impatience breeds dishonesty; oh, let’s return to normal, everything is fine, and then BOOM! Omicron. Because everything wasn’t. 

The key, then, in managing investor expectations is a combination of honesty, positivity, and yes, patience. Things take time. The key is to emphasize the progress and not the setbacks. 

In this scenario, Holmes sold her company on the vision, even without the underlying technology. But as problems started to crop up, Holmes should have been upfront—and pivoted. “Yes, we’ve hit certain roadblocks, but we’ve also achieved certain milestones. Our focus right now is going to be refining the existing product for what it can do and re-investing your money into specialist research to help us realize the original goal, which will always be our priority. In the meantime, the refined product, even while not meeting the original vision, will generate ongoing revenue and simplify blood testing. We thank you for your patience.”

See what we did there? Our version of Holmes, here, keeps her eye on the goal, talks about everything they’ve done as progress towards a destination further away than anticipated, while contributing now to the field of medical technology. This Theranos might have lost investors, sure; but Elizabeth Holmes was nothing if not a consummate and persuasive saleswoman. She could have probably kept most of them on and, in doing so, kept the dream alive. That she didn’t is an indictment of Silicon Valley culture—and our willingness to believe in bald nonsense—as much as of Holmes herself.

So many of our problems stem from a simple refusal to bow before the brute fact that you can’t will something into existence. I look at Theranos and see so much lost potential, thrown away in the service of valuation and ego when there was every chance to create something that could have, one day, achieved its own vision thing. Instead, everything was tainted by deceit, careers were ruined, and the great dream perished. That ought to be a sobering lesson for everyone out there faking it till they make it with their startup. 

If you want to build something, achieve something, accomplish something historic with other people’s money, you better make sure you have both of your feet firmly on the ground. Otherwise, all you’re standing on is vapor.

FORTUNE GLOBAL FORUMMonday, November 2nd, 20152015 FORTUNE GLOBAL FORUMSan Fransisco, CA, USA

Panelists: Theranos Founder & CEO Elizabeth Holmes, Fortune Editor Alan Murray Photograph by Stuart Isett/Fortune Global Forum