MSP70 [] Fake It Till You Make It

This is a download from BFM89.9, the Business Station. It's one Friday, my name is Jafflan Du. Technology can be a harsh business. You spend years and millions of dollars developing a product, only to find out that no one wants it.

Or that another inventor has turned your invention from a product into a feature. With the release this week of The Inventor, it's a documentary about the failed startup The Runners, we thought it was time that MSP took a deeper look into the industry's fake it till you make it ethos. Matt, I honestly can't believe that you're going to be the one telling people about the dangers of faking it. Hey, Jeff, who better than me?

I've spent my entire life faking it. I've actually got a master's degree in faking it from Stanford. And that's a lie. Exactly.

Because if you want to catch a con man, you get a con man. If you want to talk about lies, find a liar. That's kind of the point about today's show. There's this fine line between promoting your invention, giving it enough hype to get yourself some media coverage and some venture capital, and of course, flat out lying.

Oh, Jusaro. Well, exactly. But Jusaro wasn't exactly a lie. It was very weird.

But it was a great example of giving customers exactly what they don't want at a price they can't afford. Which in Silicon Valley speak is the perfect business model. Now, we haven't talked about this for ages. So go on, remind everyone what's it all about.

Well, people like juices. And I imagine people who have millions of dollars in stock options can afford to buy really fancy juices. So Jusaro was an attempt to meet the markets need for slow-pressed juices. So they marketed a really expensive juice.

I think it was like $700 or something, which had to be connected to the internet. And you could only use it with really expensive bags of the company's own pre-mulch juices, which incidentally, thanks to reasons of perishability, they could only supply to around half or possibly even less of the continent of the United States. But still, it's a smart juicer. But it was actually really dumb in reality because unless it was connected to the internet, it would juice your juice bag.

The juicer would scan a barcode or a QR code on the juice bag, and then it would go to work slowly pressing the juice. So that smart capability, it simply reduced the functionality. It was a way to stop you using it with juices that you made yourself, or even worse, juices from some non-existent, I don't know, pirate who wanted to sling his own juice bags under Jusaro's machine. You know what?

It sounds like a winner to me. Precisely, exactly. But you know, what they forgot was that the vast population of America doesn't consist of stock vested millionaires. It consists of hardworking, over-indicted folks who are worried about paying the internet bill, let alone the juicer that's going to connect to it.

And then a media outlet, I think it was Bloomberg, discovered something interesting in the review unit that was sent to them. You could simply take the juice bag and squeeze it into a glass. Not only that, squeezing it by hand was faster and arguably more effective than using the machine. And I'm going to rob you of your punch line.

Jusaro was an epic fail. Well, this literally was the case where you could make it if you faked it. If you squeezed the bag yourself, in other words, if you faked being a machine, you had a juice. And unless your machine was connected to the internet, you didn't have a juice.

But that didn't stop the company from picking up close to $150 million in investment from leading venture capital firms and investors in Silicon Valley. Now, I know we'll talk about Theranos and other fail startups after the break. But do you think that the popularity of crowdfunding sites is increasing the number of scams and failures? Well, that's actually a really hard one to answer or rather it's an answer that has a lot of parts.

So when you look at companies like Jusaro or Theranos, they have very little impact on ordinary people. When it gets to Theranos, it's even more complicated because the accuracy of consumer blood tests is so important. But for consumer products like Jusaro, there really isn't much impact. When stuff is so poor, we as consumers just don't buy it.

It's very, very simple. So when we talk investors and these huge sums of money, by and large, they're coming from institutional sources, companies or individuals who are used to betting big. And that doesn't mean they're used to losing. Well, that is a valid point.

No one wants to lose money. And certainly the people who invest at the early stages of people who can be badly burned because they'll be the parents who've bought into their kids' destructive vision and re-mortgage their houses or they've convinced family and friends to part with a big chunk of their savings. We've talked about how this is a numbers game for a lot of the VC funds, but you'll often get investors who for some reason go giddy about the product or believe in the vision of the founders to such an incredible degree that they put in more money than they should. And of course, just like the family members, they have this physical need for the company to be a success.

Whereas the crowdfunding sites are aimed at people like us, the consumers and the money come straight out of our own pockets. Yeah, I mean, it's pretty much Amazon for stuff that doesn't exist yet. And that has incredible positives, but it also has disadvantages. Positive in that people can bypass that tricky.

I'll take half your company for the price of a donut stage. What's it about you and donuts? It's not the first time you've used that example on the show. Well, hunger and a lack of imagination, I guess.

