The Theranos scandal: What can you learn about toxic targets and avoid startup failure

Entrepreneurs frequently set unrealistic targets. However, you must learn from Theranos founder, Elizabeth Holmes before jumping into the deep end

The Theranos scandal: What can you learn about toxic targets and avoid startup failure

Setting clear and bold targets has become part of leadership 101. We take it for granted that a key part of any leader’s role is setting an aspirational and often stretching targets. Jim Collins and Jerry Porras’s wrote in Built to Last about the incredible power of BHAGs – big, hairy, audacious goals. Since then, when it comes to targets, the trend has been – the bigger the better. 

But why do targets matter and how do they impact culture? The power of a target is that with a simple statement of intent it is possible to achieve several different things. The first job is a symbolic one. A bold target shows confidence and self-assurance. It can be very attractive for the team, investors and customers alike. The second job is one of unification. A well-expressed target can bring a team together by creating a common challenge or adversary. A stretching target can empower and gives permission to break free from the status quo. When used well they can bring transparency, honesty and openness providing clear criteria for how and why decisions are made. With these benefits why not, in the words of Spinal Tap legend Nigel Tufnel “turn it up to 11”?

The problem is that when it boils down to it, a target is a promise – to investors, employees, shareholders or customers. The problem with a promise in any business, as in life, is that the bigger the promise the harder it is to deliver. There comes a point when a bold stretching target becomes a toxic one. 

The most obvious and high-profile example is when a crazy, bold target – implicitly or explicitly – encourages crazy, bold or reckless behaviours. Like Rosie Vivas, who famously won the Boston marathon in 1980 by taking the subway, the pressure to perform can lead to shortcuts. We see this in the form of accounting scandals such as those seen recently in a variety of UK based businesses – Tesco, Carillion, Superdry, Ted Baker and Patisserie Valerie. The target promise is too big, the progress is not enough so the gap gets artificially filled. 

And it’s not just the numbers which get manipulated under the pressure of delivering unrealistic targets. Take the amazing story of Theranos, the blood sampling tech firm headed by Elizabeth Holmes, as a case in point. In less than a decade after being set up in 2003, it’s valuation had peaked at $10bn and the business had attracted nearly $1bn in funding. Fast forward another 5 years and the business shut down and Holmes and her team have been indicted for wire fraud and conspiracy. It appears that in the struggle to keep the momentum of growth and hit targets, they had falsified test results and misled investors and customers about what the tech could really do. The story, soon to be made into an HBO show, has become all the more extraordinary as the details of Holmes’s life have come to light. She was at one stage worth around $4.5bn but expensed the rent of her Los Altos home, refused to fly commercial and travelled with a security team of up to 20. She and Theranos’s COO are facing $2m fines and up to 20 years in prison. As the saying goes – if it’s too good to be true, it probably is.

This sort of extreme, large scale corner cutting – also known as fraud – is relatively rare but there are more insidious impacts of stretching targets. Unrealistic targets can erode credibility. A leader who states a big target and doesn’t back it up runs the risk of looking either incompetent  when they don’t understand the current business or delusional when they are not willing to accept the current reality. An ambition needs to be backed up and aligned with commitment – the resources, investment, people, skills and decision making behaviours. The relationship between reward, risk and investment is pretty linear. When they are aligned, teams flourish – we call this the stretch zone. When there is a misalignment of ambition and commitment, then businesses flounder in the land of unmet or unrealistic expectations.

Whether it is a startup struggling for funding or multinationals looking to manage share price, we have all become obsessed with growth and so for some, the end justifies the means. We have seen many of our clients having a cookie-cutter approach to setting targets – usually double the business in 5 years. 

Indeed, growth for growth’s sake corrupts. When things get tough, the underlying motivation is more important than the numbers alone – the why overcomes how much. It’s part of human nature to want to contribute to something beyond ourselves but it also important to consider why it matters.  For all the positive power of targets they can be equally toxic when they are the only metric of success.

Nick Pye
Nick Pye

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