Elizabeth Holmes

Former Theranos founder and CEO Elizabeth Holmes arrives at the Robert F. Peckham US Federal Court in San Jose, California. A female entrepreneur whose multibillion-dollar start-up looked set to revolutionise medical testing, before it crashed and burned in a blaze of fraud claims, goes on trial this week.

| AFP

Money lessons from the fall or rise of prominent businesses personalities

What you need to know:

  • Theranos was built on quicksand, which is a mistake that many budding entrepreneurs tend to make.
  • You must stop fearing loans and instead learn how to use them for your growth.

Barely six years ago, Elizabeth Holmes was the world’s youngest self-made billionaire. She was the founder of Theranos, a start-up company that claimed it had developed technology that could accurately and reliably test for up to 240 conditions using just a few drops of blood taken from a finger prick.

By 2015, Forbes estimated that she was worth over Sh450 billion net while her business was worth nearly Sh1 trillion. Today, Ms Holmes is staring at a possible jail sentence that could be as long as 20 years and millions of money in fines.

This is after she was found guilty in four out of eleven federal fraud charges relating to the multi-billion business venture that had catapulted her into fame. It turns out that Holmes sold hot air, defrauded dozens of unsuspecting investors and raised billions through fraud. Her fall from grace began in early 2015.

Within 12 months from 2015 to 2016, Forbes declared that she was actually worth zero. Apparently, her blood-testing company which she had started in 2003 and claimed it would revolutionise the diagnostic market did not deliver any product that got approved for the mass market.

In the same vein, its target market – blood testing – was too shallow to keep it afloat. According to business analyst Francis Mung’eri, Theranos was built on quicksand, which is a mistake that many budding entrepreneurs tend to make.

“There was no proof that the business could offer the solutions it claimed to provide. This suggests that while it might have been genuine at the beginning, the ability to lure so many big investors without showing any output accelerated it into a scam,” he says.

He cautions that despite the glitter of any business idea, the celebrities marketing it or investing with it, you must always take your time to do your due diligence.

“It can be easy to invest in a scam as long as it is marketed by your favourite presenter. That’s one reason why some celebrities are some of the leading influencers for fraudulent brands,” he says.

Apart from the fall of Holmes, there are lessons you can also learn from entrepreneurs who broke the glass ceiling.

Persistence and tenacity

Steve Jobs was at the top of his game after co-founding Apple. By age 23, he was worth millions. Then it all came crashing down. He hired a CEO from Fortune 500 who three years later fired him from Apple following internal competition, disappointing sales and complaints from workers.

Not one to give up, Jobs started his second company called NeXT, which was later acquired by Apple. This made him CEO of Apple again.

“He persisted, and had incredible tenacity. After his humiliating defeat, he held on and came back with triumph, creating Apple into one of the greatest corporate successes,” says Alan Deutschman, the author of The Second Coming of Steve Jobs.

Loans

You must stop fearing loans and instead learn how to use them for your growth. For instance, in 2015, Tabitha Karanja, the founder and CEO of Keroche Breweries broke Kenya’s individual loans’ history by taking a Sh5 billion loan. She used the loan to fund a new plant at her company.

Speaking to the Nation, she said the new plant had a production capacity of 600,000 bottles daily, and 30 different brands.

“This gives me a golden chance to stake a claim at the cut-throat market,” she said.

Lean spending

As your income grows, you might be tempted to over-spend. This is the trap that Dorothy Hamill, a former Olympic Gold medallist and millionaire television personality fell into. With an annual income of over Sh. 300 million, she went on a spending spree which included expensive jewellery and a series of bad investment decisions. With loads of debt, she was declared bankrupt in 1996.

Towards 1998, she started professional ice-skating tours and television shows, and embarked on lean spending. By the end of 1998, she paid her debts. In 2007, she launched her autobiography which made her a New York Times best-seller.

Negotiating skills

In cutting deals, negotiating for better loan interests, better wholesale prices, profitable contracts, or getting more customers, proper and convincing negotiating skills will always come in handy.

This is what worked for Thor Bjorglfsson, whose net worth is currently valued at Sh186 billion. He had sold his beer brand to Heineken in 2002. However, during the 2008 global financial crisis, his attempt to help his native Iceland out of the financial meltdown backfired.

His bank was taken over by the government, and his investments declared worthless as Iceland neared bankruptcy. His companies were left owing Sh1 trillion to creditors, of which he had personally guaranteed Sh103 billion. His net worth fell from Sh361 billion to zero.

To get out of the mud, Thor negotiated an agreement with his creditors that allowed him to hold on to his falling investments. As the global turnaround began, so did his recovery. From zero, he has been able to rake in a net worth of Sh186 billion with investments in start-ups in Chile and the US.

Voices of doubt

In 1973, Shark Tank’s billionaire investor Barbara Corcoran founded the Corcoran Group real-estate firm for Sh100,000 together with her boyfriend. In the 1980s, Ms. Corcoran and her boyfriend broke up and split the company.

According to Barbara, on his way out, he told her: “You’ll never succeed without me!” According to the entrepreneur, this was the best advice she has ever received. “I didn’t want to let him have the satisfaction of seeing me go down.”

Years later, in 2001, she sold her part of the same company for Sh6.6 billion and moved on to become a media personality. According to Ms Corcoran, you must never let the nagging voices of doubt stop you from a potentially profitable venture.

Quick takeaway 

Economic circumstances: At certain times, the success of your business will depend on the general performance of the country’s economy. 

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