
Theranos and Zenefits are a feature, not a bug, of Silicon Valley - krausejj
https://qz.com/1235955/theranos-and-zenefits-are-a-feature-not-a-bug-of-silicon-valley/
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tlb
I don't agree with the premise that some amount of deception is necessary to
pitch a company. Founders should say both what they plan to do, and what they
actually have working today.

I think it's a partly a dysfunction of some investors, that they get excited
by the plan and forget to drill into what actually works. Investors who
consistently drill into the current situation aren't surprised when things are
a little broken, because that's true of every startup.

~~~
capkutay
and investors simultaneously kill competition by honest companies...'you have
a 10 year roadmap to do X? not interesting. i'll invest $100m in this company
that says they can do 10X in one year!'

~~~
twinkletwinkle
The market should correct that though. Those companies will (should) quickly
run out of money to invest. While those who pick the ones with the right 10
year plan will (should) have the returns to continue investing.

~~~
mi100hael
What really happens is the company that over-sold their capabilities gets the
$100M and then ends up not meeting their stated timeline but investors are
already 9-figures deep so they just accept there were "unforeseen setbacks"
and continue supporting the company rather than admit they were hoodwinked.

Meanwhile, the realistic company that was passed over runs out of money and
folds.

~~~
RyanZAG
I think most startups understand this implicitly, and therefore most pitches
are lies. Most of the rest of the comments are about "it doesn't have to be
this way!", but it's almost an inescapable local max. The previous big breaks
in technology were nearly always the 10X in 1 year types, but it's extremely
hard to tell who is actually a 10X in 1 year because they are so extremely
rare. Probably impossible, since more likely than not, the 10X is pure luck on
the part of a competent 1X than any kind of real difference.

So the sensible 10 years for 1X that will make you profit but not overwhelming
profit don't get funded, so the 10 years for 1X have no choice but to lie and
get the funding they need, and investors get stringed along with all their
sunk costs because most of the time that 1X payout is still a lot more than
their sunk costs.

------
castle-bravo
Canadian engineering culture is a little different from American engineering
culture. In Canada, you can't legally call yourself an engineer unless you are
certified as such by a professional association. All students graduating from
engineering programs are given an "Iron Ring" (stainless steel) to wear on the
little finger of the working hand. The steel in the ring symbolizes the steel
in a fallen bridge. The message is simple: if you fuck up, people can die.
This extends to purely financial matters too; if you waste 2M of capital,
you've wasted the productivity of an average person's life (average in Canada
and the US).

If you lie to people to get your hands on their money and misrepresent your
work, you shouldn't be lionized as some kind of entrepreneuring maverick;
you're a danger to the public interest. This is worse than making a
calculation error that results in harm; it is willful and deliberate harm at
the scale of a mass murder.

~~~
EnFinlay
Definitely a pet peeve that so many software developers call themselves
software engineers. I went to engineering school in Canada, and no longer wear
my ring because the work I do is not engineering, it's development.

I'm not trying to knock the software development profession, I have a lot of
respect for and derive a lot of joy from the work. There's just a difference
between "As a member of this association of professionals, I declare this a
safe and appropriate design, and am personally and professionally liable for
failures in this design" and "I have push access to master and can deploy code
to prod".

~~~
bm1362
On the other side, do we want to treat every project like a medical device?

In the vast majority of sane engineering orgs there isn’t gross negligence and
developers are very cautious (hence the popular evil PM / incompetent manager
trope) to the point that they barely move at all.

~~~
EpicEng
>On the other side, do we want to treat every project like a medical device?

No, but is most software work really engineering? Personally, and atthe risk
of completely going off topic and starting a debate which has little purpose,
I don't think so. I don't consider duct taping together various frameworks and
third party libs to create yet-another-CRUD-app "engineering".

~~~
dcole2929
In all fairness, a lot of other disciplines of engineering could be described
the same way. My SO for instance is a civil engineer at a construction
company. The company works on multi million dollar projects building airports,
hotels, schools, etc. These are massive projects meant to service thousands of
individuals and if they make a mistake people can die. She describes her job
as "a whole lot of babysitting adults (sub-contractors), and duct taping bad
designs to worse material".

Are there safety concerns that a lot of engineering doesn't have? Sure. But it
goes both ways. In her field of engineering there are limited impactees and
mistakes while potentially fatal have minimum monetary value. I can fuck up
and cost my company millions in an instant. Or expose millions of user's
personal information. Different risks, and I'd still probably take the a
stolen identity over death, but at the end of the day it's a similar job.

~~~
EpicEng
A civil engineer is responsible for every tolerance, specification, and design
they put their name on. I imagine they would be verifying those before they
sign off. She also has to have a lot of knowledge in math and certain sciences
to do that job I'd consider that engineering.