This may go out during the post-breakfast low period, but it's recorded in the never-ending wasteland of post-apocalyptic rumblings between lunch and dinner. But yeah, crowdfunding is great in principle. All these people who are willing to back your idea and actually give you the time to ship your product. We keep being told we live in an age of instant gratification, but the crowdfunding sites are proof that we are willing to reward and wait for great ideas.

Do you think most people understand the element of risk? No, a lot of people do think that the crowdfunding sites are just some big product warehouse. They don't seem to understand that, you know, this is a pun, it's a bet. It's not a guaranteed product.

And I think it's fair to say that both you and I have been burned quite often with crowdfunding. I think the only product that I was really happy with is the first pebble. And that's like the first ever product I bought on. And of course, pebble is one of the companies that's gone out of business.

I bought a 3D pen that worked. I bought this DG analog camera, analog DG film camera thingy that was just absolutely horrible. I might as well spend that 700 in buying 700 cheap cameras from a Passama Lam store. Or just spend the 700 on apps for your phone.

Yeah, horrible. But you know, it's still important though, despite all of these things that we put these things into categories, you know, there are the wild, probably wasn't ever going to happen ideas, like the magnetic moonwalkers, you know, that I bought. Yeah, that never happened. It would have been, no, if it had been really, it would have been awesome.

I mean, every step would have been cushioned by a layer of polar opposition. It would have been fantastic. You know, I know they ran out of money, but I've got feeling that if that technology was going to work, they probably need magnets that are as strong as an MRI machine and pull things out of your hips. I don't know.

There are plenty of ideas that are strong, but simply just don't get as much money as they need. Yeah, and a lot of people underestimate what they need to get to market because, you know, these are people working in the garage or the shed. They're not like professional business people a lot of the time. Yeah.

I bought into a personal cooling system, I think three or four years ago. And even then, I knew their campaign goal wasn't enough. I think they wanted 40,000 US dollars to bring this air conditioning system to market. They've been struggling with funding ever since and they're still beavering away.

Will I ever get it? I don't know. But I don't really mind because, you know, the potential has the ability maybe to make life easier for people with chronic conditions like multiple sclerosis. So even if the technology goes another way, and my money has helped to help these people, then I'm happy with that.

And then there are the out and out scams. Of course, but even then there are a few types. A couple of years back, the last time Malaysia had really poor air quality, I invested in a product called Breathe, which was supposed to be a portable air purifier that created a bubble of nice breathable air. Wow.

And anyone who's lived through the haze here and throughout Asia would be more than happy to sink a bit of money into something like that. Because when the haze gets bad, it really is quite foul. And it definitely helped that it looked fantastic as well. It was milled from a solid block of aluminium.

Yes. So it had that apple looking feel to it. Did it ever work? Was it real?

Who knows? They kept missing their deadlines and from what I understand, the guy behind the company essentially disappeared himself from social media. So, you know, was it real? Was it a scam?

I really don't know. Like, I don't want. Yeah, you know, one thing I would never buy on these crowdfunding platforms is earphones and canola with one of the early headphones successes. Getting headphones to sound good is really tricky.

It's way easier to spend millions of dollars and still have them sound like a set of $1 passamala, you know, clones. Canola wanted to beat apple and its air buds to be the first kind of true wireless buds. And the company claimed to have over 50,000 pre-orders at I think it was $150 US a pop. How much is that?

I don't know what that is. $5 million? Yeah, $7.5 million? Yeah, you see that's a lot of cheese to try and turn into ice cream.

Yeah, according to reports, it only ever produced 25 pairs as prototypes. And those were not well received or reviewed by the media they weren't sent to were sent to. So the company went under in 2017 and its customers slash investors have been looking into class action suits to recover the money ever since. All right.

When we come back, what happens when your company raises billions of dollars, but the idea never worked. The idea of the idea of $8.9. Bluff free medium, PFM, 89.9. And we're back at MSP, Episode Number 70.

We're talking about fake it till you make it. Matt, now that we've talked about some of the heroic failures that mark the tech game, the run-offs is in a different league. Yes. And as you said at the start, now the documentary about the company came out this week on HBO, it's called The Inventor Out for Blood in Silicon Valley, which is a lot better than most of the titles of the things we've been mentioning on the show recently.

I haven't watched it yet, but I have just reread Blood Money, the expose by the Wall Street investigative, Wall Street general, rather investigative journalist John Kerry-Rue. And I've listened to ABC's Great Podcast, The Dropout, which is also about this. And of course, the US Department of Justice has lodged 11 criminal charges against the CEO, Elizabeth Holmes, and her former boyfriend and CEO, Sonny Bellwani. There's a possibility that there are going to be more charges.

