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Hulu Mini-Series: The Dropout Presents Many Negotiation Issues (The story of Theranos/Holmes)

We learn more from our failures than our successes. - Elizabeth Holmes

Sometimes visionaries get trapped trading off human values. - Dan Ariely, professor of psychology and behavioral economics at Duke University

She was going to change the world...I did not like that they were idolizing a fraud.

- Dr. Phyliss Gardner, Stanford University professor who was a skeptic after first meeting Elizabeth Holmes in 2002.

Fake it until you make it. - English aphorism which suggests that by imitating confidence, competence, and an optimistic mindset, a person can realize those qualities in their real life and achieve the results they seek.


What a story! This story involves former U.S. secretary of state Henry Kissinger, general James Mattis, renowned attorney David Boies, former secretary of state George Schultz, former U.S. senator Sam Nunn, FDA (Food and Drug Administration, Front cover of Fortune Magazine, et al along with deceptive partnerships with Walgreens and Safeway.)

The Hulu docu-drama mini-series “The Dropout” does an admirable job telling a complex and financially shocking story. This is the story of a Stanford University dropout, Elizabeth Holmes (EH), a person full of ambition and fame who went terribly wrong in the healthcare tech arena. EH hails from a background of inventors and medicine. During her first year at Stanford she created an innovative blood testing device which she called the Edison, but it never worked. Now, she has been convicted, but the story is not over.

The key question is how did Elizabeth Holmes (EH) persuade (dupe) so many powerful corporations and people? One (name-withheld) investor put it this way: How did a young, straight, pretty white female beguile a bunch of older white, straight men? Is it a tale as old as time? The answers may be a complexity of psychology and economics:

- They were mesmerized by lookism (charmed by a young, attractive, intense female, especially “old white men”=Episode 2)) and likeablility, setting the stage for them to be illogical.

- Captivated by greed and competition, cutting corners, taking risks, and ignoring the warnings.

- The bio-tech environment seems to set the stage for product exaggeration and over selling. It is often called “a gold rush” full of unicorns, lacking transparency that sets the stage for fraud.

- Some say investing is not about data or facts, it’s more about “a wing and a prayer,” intuition, the vision, the story. Investors were enchanted with EH as “a disrupter” of how she would revolutionize blood testing, which had not changed much for 50 years. Her persuasion to emotional appeal worked.

At the same time, this story and this series involves almost every negotiation issue especially the power of persuasion.

First, Who is Elizabeth Holmes?

In 2014, Elizabeth Holmes, then 30 years old, was on top of the world. A Stanford University drop-out, she had founded a company valued at $9bn (£6.5bn) for supposedly bringing about a revolution in diagnosing disease.

With a few drops of blood, Theranos promised that its Edison test could detect conditions such as cancer and diabetes quickly without the hassle of needles. Bigwigs from Henry Kissinger to general James Mattis sat on the board.

But by 2015, the seams were coming apart, and within a year, Holmes was exposed as a fake. The technology she touted didn't work at all, and by 2018 the company she founded had collapsed.

She's now been convicted by a jury in California on four counts of fraud, each of which carries a maximum sentence of 20 years in prison.

The jury found her not guilty on four other charges and failed to reach a verdict on three more. She had pleaded not guilty to all charges, and can appeal against the convictions.

Initially during the trial, she accused her boyfriend of all of the mistakes. He goes to trial on fraud charges in February.

Why did patent creator Richard Fuisz not negotiate with Holmes? Emotions?

Fuisz was considered a medical patent expert and was a neighbor of EH’s parents. EH’s mother and Ms Fuisz exercised together as excellent friends. Fuisz felt disrespected when EH began her Theranos career without consulting with him. He held some patents that might have helped Theranos, but he was not asked. He discovered that EH’s name was on patents on which she had not worked, so he filed a lawsuit and would not settle.

Despite his hurt ego feeling that EH held him in contempt, he felt sorry for EH, believing that people were using her for their own benefit.

This is an excellent example of the dangers when emotions are not managed. He refused to negotiate and settle until forced to do so.

How was Safeway grocery hoodwinked by Theranos and Elizabeth Holmes? Obsessed with falling stock prices?

Safeway is a 106 year-old subsidiary of Albertson’s headquartered in Pleasanton, California. Safeway has 250,000 employees in 904 locations in seventeen states; total assets of $17.2 billion; and revenue of $37.6 billion annually.

