On Backup Plans…and Failing as Fabricating?

I have been following the Theranos implosion the last few months.

This week was likely the dagger in the company and founder Elizabeth Holmes. Andy Kessler has a great piece on the latest in his post entitled ‘When Startups put the Fab in Fabricate‘. I like this part:

I’m in no way surprised. After 25 years of tracking and investing in startups, I’ve learned that entrepreneurs will do anything to make their company successful: persuade, cajole and even put the fab in fabricate.

Entrepreneurs, it seems, all want to emulate the late Steve Jobs—even his fashion, given Ms. Holmes’s penchant for black mock turtlenecks. At Apple and Next and Pixar, Jobs emanated what became known as a “reality distortion field.” His overpowering charisma would convince workers, developers and investors to come around to his view of where the world was going.

There was only one Steve Jobs, but other entrepreneurs try their own Jedi mind tricks, attempting to use The Force to influence the weak. (In Silicon Valley, “Star Wars” is regarded as a documentary.) Sadly, the journey from charisma to coercion to lying is quick and often complete.

Me again …

I too have learned the same thing after investing in hundreds of public companies and over 100 angel investments.

Not enough angel investors and venture capitalists talk about the ‘fabricators’ because it is embarrassing and bad for business.

This is likely why long blog posts about ‘failing’ from entrepreneurs and the investors have become the new normal.

Writing about ‘failing’ is a way to tell a story that has a lot of ‘fabricating’ in it.

In looking back at Theranos there must be hundreds of signs that investors and journalists could have picked up on to end the Theranos fabrication. Instead, Elizabeth was a media darling. Instead, Walgreen’s was a supplier/distributor. Instead, Henry Kissinger was on her board. Instead, she wore black turtleneck’s in the summer and people accepted her as the next Steve Job’s.

This one quote though really caught me by surprise as it was being passed around the web last week:

It is just bad advice.

I invest and sometimes trade. I invest in startups and I have run a lot of startups over the last 30 years. I have always had a back-up plan. Never have I been advised NOT to have a backup plan and I have gotten lot’s of bad advice.

I am long the market and have been adding stocks the last few weeks from the road. I have a back-up plan. It’s to sell stocks they drop too much or other signals say the recent all-clear market signals I am reading disappear.

Even Bill Ackman had a back-up plan when he put his reputation on the line with his horrific Valeant pharmaceutical investment/trades. He made this wild aggressive bets and double/triple down investments with ‘permanent capital’ behind his name. He wins either way, of course more if he had invested better.

Of course Elizabeth did not have a backup plan. It sure seems like she was 100 percent all in on a massive fabrication. You can’t possibly have time to work on a real plan or a back up plan when you are in the middle of fabricating. Even white lies take an incredible amount of time and energy to manage. We all know this.

I have a strong inkling there are a bunch more Elizabeth Holmes out there with the length of this boom in startups. Stay alert.