And the SEC has also laid fraud charges against the pair over more than $700 million in investment. What's the backstory for those who don't quite know? Well, in a nutshell, Elizabeth Holmes, who had a fascination with Steve Jobs, she dropped out of Stanford University where I got my MA in line, where she was studying chemical engineering. She dropped out after only a couple of years, so she couldn't graduate, hence the dropout is the name of the podcast.

She had an idea for a system that could revolutionize blood testing, a machine that could perform dozens of tests from a tiny finger-prick sample of blood. And in 2004, she founded the company Thoranos, which she took from the words therapy and diagnosis. It's not Greek. No, but it sounds it.

And this is Silicon Valley. So flaking it is part of the game as long as you look the part. It helped that Elizabeth was one of those forces of nature people. She was young, she was really smart, and she seemed to have this heartfelt mission.

And that was of course great help when it came to parting early investors from their cash. She was great at networking, and one high-profile investor led to another. In those circles, she was held as this kind of full-on visionary in the Steve Jobs model. And where did it all go wrong?

Well, despite all the investigations, the books, the newspaper articles, the film, the podcast, it's hard to say. I imagine it's going to be criminal trials if they don't plead out where we get to see that side of the story. The bottom line is that technology never seemed to work properly. Some of the experts, these sources quote, maintain that the technology never could have worked properly, that it's simply impossible, given the level of technology that we currently have access to.

You can't do what Elizabeth Holmes wanted to do with machines to test for so many diseases with such small quantities of blood. Surely you have to do all kinds of medical testing. And Thoranos always seemed to manage to side-step regulations or exploit loopholes that meant they didn't have to submit the machines for approval. And Holmes complicated matters further by insisting that the device itself be a work of art, that it be the iPhone of medical technology.

So you had all of these competing counterintuitive demands. You had a miniaturization of technology that was typically put into very large machines. At the same time, you were trying to do so much more than even the largest commercial testing machines by the likes of companies like Siemens could actually do. And then you have this aesthetic requirement.

It has to be portable and you have to have it looking great and it still has to be stable and have the accuracy that we require from medical testing devices. When do you think they realized it wasn't working? Again, that's the part that we're not really sure about. And hopefully that's something that will come out in the trials.

Was it a con? Or was it an idea that seemed elegantly simple yet was a lot harder to achieve than it appeared? Did they always believe it would work? Did people think they were weeks or days or hours away from bringing Elizabeth Holmes' vision to life?

Certainly they had experts working there. People who were first-class biochemists, they had industrial designers that were poached from Apple. And at one point the company had around 800 employees. It was enormous.

And they rolled it out commercially. And that's probably where they really stumbled. Because when you're bringing in billions in funding, you're under pressure to make some money back, even if the technology isn't quite where it should be. So they went into partnership with the supermarket chain Safeway and the chemist chain Walgreens pharmacy in the US.

And Walgreens actually built blood testing suites in 40 stores and planned to roll out scores more. Yet according to insiders, most of the tests were drawn at those suites. We're actually tested in Theranas' lab on commercial machines made by other manufacturers. And tests that were carried out on Theranas' first generation, the Edison testing machines, were reportedly wildly inaccurate at times and had to be calibrated really, really often.

The miniaturized iPhone type device was never completed as far as I can determine. They had constant problems of heat from stacking all of the different processes on top of each other. And why did none of this come out? Well, firstly, the company was very, very secretive.

Employees were forbidden from discussing their work with colleagues in other departments of the company. So news that the tech wasn't really working that well didn't even penetrate the company's internal culture. And according to Joan Kerry was reporting, Holmes and COO Balwani apparently had quite a domineering management style and firings were quite frequent. If no one had heard about the company, how could it have been so successful at just raising so much of money?

Yeah, exactly. I mean, they didn't even have a website until 2013. They'd been around for nine years raising hundreds of millions of dollars before they even put out a press release or had a website. As I mentioned before, Holmes was really big news in Silicon Valley.

So by the early 20s, the company was extremely powerful. 20s. 2011, 2013, 2015. I'm trying to popularize it.

I just like the sound of it. Yeah, the Theranos board was like a who's who of the political elite. So it names like Henry Kissinger, the eminent degrees of 20th century politics, George Shultz, a former secretary of state, General James Mattis, who had a troubled stint as secretary of defense for Donald Trump. Investors included Betsy DeVos, who's currently Donald Trump's education secretary and Rupert Murdoch of News Corporation, not to mention they were paying a huge retainer with one of America's biggest ad agencies.

So the company looked very legitimate. But it also sounds like the plot of a thriller. Yeah, I mean, you can kind of imagine John LeCarry or Tom Clancy writing a story like this. It's one of those occasions again where the reality actually goes way beyond what fiction ever would.