~~~
dcole2929
This is a late reply but basically, you're completely wrong. There are certain
aspects that someone on site has to be sign off on, but no the majority of
engineers on site don't have to be responsible for really anything other than
verifying they delivered what they promised. There are inspections (generally
by the state) that verify the safety of a finished project. If something goes
wrong because of sub par material or a design from an architect that ended up
not being sound that's not on the engineer who signed off. And as far as Math
and Science skills it's actually pretty similar to CS people where you learn a
lot of stuff that you never use, or are expected to. Some guy did a basic
derivative for something or other on their site, a week back, and everyone
freaked out they were so impressed. These aren't the day laborers. There are
all guys who've been in construction for years, Superintendents, field and
project engineers, etc.

------
hprotagonist
This is why medtech has the FDA, and why the FDA has actual teeth.

"move fast and break stuff" is bad PR if you're facebook. It's a game-over
felony if you're making medical devices.

~~~
ng12
The FDA is necessary but I do think it could stand to adopt a little bit of
the Silicon Valley ethos.

Good example: the Freestyle Libre CGM is a recently approved glucose monitor
for diabetics. The European version lasts 14 days and takes an hour to start
up, the US version lasts 10 days and has a 12 hour (!) startup time. It's the
exact same hardware with artificial restrictions added to the software for
unclear reasons.

~~~
lambda
> It's the exact same hardware with artificial restrictions added to the
> software for unclear reasons.

Well, a quick search of Google Scholar turns up at least one citation in which
the Freestyle Libre CGM was significantly less accurate in the first day of
use than in later days, indicating that it needed more time for proper
calibration:

[https://www.liebertpub.com/doi/pdfplus/10.1089/dia.2014.0378](https://www.liebertpub.com/doi/pdfplus/10.1089/dia.2014.0378)

I expect that the differences are based on some actual findings, not just
"unclear reasons," but you may have to do some research to find out.

The FDA is notoriously cautious, possibly somewhat excessively so, but there
is some good reason for that caution; medication and medical devices can have
unexpected behavior and side effects and it can take a lot of long term study
to find them. One example of the caution working out well is the Thalidomide
case, which was approved in many other jurisdictions but not in the US, and
which had significant side effects on fetuses.

~~~
ng12
What's unclear is not the data but the decisions they made based on the data.
Why is that first-day margin of error acceptable for European diabetics but
not American ones?

Anecdotally, as a diabetic, the margin of error in that paper is much less
scary than going 12 hours without a CGM. Poor data is much better than no
data, especially if I know the data is going to be a little questionable the
first day. I was completely ready to switch from Dexcom to the Libre until
they announced that restriction.

~~~
daveFNbuck
> What's unclear is not the data but the decisions they made based on the
> data. Why is that first-day margin of error acceptable for European
> diabetics but not American ones?

The decisions were being made by different people. It's not like the FDA
decided that Americans require a 12-hour window but Europeans only need 1. The
FDA is just more cautious.

~~~
ng12
I wasn't being literal. The point is the FDA is overly cautious to the point
that they're harming the health of patients. Slight deviations between the US
and EU are understandable, 10x is questionable.

~~~
daveFNbuck
I'm sure there are people who would say that European regulators are being
permissive to the point that they're harming the health of patients. A lot of
women in the US could have benefited from thalidomide while it was being used
in Europe, but the FDA was too cautious to allow it.

People will benefit from those extra 11 hours, but they'll also be hurt by the
lower accuracy. It's completely reasonable for different people to weigh these
costs and benefits differently.

~~~
ng12
> People will benefit from those extra 11 hours, but they'll also be hurt by
> the lower accuracy

11 hours without a CGM is a much greater risk than marginally lower accuracy.
As a potential user of this system I've been unable to locate research to
convince me otherwise.

~~~
daveFNbuck
Luckily there are other ways to get them, and the FDA's decision has kept you
using a more accurate one.

------
vannevar
Venture capital is much more of a Ponzi scheme than the community cares to
admit. For every spectacular case like Theranos, how many cases are there
where early investors at the top of the pyramid are able to take money off the
table at the expense of later investors who never make it back? Technically,
the company may still be viable, and might be acquired for some fraction of
the total invested. But the mechanism that the VCs leveraged for _their_
profit still resembles a classic pyramid scheme, where it is money from later
investors ("the greater fool") that lines their pockets, and not profits from
a successful business.

~~~
scribu
Could you give some specific examples where a startup was sold _at a loss_ and
some of the investors actually got out more money than they put in?

I know that when a public company goes bankrupt, the investors with preferred
stock can, at best, get back all their money, but they can't make a profit.

~~~
lovich
VCs can invest money with garunteed payments greater than 1x. It doesn't mean
that if the company sells for less than their investment they'll get their
money back, but if they put in 1x and are garunteed 2x and first in line to
get paid, when the company gets sold for 3x the VC gets their 2x and all the
other investors/employees get to pull from the leftovers

------
pinewurst
It's unfair I think, to group Theranos - a total lie and fraud - with
Zenefits, offering a useful service but cutting corners illegally.

~~~
jacquesm
I think it is perfectly fair to group corporate criminals together.

