What is irresponsible entrepreneurship?
Irresponsible entrepreneurship could occur as a result of poor judgment or intentional acts of deception on the part of an entrepreneur or startup founder that leads to negative impact on the business, investors, and the society.
Great idea, wrong approach: the Theranos case
Irresponsible entrepreneurship in the Theranos case is about great idea, wrong approach to entrepreneurship.
Can a bad person with a great idea make a positive impact? A bad person with a bad idea is a recipe for disaster. I strongly believe that good people with great ideas help to shape the future. However, a great idea with a wrong approach could cause colossal damage.
The Theranos case is an example of irresponsible entrepreneurship, great idea wrong approach.
Theranos was a health technology company founded by Elizabeth Holmes in 2003, aged 19. Theranos racked up a $9 billion valuation and Holmes was hyped as the youngest female self-made billionaire.
Now, She is being prosecuted for knowingly lying about the technology she claimed could detect a disease using just a few drops of blood.
This week, a guilty verdict was made in the case against the CEO of Theranos (Elizabeth Holmes), for multiple counts of wire fraud and conspiracy to commit fraud against investors.
Reading the headlines and watching the news drew my attention to the need to equip entrepreneurs with concepts, best practices for moral guidance, and addressing ethical considerations in decision making. Especially, during the formative stages of their ventures.
Many will argue that the most successful business leaders are just lucky because most of them started as entrepreneurs who were willing to do almost anything to succeed.
Younger entrepreneurs are immersed in a culture of hyping and exaggeration.
Two questions that have been on my mind for days are:
- Where should entrepreneurs draw the line between the push for disruption and fraudulent deception?
- How does an entrepreneur or startup founder know when the business has reached the point of no return?
These lines of thought were inspired by the Theranos case. I believe that ethical startups or ethical entrepreneurs are those who are adequately morally guided to make reliable strategies to do the right thing, for the right reasons, in particular situations.
Therefore, they are able to make ethical considerations and take the necessary stance in deciding not to continue beyond the point where they become guilty of defrauding investors, causing bodily harm, and running the risk of losing their personal freedom.
Irresponsible Entrepreneurship: actions that led to the Theranos scandal
Developing a product that could carry out diagnostic tests using only a few drops of blood is indeed a novel idea. But, going live with a system that is still being tested is unethical.
Some of the poor judgments or intentional actions that led to the Theranos scandal include:
Irresponsible entrepreneurship – The startup board
The directors of Theranos were selected not because of their business and/or medical experience.
Rather, they were selected for their star power. Holmes revelled in the fame and credibility of 3 US. cabinet secretaries, 2 former US. senators, a retired navy admiral, and a retired marine corps general.
The board obviously fell short in their responsibility to understand and monitor the company’s operations.
No expert oversight
Although a few drops test instead of several vials of blood could potentially disrupt the traditional blood-testing business, earlier on at the formative stage, Holmes neither listened to the experts who tried to explain why her ideas might not work nor decided to place a medical expert on board to provide expert oversight.
Ultimately, the CEO was caught lying to investors and potential end users about the device’s capabilities.
Irresponsible entrepreneurship – Deception
A culture of “faking it until you make it” highlights a thin line between disruption and deception.
Elizabeth Holmes knew that there was no medical miracle; we may never know the point in time when this became obvious to her.
Yet, she kept on with the deception, probably hoping she’ll nail it at some point. Unfortunately, while that culture might be somewhat acceptable in a technology based business model, it is totally irresponsible from a healthcare standpoint.
Fake persona and false impressions
There are speculations that Holmes developed a fake baritone voice so she could be taken seriously as a young woman in the male-dominated Silicon Valley.
Holmes also took to wearing black turtlenecks, just like the late Steve Jobs, to present herself as the next Steve Jobs.
A fake persona is not a particularly great accomplishment in and of itself: it portrays a lack of authenticity.
However, this might have contributed to her ability to dazzle investors and successfully rack up hundreds of million dollars through her personal networks and Silicon Valley big shots.
Theranos used dubious methodology and science. The blood-testing machines frequently failed quality control tests.
Despite knowing that the diagnostic machines were not ready, Theranos received millions from Walgreens to rollout testing.
To cover up, 3rd party standard testing machines were used to carry out blood tests but were made to look like tests were carried out using Edison (Theranos’s device).
Unhealthy workplace culture
Theranos had employees working in silos and there was a culture of secrecy. The company was able to recruit impressive talent but couldn’t retain those employees.
The welfare of employees wasn’t paramount at Theranos. When there is a quality control failure, defective machines could not be used until it gets recalibrated.