The above statistics paint a story of a powerful company, so how could they be hoodwinked by EH of Theranos during negotiations?

EH negotiated a $400 million partnership deal with Safeway to remodel 969 stores to accommodate the Theranos blood testing machines. This partnership dissolved in 2015. In negotiating the deal, Safeway claimed to have spent 100 due diligence hours including an independent investigation of Theranos. Safeway admits that they knew they were taking a risk negotiating a deal with a start-up like Theranos, directed by EH, then in her early 20’s.

Safeway also knew that the deal would be great for stock prices. Safeway stock prices had slumped in 2012 from $19 to $14. Possibly, this partially explains how Safeway was duped by EH.

Walgreen’s Investment-How did this happen? Craving growth? Ego?

Walgreens and Theranos entered into a long term agreement to create the so-called Wellness Centers in many of their stores in 2013. The first one was Palo Alto, California, where Theranos is located. The second, Phoenix. At the time, EH offered this: For the past 10 years, Theranos has worked relentlessly to help make actionable information accessible to individuals and their physicians at the time it matters most.

Walgreens was a major investor in Theranos. It also placed Theranos’ faulty blood testing machines inside multiple Walgreens stores in California and Phoenix…key was Jay Rosan, a physician who was part of the Walgreen’s innovation team…Walgreens’ executives fell for the Theranos story without much rigorous due diligence. Walgreens executives also undermined the work of Kevin Hunter, an independent consultant who warned Walgreens about potential problems at Theranos. Rosan is singled out as one of Theranos’ biggest internal cheerleaders. He appears to be a key figure in Walgreens lack of typical business safeguards and oversight.

Dr. Jay Rosan of Theranos was a former family physician.

Holmes appealed to Dr. Jay Rosan’s ego and desire to change the world. Holmes insisted she wanted to change the world like he did (in 1992, Dr. Rosan convinced doctors to start sending records electronically, revolutionizing the way that medical records were stored) — and he soon fell under her spell.

In 2016, Walgreens terminated their $50 million investment in Theranos. Wall Street Journal reporters Christopher Weaver and John Carryrou summed up the Walgreens/Theranos saga:

“The relationship is now in tatters, making Walgreens an extreme case study of what can go wrong when an established company that craves growth decides to gamble on an exciting and unproven startup.”

What about bluffing and lying in negotiations?

Negotiation books could be written and courses could be delivered about this essential topic of lying, bluffing, hyperbole, exaggerating, honesty, openness, etc.

An excellent starting point is to un-pair the words: open and honest.

Openness about information is strategic. Most would appreciate why a startup like Theranos would be circumspect in its openness about innovations, especially when they claimed they were revolutionizing medicine such as blood draws.

Honesty is more about integrity. Honesty is a major component of one’s professional reputation.

One can understand why EH and Theranos were not open about some of their information, but they continuously hid behind “trade secrets.”

Regrettably, but fascinatingly, is that EH and Theranos were replete with dishonesty. Yet, many believed them, maybe because they wanted to believe them. Maybe they wanted this to be the way the world operated. Many found it difficult to believe that this earnest, young, pretty CEO could be deceitful. But some, like the Stanford professor Phyliss Gardner, have called Holmes a fraud from the very beginning.

EH surrounded herself with powerful men like George Shultz and Henry Kissinger to create an aura of credibility even with the regulators such as the FDA (Food and Drug Administration). And yet, for years she was considered a super success. Does bluffing succeed in the short term but not the long term?

Some characterized her responses as “comically vague” or elementary. Others say she was “playing games” or “tap dancing.”

EH and Theranos were all about the old saying: Fake it until you make it.

Whistleblower Tony Shultz, in the documentary “Inventor…,” described two different Theranos worlds: “The carpet world” in which EH reigned like a queen distinguished from “the tile world” where the laboratories were falling apart. Of course, the carpet world was the successful marketing world.

There is some research that indicates if a dishonest action is for a good cause it will not even register on a lie detector test that registers tension. Many felt EH and Theranos were “doing good” working to change the world.

Others thought EH was a zealot who had lost contact with reality. One little lie had snowballed into a big fraud.