~~~
harryh
Yesterday I jaywalked across a street. Most people wouldn't put me in the same
group as Charles Manson.

Grouping drastically difference offenses in the same bucket obscures reality
instead of making it more clear.

~~~
jacquesm
No, and 'most people' would not put Zenefits into the same bracket as a
company that filed a VAT statement two days late either.

Zenefits is closer to Theranos on that scale (and closer to Uber and a couple
of other entities that seem to enjoy breaking the law and letting others pick
up the fall-out).

The fact that Zenefits survived as a company is remarkable, but it makes their
intentional deceit and fraud no less.

~~~
harryh
Theranos conducted medically invalid blood tests and sent the results of those
test to patients.

Zenefits sidestepped some occupational licensing rules that only exist to
protect the market of incumbents.

~~~
gamblor956
Well, no. Theranos made fraudulent misrepresentations about their technology,
which was used as the basis for medical treatment for at least some patients.

Zenefits made fraudulent representations about the training of their sales
representatives, many of who know diddly squat about what plans they were
actually selling to companies, and Zenefits' incompetence in actually
transcribing data across incompatible systems. This resulted in numerous
employees being denied timely access/use of their benefits, including health
insurance. Zenefits absolutely belongs in the same category as Theranos and
both companies should thank their lucky stars that their executives aren't in
prison cells right now.

------
maerF0x0
"The only problem with an honest buck is they're so hard to make - the margins
are too low, too many people are doin' it." \-- Yuri Orlov , 'Lord of war'
[http://www.imdb.com/title/tt0399295/quotes/qt04033055](http://www.imdb.com/title/tt0399295/quotes/qt04033055)

There will always be unethical people willing to exploit the commons for their
own profit. Some will do so spectacularly, as a society it's our job to ensure
that the EROI of such actions are < 1x so that they will lose out in the long
run. Elizabeth Holmes was thoroughly unethical and will spend the next decade
paying for that choice, I doubt she profited from it.

------
yalogin
Theranos is a ponzi scheme right? I can see that they scammed investors by
using Silicon valley techniques, but Zenefits seems like just a poorly run
company just like any other one.

On that front, why is no one at Theranos jailed and why is that company still
operating?

~~~
bertjk
Not every fraud is a ponzi scheme. Ponzis are a specific kind of fraud where
existing investors are paid dividends using investment funds from new
investors. I haven't heard that existing Theranos investors ever got payouts.

~~~
confiscate
good comment.

Most folks think in terms of absolutes, like "good vs bad", "right vs wrong",
"steve jobs", "freedom", "jail", "fraud", "ponzi scheme", "criminals", and
don't care about the details. People are easily misled by labels, like "Little
Marco" or "Lyin' Ted" or "Crooked Hillary"

All of a sudden people are calling Theranos a ponzi scheme when it's doing
something completely different.

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peterbraden
Lack of ethics is a feature?

Ambition shouldn't come at all costs.

------
dgreensp
Just because “exuberance and fraud” are bound to happen doesn’t mean they are
a good thing. I also don’t buy the skippery slope between pitching your vision
and lying about the facts. Theranos clearly crossed the line, demonstrating
that the line is sometimes clear. An article arguing that the line is
sometimes blurry, or that deception can be a good thing, should draw on
different material.

If Silicon Valley as a whole is a bit scammy, it doesn’t serve us to defend it
on that score or spin it into a positive.

------
Kream
In my understanding, there is a clear issue here with the understanding and
separation between the present, which is a fact and the future, which is a
theory.

It is illegal to misrepresent your financial statements, thus lying about the
present. But you can sell whatever you want about your future, like changing
the world and making it a better place and what have you. The Silicon Valley
feature is the unbelievable faith in the potential of an idea/startup. I don't
think lying about your current financials or KPIs is a feature.

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walshemj
There are fraudulent / bad actors in all industries the commodities industry
has an entire sector whos job it is to prove that that shipment of grain,
sugar etc is actually valid.

~~~
portofcall
The difference in Silicon Valley is that the shipments go out and there’s
nobody checking. It’s a _big_ fucking difference too.

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WheelsAtLarge
The article makes a good point. Exaggeration is common when trying to raise
money. Read the history of many startups and you'll find outright lies that
seem mild after the fact since the startup was able to continue and deliver.
We've all heard the stories as well as all the people that invest in startups.

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pkaye
In the case of Theranos, the investors should get domain experts as
consultants when they invest.

~~~
magnetic
Isn't that simply called (investment) diligence, and unrelated to Theranos?

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ssahoo
Bad apples are everywhere. It will be poor judgement to prejudice with these
limited facts. Business war is everywhere, some entrepreneurs are taking it
just too far in pressure to pursue the baseless goals.

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portofcall
This is what you get with no oversight, tons of money, s lot of arrogance, and
a focus on “hustle” over anything else. It definitely works for a while, but
when it comes crashing down it’s going to take out a lot of innocent players
with it.

