Innovation theatre works until it doesn’t: The rise and fall of Theranos

Theranos was once touted as the darling of Silicon Valley, with a peak valuation of USD 10 billion in 2015. Now, some say it’s one of Silicon Valley’s greatest disasters.

The company once claimed that the machine they were developing, the ‘Edison,’ could consolidate and run 200 medical tests in a single device with results coming out in a few hours at a fraction of today’s cost. A feat, considering it takes multiple days and numerous devices to run the same number of tests today. 

Its founder Elizabeth Holmes claimed in an interview with Wired that the breakthrough technology only needed a single drop of blood, a size 1/1000 of the blood needed using current technology

This innovation should have disrupted the healthcare technology industry. And Theranos’ lofty claims should have positioned the company for great success.

Why did it all fall apart? The company was doing innovation theater.

Fintech expert Richard Turrin wrote that Theranos is a “great example of corporate-sponsored innovation theater.” Innovator Nimi Oyeleye wrote that while many entrepreneurs, like Steve Jobs, had a ‘fake-it-till-you-make-it’ mindset at times, Theranos founder Elizabeth Holmes was just ‘faking it.’

What is innovation theatre?

Many businesses worldwide brand themselves as innovative. However, a few of them do not actually innovate, even when they seem innovative on the outside.

Some corporations just introduce processes and activities associated with innovation for the sake of looking innovative. That is when innovation theater happens. 

In essence, innovation theatre happens when a business makes itself look innovative and pretends to be innovative when it really isn’t.

On the other hand, successful corporate innovation is distinctly different. This involves the incorporation of innovation into a corporation’s business model to achieve growth targets and capture new growth. These have demonstrable results that add new value to the company such as the launch of a new industry-disrupting product, improved customer service, and more.

However, despite the strong potential of creating new value and growth through successful corporate innovation, some companies inadvertently or intentionally stick to doing innovation theater.

Steve Banks, the entrepreneur, and innovator who coined the term, wrote that innovation theater happens because businesses tend to focus on processes instead of products or outputs. 

For example, companies will start doing activities associated with innovation such as hackathons and design thinking classes in an attempt to innovate. Banks, however, argues that these do not deliver any product. And in turn, these often do not add new value to the company.

Furthermore, when an innovative idea stays an idea and does not get developed into a successful product, innovation theater happens. This once again boils down to the question of whether or not it created new value for the company. 

Innovation theatre is really lucrative…

Theranos grew rapidly from 2003 to 2014. Below is a timeline of select major events.

A timeline of select events during Theranos' lifespan that depict how far its innovation theater went.
Theranos timeline.

In 2010, just 7 years after Holmes founded Theranos in 2003, it raised USD 45 million.  Interestingly, this was years before the company publicly introduced the revolutionary technology they were developing in a 2013 Wall Street Journal article

Then on, everything only went uphill.

By June 2014, Theranos had raised over USD 400 million from investors, putting the company’s valuation at USD 9 billion. Its investors included Rupert Murdoch and Walgreens. 

The company also received significant media attention. 

While promoting Theranos’ innovative technology, Holmes sported a black turtleneck, seemingly emulating Steve Jobs, one of Silicon Valley’s most iconic innovators. Theranos was even recognized in 2015 by the Fast Company as one of the most innovative healthcare companies alongside Google.

While these paint a picture that Theranos was thriving and innovating, with a widely-anticipated and life-changing product driving its growth, the truth was far from this.

The cracks started to show when a Wall Street Journal investigation revealed what was happening behind the scenes.

…lucrative until the walls start crumbling

A 2015 Wall Street Journal article revealed that Theranos was struggling to develop its blood-testing technology. It claimed that the ‘Edison’ device only handled as little as 15 of the 200 tests the company claimed the device could do. The rest of the tests were said to be done using other machines.

At the time, Theranos disputed this claim. However, later events would lead to its downfall.

In November 2015, Safeway, an American supermarket chain, dissolved its deal with Theranos. By that point, Safeway invested over USD 350 million to build clinics at their locations that would have featured Theranos’ blood-testing technology.

In later years, multiple entities sued Holmes and Theranos. 

Theranos investor Partner Fund Management sued the company for securities fraud for USD 96.1 million, which Theranos said was without merit and baseless. Walgreens sued the company for breach of contract and sought to recover its USD 140 million investment. It was later settled in 2017 for less than USD 30 million.  

In 2018, the Securities and Exchange Commission sued Holmes and Ramesh Balwani, Theranos’ former COO and President, for “massive fraud involving more than USD 700 million.”

To innovate successfully, a business needs to be able to turn its potentially disruptive ideas into an actual product that will create new value for the company. Otherwise, the company falls into the trap of innovation theater.

Theranos’ idea for a revolutionary blood-testing device that had the potential to save people’s lives stayed an idea, showing that their innovations were just a facade. The company never successfully created the technology and dissolved in 2018.

In 2022, Holmes was found guilty on four of the 11 federal charges she was facing including one count of conspiracy to commit wire fraud and three counts of wire fraud.

How do I avoid innovation theater?

While Theranos’ tale depicts the uglier side of innovation theater, any company can inadvertently fall into the trap. 

One thing companies can do is always check if the innovation processes they incorporate into their operations produce results. In other words, these processes shouldn’t just be for show and should create new value for the organization. This value may be in the form of new revenue streams, improved supply chains, and more.

Furthermore, companies shouldn’t just brand their company as innovative, they actually need to do innovation as well.

This is where Embiggen can help. We’ll make sure you walk the talk.

Our innovation experts have decades of combined experience leading innovation initiatives that have produced results for companies around the world.

We offer corporate venture building services through Embiggen Digital Ventures. Here, we’ll help you co-create the next big thing by building new ventures.

We also offer venture investing services through Embiggen Capital. We help corporations find and identify potentially game-changing startups to invest in. Our team ensures that your organization will invest its resources in the right opportunities.

Schedule a strategy session today to learn more.