Walgreens may have been blinded by their competitive spirit

Walgreens (W) Boots Alliance’s biggest competitor is CVS Healthcare Corporation. W desperately wants to be in the forefront of any innovations, which may have blinded them from being rational; that is, actually fully seeing and assessing the labs of Theranos. W is known for its partnership, which is their marketing strategy.

W’s total equity is $24 billion in contrast to CVS at $69.7B.

CVS scores high in compensation; W scores high in culture.

- W’s operating margin fell from 5% in 2019 to 1.8%

- CVS’s operating margin fell from 4.6% to 4%.

- CVS has 295,000 employees and 35 million members.

- Walgreens has 277,000 employees with 85 million members.

- Rating according to prescription market share, CVS=25% and Walgreen=18%.

Form Over Substance

Effective negotiators recognize this “form over substance” approach right away. They counter it by using their critical thinking skills so they are not blinded by the form (the shiny object), but investigate and research the substance; that is, what is really going on. (This approach is often associated with the Persuasion Law of Verbal Packaging.)

Silly, mundane example? The District of Columbia started street cleaning after not having streets cleaned for several decades. They insisted that the street cleaning take place weekly. This seemed odd since the streets had not cleaned for decades. The city officials asserted parking was the reason. The residents needed to get in the habit of every week moving their cars.

Most residents today would claim the streets are no cleaner. First, often the street cleaning machines would not come. Second, the machines race up and down the streets, basically spreading dust. Third, they rarely would use water.

So, what is this street cleaning all about? It is about parking tickets and revenue!

So, EH was obsessed with form over substance, with marketing over results deluding many. Her lab tests were not working and yet she was fascinated by the finger puppets that the marketing department had created for her Theranos campaign.

The Edison machine was not working, but she focused on the size, design, and color of the box. She also focused on the sound of the ineffective machine. She called the sound “Yoda.”

Although the machine was not working, she focused on the name of the “cloud.”

Some compared her presentations to a Magic Show.

Family/Friend Relationships Issue in Negotiation: Involving family and friends in business and business negotiations complicates the issues and adds more emotion to the negotiations. George Shultz involved his grandson in Theranos. EH’s so-called boyfriend was the #2 decider at Theranos.

Research, Planning, and Preparation=Key to Effective Negotiations: Holmes clearly did her research before meeting with CVS, Walgreens, et al to their dismay. This gave her power. She pitted Safeway, CVS and Walgreens against each other.

Effective Negotiators Pay Attention to Nonverbal Communication

There are many examples of nonverbal communication in this series and in the Theranos story.

EH was a walking example. She basically always wore black outfits conveying seriousness and professionalism. She claimed that she wore black because she has no time to decide on what to wear.

Holmes wanted to be taken more seriously, so she intentionally deepened her voice and wore turtlenecks.

In fact, some claim that she was so obsessed with Steve Jobs that she replicated his looks by the above.

She wore her blond hair unkempt and messy to convey she was too professionally busy to worry about coiffing. She most likely kept it blond exuding feminine beauty in the western world.

She often wore white lab coats, conveying cleanliness, knowledge, and professionalism in the medical field.

Theranos attorney and legal wizard David Boies tried to convey that he was a small town, country lawyer by wearing cheap suits and eating cheezits.

Trust and Likeability: These issues surely came to play as Holmes initially succeeds with especially older men. They all noticed her youth and attractiveness. One episode is even called “Old White Men.”

Emotions: The most extreme example of mismanagement of emotions is the Theranos key chemist committing suicide. He thought EH and he had formed a partnership, but EH is “a one person show.” This chemist whose name was on many of the Theranos patents along with EH became the focus of a lawsuit. EH and Theranos had sidelined him, taking away his lab. He became overwhelmed with the lies and manipulation.

Other examples of mismanaged emotions involve family friend relationships even resulting in a needless patent lawsuit referred to above.


Tyler Shultz was introduced to EH by his grandfather George Shultz, former Secretary of State, as he told NPR.

"She was wearing her all-black outfit, turtleneck. She had those deep-blue, unblinking eyes. I heard her deep voice," he said, describing attributes that came to define the charismatic tech executive.

At age 22, Tyler became one of the first Whistleblowers revealing the duplicitous nature of EH and Theranos.

Nate offers this on Quora discussion:

She is on the attractive side for sure - not just physically, but in terms of intangibles as well. You can tell right away just from looking at her face she’s the rare woman in business who is a true ‘shark.’

