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What the Theranos scandal reveals about the role of the startup advisory board

Posted by Kanika Sinha

October 28, 2021

Once hyped as “the next Steve Jobs,” Theranos founder Elizabeth Holmes is facing 12 federal fraud charges over her role at the now-defunct blood testing startup. At its peak, Theranos was valued at almost $10 billion and promised to revolutionize the medical testing industry. Holmes’ epic fall from grace illustrates a stark lesson about the importance of having domain experts on a startup advisory board and what can go wrong in their absence.

The Theranos advisory board

By definition, the board’s role is to advise the startup based on industry insights, product knowledge and operational expertise. But the composition of Theranos’ advisory board did little to establish credibility within the health care technology sector. Rather than choosing members for expertise in the field, Theranos’ board was seemingly assembled primarily for the ability to secure government connections.

The board of advisers for Theranos comprised five politicians, two senior military members and two corporate executives. George Shultz, William Perry, Sam Nunn, Henry Kissinger and Bill Frist fall into the first category, Gary Roughead and James Mattis fall into the second, and former Wells Fargo CEO Richard Kovacevich and former Bechtel chief Riley Bechtel fit in the third.

The lone medical professional on the advisory board was Bill Frist, who initially trained as a physician but switched to politics. Meanwhile, CEO Holmes dropped out of college at age 19, and Theranos Chief Operating Officer Sunny Balwani was an IT professional.

It appears that no one on the board except Frist had a medical background or knew anything about diagnostic testing. Indeed, Theranos’ board stacked big names with little relevant expertise. The company did not add a medical board until 2016, after the startup was already embroiled in civil and criminal investigations over allegations the company was a fraud.

What the board needed:

The Theranos advisory board should have insisted much sooner than 2016 that medical experts be brought on. The company desperately needed people capable of peering under the hood and inspecting every aspect of the diagnostic testing system that the unicorn claimed to have developed.

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Learnings from Theranos’ failure

1. Domain expertise is a must for advisory boards.

Big names attract attention, but domain expertise is needed on advisory boards. An advisory board made up only of high-profile leaders, as in the case of Theranos, offers its own risks. For example, because they tend to be very busy, such members may not be in a position to delve into the company’s complexities. They may speak at prestigious conferences and know everyone in the industry yet lack boots-on-the-ground expertise.

And the board needs to be in place early on to advise companies as soon as things go awry. Even a well-qualified advisory board might not be able to turn things around if too much time has elapsed.

2. Open discussions are vital.

No open discussions were held at Theranos, nor were hard questions raised. The advisory board was not assembled for this purpose; it was created to raise money and attract publicity. The board’s high-profile reputation also helped squelch doubts and deflect criticism for nearly two decades.

Dissent and criticism may not be pleasant, but they are necessary in the pursuit of excellence. Advisory boards too should foster a culture that encourages hard questions, honest opinions, deep vetting of data and fact-checking.

3. Boards benefit from a rebel or two.

Dr. William Foege of Theranos’ board of directors and its 2016-assembled medical advisory board was the company’s sole industry expert. But even he couldn’t stop the house of cards from tumbling down.

Even under the watch of highly educated advisers, companies can get sucked into their own hype. That’s why it is good to include a critic or two on the advisory board. The critic can challenge the status quo and vet data without fear of disagreeing with luminaries.

4. Advisory board are central to a startup’s success.

A group of advisers with diverse skills and perspectives can provide access to resources that startup executives would never otherwise have the time, money or network to develop. Their oversight can also help the company identify issues before they hurt the business.

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Escalon has helped over 5,000 companies across a range of industries to optimize routine business functions, like HR and payroll, and operate more efficiently. Talk to an expert today.

Authors

Kanika Sinha

Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.

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What the Theranos scandal reveals about the role of the startup advisory board

The Theranos advisory board

What the board needed:

Learnings from Theranos’ failure

1. Domain expertise is a must for advisory boards.

2. Open discussions are vital.

3. Boards benefit from a rebel or two.

4. Advisory board are central to a startup’s success.

Want more?

Authors

Kanika Sinha

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