At its height, the company was valued at $9 billion and Holmes was giving TED talks. She was lying in private jets and she had a retinue of security guards. Didn't people notice that the bot for a med tech firm didn't really have any prominent medical personnel? Well, eventually, I mean, that's one of the things that kind of led people to start investigating.

Apparently, none of the big medical tech funds would invest in the company. And that should have been an indicator. So, like I said, all of these clues plus a whistle blower in the shape of George Schulz's grandson helped everyone to start looking at the story more carefully. And that's where this crafted story started to crack and come apart.

Now, of course, sort of two, three years later, Theranos is no more and the hundreds of millions of dollars it burned through are just gone. And its CEO and its CEO are facing criminal charges. And Theranos is by no means the only company to go through something like this, like this kind of experience. No, I mean, fake it till you make it is that kind of tech battle cry.

And Theranos is kind of an extreme example. Remember a couple of years ago, we talked about end of life technology and services for curating your experience after death. Inside that you could archive your photos, keep your passwords and make it easier for your family to control your digital life after you've passed away. Yeah.

And we joke that given the projected lifespan of today's, you know, Gen Z, those services would die long before their customers did. So one of the services I signed up for to research this piece called Safe Beyond actually sent out a mail announcing its closure as I was writing the notes for this show. I know it's serendipitous or what? I'm certainly not alleging any untoward behavior by the company, but it does illustrate how hard it is to come up with a sustainable business model in the digital economy.

Also sometimes it's as simple as the right idea about the wrong implementation at the wrong time. Yeah. The payment consolidation service plastic is a good example of that. So you had a card with a touchscreen that essentially cloned all your credit debit and wallet cards into one device.

Plastic presold thousands of these cards at $155 US dollars and again, reportedly raised around $7 million in the process. They had trouble delivering. And in the meantime, Apple Pay and all the e-wallet technologies started to take over. So suddenly, before you've even launched, your technology is obsolete.

Or the wrong idea entirely. Yeah. Secret was a social media service that was completely anonymous. You could see messages that your contacts posted, but not who they came from.

So you didn't know who was saying what? It sounds like a recipe for abuse and bullying. Well, yeah. And it didn't help that it came out at a time when other social media networks from Reddit to Facebook were trying to tackle this epidemic of trolling and bullying.

So strangers harassing you is bad enough. But he was an app that turned your actual friends into bullying trolls. So, you know, the service died and frankly, none too quickly. You've concentrated on so-called innovations from the digital age, but actually, this kind of behavior isn't new at all, isn't it?

No, there have always been fantastic cons or ideas that were outside their time. So a great one is the daylight motion pictures that were posited in the early 20th century. The dark movie theaters then were quite scandalous, because who knew what people would get up to in the dark? Some states in the US required that theaters be bright enough to see the face of the person next to you, which in the age of smartphones, it is because everyone's just shining their screen on their face.

But daylight movies basically consisted of brighter projectors and darker screens. But the innovators of the so-called technology, people like Samuel Rotherfeld, were basically peddling flim flam. They were just coming up with weird sounding names for things that didn't really exist. Thankfully, projectionists rebelled, saying that the quality was too poor, which of course is going to be it's daylight.

You've got a projector, even if the screen's dark, you're not going to be able to see. So thankfully, you know, the projection is one, and we've been watching movies in the dark for the last 100 years. All right, what should we end with? Well, look, you know, one day someone will probably solve the problems the Rnos had with blood testing.

Or like some of the medtech we've featured on geeks, we may bypass blood tests for many conditions completely. We might use breath or saliva samples. We've had examples of those recently. The idea isn't bad.

It's just that the science and the technology hasn't caught up with the idea yet. So I'll leave you with the Heliomotor from 1900. This was invented by William Calver. Now, he wanted to use mirrors to reflect the sun's rays into bricks and water to generate heat.

He thought he could replace electricity and steam entirely and heat the planet in the process. But aren't we trying to cool the world down? Well, like I said, right idea, kind of wrong application. So what Calver actually invented was solar power.

He just didn't have the actual technology to invent solar power. In fact, 120 years later, we're only really starting to get a handle on how to harness and store the sun's energy quite efficiently. And that's fine if you're a company like IBM, which has been around for over 100 years, you know, maybe you can afford to sit back and to take the long view that your technology will develop and your idea will come to fruition. But for a startup who's just got their series A funding and it's gone itchy CEO looking to divest, waiting 120 years to make your dream a reality, it's just not going to be possible.

There we go. Fake it till you make it by the master himself, man, I'm six from coachpop.com. We'll be right back after this BFM 89.9.