Older white men like George Shultz seemed mesmerized by her wide blue eyes, blond askew hair, etc.


Sixty-four year old juror Wayne Kaatz declared after convicting EH on 4 counts:

"It's tough to convict somebody, especially somebody so likable, with such a positive dream,"

The jury was charmed by EH just like her investors.

They (her legal team) and she perhaps can’t believe the world and the law really want to see a pretty, young, blond female as the primary villain when Mr. Balwani, a middle-aged immigrant from Pakistan, is available for the role. Maybe it represents progress in a me-too sense that, yes, the world is willing to credit Ms. Holmes with being a fully culpable adult.

Episode 2 of the Dropout: Old White Men.

Media Mogul Rupert Murdoch in 2015 had invested $125 million of his own money to invest in EH and the blood testing startup Theranos. Per an email, EH had appealed to Murdoch when the Wall Street Journal was planning to publish articles that revealed the Theranos fraud. Murdoch is chair of News Corp, which owns the WSJ. In 2017, Theranos was bought by Murdoch’s stock for one dollar setting the stage for Murdoch’s loss.

Former Secretary of State George Shultz has not only invested in Theranos but served on the board. He also persuaded Senator Sam Nunn, former Defense Secretary William Perry and Secretary of State Henry Kissinger to join the board. Ironically Shultz set the stage for his grandson Tyler to become a Theranos employee who later became the first Whistleblower.


By the end of day three of deliberations in the Elizabeth Holmes trial, the jury had already decided to find the fallen Theranos founder guilty of defrauding investors who had poured millions of dollars into the Silicon Valley blood-testing startup…For one, Holmes bore ultimate responsibility for information disseminated to investors, noting that the one-time CEO "owned everything." "Everything went through her…She had final approval." The jury also found Holmes' seven days of testimony to be largely non credible.

EH and Theranos became “a Snowball Lie:"

A lie or deception that takes on a life of its own, spiraling out of the control of the ones who started it and often mutating in the process…It is a lie is that it attracts other characters to keep it alive and expand it, either by explicitly furthering the deception for their own purposes or by sincerely buying into it and carrying it on in the honest belief that it is real — or to avoid being embarrassed by their "ignorance and inexperience….

This psychological Snowball Lie theory may explain why so many folks stuck with Theranos and EH even after they realized this was fraudulent.

Is her life ruined? Her net worth has plummeted from $4.5B to $0 in 2022. Maybe not. Maybe she will serve ten years. She hails from wealth and has a wealthy husband and son. She may find a new project and use her charm and likeability to regain a footing.

She most likely will use her likeability to write a book, give interviews, and find a new project. Many will speak of her youthful “indiscretions.”

Theranos whistleblower Tyler Shultz opines as he runs his own bio-tech business today:

"I'm under pressure to exaggerate technology claims, exaggerate revenue projection claims. Sometimes investors will straight-up tell you, you need to double, quadruple, or 10x any revenue projection you think is realistic," he said.

In a weird twist, the experience has him comparing himself to his now-notorious former boss.

"I could see how this environment could create an Elizabeth Holmes," Shultz said.


Hulu mini-series: Dropout with Amanda Seyfried

2019 Inventor: Out for Blood in Silicon Valley, Netlflix.

How to Win Friends and Influence Enemies by Dale Carnegie. This was first published in 1936 and republished each 5 year period. The principles still hold true.

Thinking for a Change, John Maxwell, 2014. One chapter is entitled, How to Get People to Like You, which repeats the Dale Carnegie book above.

Give and Take by Adam Grant. Grant looks at negotiation from an economical point of view. He claims that he can show the economic advantage of a person who focuses both on their needs and the needs of others. This is such a great book that Ray’s peer teaching at George Mason University School of Law uses this text.

101 Secrets to Negotiating Success: “Surefire strategies for negotiating success in every area of your life by Elaine F. Re, Ph.D. ISBN: 0-9666933-1-0. Canyon Crest Publishing. This is a fun book excerpts of which can be used in teaching and training. 1998, 2003.

Becoming a More Effective Neutral: A Dispute Resolution, Mediation and Skills Building Manual by Prudence Bowman Kestner and Larry Ray.

School Mediation Conflict Management Manual by Prudence Bowman Kestner and Larry Ray.


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