This can take up to 14 hours, which meant that employees sometimes worked back-to-back shifts to get the machines reset. As a result, many employees were sleeping in their cars.
Also, Theranos employees were fired for disagreeing with Elizabeth Holmes and the company’s Chief Operating Officer was tyrannical.
Conflicts of interest
The lawyer Mr. Boies took two conflicting roles – as a lawyer representing Theranos and as a director of Theranos (representing investors).
There was a romantic relationship between Theranos CEO Elizabeth Holmes and COO Ramesh “Sunny” Balwani.
Although the former claims that the latter was abusive and controlling in the relationship.
The extent of the impact of their relationship on the Theranos scandal is unknown, and the board of directors, which ought to have provided oversight, was not effective.
Conclusion of the Theranos case
It’s still a mystery how the Theranos deception was able to continue for so long. What is even more baffling is how some of the most connected, most experienced, and wealthiest investors in the world were convinced to invest in Theranos – obviously without due diligence.
In my part of the world, fraudulent business practices and scams by so-called startup founders and entrepreneurs are rife.
Unlike in developed countries, where perpetrators are prosecuted and details are made available to the general public, more perpetrators tend to get away with such practices than those who get prosecuted.
The social media, influential people in the society, and spiritual wealth managers often contribute to the hype and exaggeration that lend credence to such entrepreneurs.
Irresponsible entrepreneurship has caused tears, sorrow, and blood. Many investors who have been defrauded wouldn’t publicly come forward because of shame.
In addition, the weak regulatory environment, coupled with limited regulatory scrutiny (of non public entities), emboldens and encourages these scams and other forms of irresponsible entrepreneurship.
Finally, investors need to avoid being greedy. When an investment opportunity sounds too good to be true, it probably is.
Never invest in any business without doing technical and financial due diligence using experts.
Irresponsible Entrepreneurship: Jobfishing at Madbird Agency
What is jobfishing?
Jobfishing is a type of online job scam where a job is promised with potential perks but in reality the job does not exist. Using phony profiles, credentials and lies. This might be carried out by professional scammers with the aim of getting your personal details, identification or money, or even by someone who gets a kick out of pretending to be a boss.
Another case of irresponsible entrepreneurship is the case of the Madbird Agency.
Madbird is a fake design agency by a fake entrepreneur.
Ali Ayad is an ‘entrepreneur wannabe’ who claimed to be a former Nike creative designer who has now gone ahead to launch his own startup.
His idols are tech titans – Steve Jobs and Elon Musk. He often quoted and compared himself to them.
Although the company never existed, it was all built on lies but managed to hire over people 50 people.
Many of whom were hired from the UK but some were also hired abroad. Even with the promise of visa sponsorship to the UK for at least one of the employees.
They were all jobfished!
Irresponsible Entrepreneurship: building a startup on deceit
Madbird was all built on lies. It is amazing how far Ali Ayad went to build fake persona of himself, the fictitious co-founder and senior employees.
According to the BBC, at least six of the senior employees profiled by Madbird were fake.
Interestingly, the co-founder even had a fake LinkedIn profile and Ali Ayad oftentimes referred to him.
There even were meetings and email exchanges between him, the employees and fake personas he created.
Irresponsible Entrepreneurship: the pack of lies
A summary of the pack of lies by Ali Ayad of Madbird Agency
- The pitch document given to potential clients was written in 2016 and belonged to another company based in London called Hatched.
- Ali Ayad stole and use the personal bios of the top team of Hatched.
- He never worked for Nike in the US as a creative lead as his LinkedIn profile claims.
- He claimed to have attended prestigious universities in the US and Canada but never did.
- The schools he claimed to have attended did not offer the degrees he claimed to have studied.
- His Instagram account claimed he was a model and influencer but even a prominent picture that showed him being featured in GQ magazine as a model for a Spanish fashion brand (that got 4,000 likes) was fake.
Irresponsible Entrepreneurship: how to avoid being jobfished
Based on this particular case, somethings you can do to minimise the chances being jobfished are:
- Confirm whether the office address actually exists or not.
- Do a reverse image search online to check if the images of top people in the company’s profile haven’t been stolen online and belong to other people.
- Find out if the people you’ve been messaging actually exist – may be a call?
- Get a professional to read and interpret your job contract.
- Do more research – having a glowing social media or impressive LinkedIn profile doesn’t mean someone is genuine.
Conclusion of the Madbird’s Agency case
As some have pointed out, this could have been a gamble by someone who wants to be a boss.
Someone willing to do anything to make it big like his idols.
Even if all had gone well eventually, would it make it ethical – no!
This is a clear case that it’s not only investors that need to do due diligence of startups but even job seekers.