The deceitful stories

The jury came back on Elizabeth Holmes of Theranos infamy yesterday in the landmark case against her; guilty on four fraud accounts. What that will translate to in terms of sentencing remains to be seen, and it’s more than likely that Holmes will appeal.

Nevertheless: Guilty.

The really great question now is whether the Theranos case and Elizabeth Holmes was a lonely swallow or if something more like a structural problem is afoot?

While there can be little doubt that the Theranos case based on its scale and tactics used is a land mark one, I would argue that some of the fundamentals that drove Holmes to where she landed herself and the company, is in play in many more places that you would probably think.

I.e. we have a structural problem on our hands. And one that is probably enforced by the speed of development and the somewhat easy access to cheap capital.

So what do I mean by that?

Two things.

The first issue is the outsized influence of storytelling on valuations of startups and even bigger corporations. As an (semi) old communications professional I should probably take great comfort in the role a great story plays for the valuation of a company:

You really can fake it until you make it by using the right words. And boost your valuation and overall attractiveness to customers and investors in the process.


Case in point?


Elon Musk is not in the business of manufacturing electric vehicles. He and Tesla is in the business of fighting climate change.

Notice the difference? It’s staggering. Not only to the total addressable market. But also to the valuation.

And due to the storytelling and investors believing in the story (and the founder myth associated with that particular founder and company) the valuation of the company when compared to the business fundamentals is about as far off the ground as the distance from Earth to Mars.

Tesla is perhaps just the biggest and most valuable example of using storytelling and words to grow your valuation, but most of the startups, I meet do it.

The stellar ones connect the story brilliantly to the problem they are trying to solve with the product, they’re building.

Most of them don’t have the product yet and are in the ‘believe me and take my words for it!’ category which is seldom that compelling.

The worst ones make so little sense, it’s painful to listen to and really just helps to enforce the point that inflated storytelling is something we need to be mindful of and skeptical about as investors (and customers for that matter).

It turns out, you really can have too much of a good thing.

The second – and potentially more serious – issue is a consequence and side effect of the first one:

The fabled customized KPIs.

Customized KPIs are typically what happens when a startup feels a need to come up with a new measurement that (1) takes into account all the things, you want to showcase, while (2) trying at the same time to hide those things that will have people asking questions about how your business is really doing.

The classic example is WeWork, who came up with “community adjusted EBITDA” as a public metric in their prospectus. An ingenious invention that would basically allow the ambitious co-working space giant to report earnings as pure profit without accounting for much of the cost.

Obviously a deeply flawed approach. Which they – quite rightly – got flamed for.

Customized KPIs are toxic because they are an unholy mix of two potent weapons; storytelling and data. While each can and most often serve good in their own right, the combination can be lethal. Especially as it is usually only brought to light, when a startup has a clear interest in getting a story out while camouflaging it as data.

In that way customized KPIs essentially becomes the most deceitful of all; it takes the most positive spin on a story, it can find, and it makes it look like solid data.

While too much storytelling in itself may raise an eyebrow, customized KPIs should make every serious investor stop in their tracks, look hard and think again about what is really going on inside the startup in question.

Because why have the need for the masquerade?

Sadly – and this is the real point – that doesn’t happen as much as it should.

Instead the endless hype based on the great storytelling and the impressing numbers coming from customized KPIs run the risk of misleading investors to think that they really are on to ‘the next big thing’, and that they better close the deal, before someone else does it and the opportunity is missed.

There simply isn’t allotted the right amount of time and pause to step back, think, ask questions and get to the right conclusion.

And that – ultimately – is exactly why despite all the talk about Theranos and Elizabeth Holmes being a unique case that will never happen again, I am absolutely confident, we will do so again. And again.

The only questions are: What will it be next time? How much will it cost? And what will the fallout from it be?

(Photo by Diane Picchiottino on Unsplash)

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