Category Archives: entrepreneurship

The Theranos Problem in One WSJ Graphic

Now that Theranos is allegedly/denying-trying to raise money, speculations continue as to whether it could survive the Wall Street Journal article, Hot Startup Theranos Has Struggled With Its Blood-Test Technology, or whether a big industry player may swoop down to acquire the company.

In terms of “who would be audacious (to use a polite word) enough to possibly merge/acquire Theranos”, I think a diagnostic company would be more a likely candidate… you know, one of the big players that Theranos was meant to “disrupt” the business of.

The short sighted assumption from many people thus far, is that Theranos was the only company that had the “foresight” to reduce sample volume required for blood based assays.

Can we actually believe that NONE of the big players NEVER considered the competitive advantage of reducing sample volume required from patients and human subjects? Are we saying that all these years no one had ever realized how many people hated needles, and the kind market leadership position one may gain if one creates an assay method that enables accurate sampling of mere drops of blood versus vials of blood?

When we look at Theranos’s “accuracy” compared with hospital results, most scientists familiar with the assay process can deduce the magnitude of what needs disrupting:

The best performance in the graphic from Theranos in terms of “accuracy” compared with a hospital result “standard”, is the glucose test.

This is nothing to be impressed about: getting the glucose reading right is no newer than the finger prick glucose draw available from today’s diabetes management devices. It only shows Theranos got their tech as right as what is already available in terms of a finger prick blood sugar test.

Perhaps someone can use current glucose monitoring technology, modify it so it could assay for Herpes (simplex type1), and see if the same “tech” transfers readily to accurately test for Herpes. This would offer an interesting data point to show just how novel the “Edison portfolio of technology” is.

This one graphic sums up the Theranos problem: the most accurate comparison is in a variable for which cheap and accessible diagnostic is available (glucose), and not for any variables for which wide clinical use are expected (liver function tests, which are critical for a variety of medications affecting liver function).

Theranos’s results are consistently “false positive” compared with hospital standard: if a clinician believes in the Theranos result, the clinician may order the patient to stop taking medications that the patient needed and was doing well on, but should no longer be taking because the results show that liver was being negatively affected, or the clinician could switch to another less effective medication for the patient out of concern for liver function. Either case, if the Theranos test was inaccurate, this would cause harm to the patient by unnecessarily disrupting treatment regimen that was otherwise appropriate.

This is not the kind of “disruption” healthcare providers want.

From a business perspective, Theranos’s FDA approved use for its product has a very narrow indication (Herpes), yet the test is commercially available without authorization from a licensed healthcare practitioner. This is great for the company’s bottom line, because the (federal) agency will have a tough time identifying which kits have been purchased for “approved” use and which kits are actually used “off-label”. The pricing advantage allows Theranos to reduce dependence on CMS reimbursement, by going straight to consumers. Liability becomes a matter of personal injury, which may be skirted when the consumers assume entire risk by “inappropriately using” the kit.

However, this is not great from a consumer protection standpoint.

We may subscribe to a conspiracy theory about major diagnostic and device companies colluding to keep an oligopoly on expensive assay machines and profit margins for assay kits, but from a business competition standpoint, the market dominance/leadership would be too attractive for a major player to ignore in the name of market oligopoly.

Psychology of Money and Expertise

A consultant who helps client make changes in their work and lives* is struggling to setting a price of her expertise. She likes to work strategically — and solve her clients’ problems as efficiently as possible.

Unfortunately, she is so efficient, that her clients perceive her services as a waste of time because “I must not need your help if you can solve my problem so easily in such a short amount of time”! Yet if it takes too long, then “I don’t have enough money in my budget for your services” — catch-22 of “damned if you’re too good, damned if you’re not good enough” at what you do!

Image by Svilen MilevI work in the knowledge field (also consulting but more like management consulting and leadership development) and see the exact same problems. I also tend to cut through crap, avoid page fillers in reports, and just give people the most important points they need to know since, you know, they all say how busy they are.

But I have realized that some people perceive value based on VOLUME.

Those who are experts will suffer from their expertise because of the perception paradox. Thus they WANT to get the 300 pages of worthless crap for $5000 (some industry reports cost this much esp. when it comes from “professional consultants”), because it makes them feel like they paid good money for it, versus the 10 pages that describe the heart of the problem and the pertinent actions to take, because suddenly – “hey, you are charging me $500 a page?” — er, no, I am charging you $500 for each mistake you don’t have to make that is going to cost you $50,000 to fix.

Thus for consultants in private practice, I suggest a hybrid of expertise and perception needs: you have to draw out the sessions so that you build a lot of “extra work” around the actual work, in order for the clients to FEEL like they’ve gotten their money’s worth and BELIEVE in the fairness of the exchange.

If you are a wizard and you can solve their decades-long emotional issues in 60 minutes, chunk this up into 6 sessions where 10 minutes is part of the actual work and 50 minutes is all the “nice to do but not critical work”.

Is this deceptive? I used to think so — until I learned the hard way, that part of working with any customer is meeting them where their perceptions are.

There will be customers who say, “cut through the crap and give me the 1 session for this price, I know enough to know what expertise look like”. For these customers I work with them in my preferred way of working: efficient and effective.

There will be customers who say, “no, I need you to hold my hand, I want the 6 session deal.” Both customers are RIGHT because they are the persons buying. People want to feel good and justified in their investment, you are giving the same important service, only you are also working with a perception problem around the value of that service.

If you’re a consultant struggling with setting fees, you can try your own experiment. Charge the same amount for 2 options, only label the 6-session option “for regular people” and the other 1-session option “for CEOs who have no time”. They’re priced the same, only now you’re working with each person’s perception of the value of their own time.