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Theranos: The House of Cards That Elizabeth Holmes Built Thirteen years, a thousand employees, $700 million of venture capital, 40 wellness centers. Six million blood tests. Zero revenue. This is how it happened.

By Steve Tobak Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Andrew Burton | Getty Images

Despite performing more than six million blood tests over the past couple of years, Theranos, the embattled Silicon Valley startup founded by Elizabeth Holmes, somehow managed to blow through nearly $700 million without generating any revenue, according to the Wall Street Journal.

I'll pause and let that sink in for a moment.

How is that even possible? The company spent more than a decade developing what was supposed to be revolutionary technology that could run dozens of diagnostic tests from a few drops of blood at a fraction of the cost of traditional labs. At one point it had more than 1,000 employees burning $20 million a month.

Related: What Entrepreneurs Can Learn From Theranos's Fall From Grace

When Theranos opened the first of 40 Walgreens Wellness Centers in 2013, it should have started generating revenue and been well on its way to breaking even some day, assuming the service was as cost-effective and scalable as it was made out to be. Even if the company charged just $10 a test, that's $50 million right there.

But according to the Journal, the company told investors that there were no material sales for 2015 and 2016. None. Hard to believe. Thirteen years. 1,000 employees. $700 million of venture capital. Forty wellness centers. Two labs. Six million blood tests. Nothing to show for it?

It's mindboggling what some people will do with other people's money.

When I named Holmes to my Worst Entrepreneurs of 2015 and 2016 lists, I took a lot of flak from those who saw the Theranos situation as business as usual in the startup game: You win some, you lose some. No pain, no gain. The technology just didn't pan out. You can't make an omelet without breaking some eggs. Fail fast, fail often.

Related: Two More Investors Sue Theranos and Elizabeth Holmes for Fraud

Some even saw Holmes as a victim of the status quo, as she saw herself when the story first broke. "This is what happens when you work to change things," she said on Mad Money with Jim Cramer, "First they think you're crazy. Then they fight you. And then all of a sudden you change the world."

Sometimes it happens that way. This is not one of those times. It's important for all of you to understand that this is not how entrepreneurialism is supposed to work. In my view, Theranos was built from the ground up as a house of cards, not unlike the biggest frauds of the dot-com era: Enron, WorldCom and Adelphia.

Near as I can tell, Holmes had a brilliant idea and many of her people had real talent. That aside, the company was doomed from the start.

Theranos was doomed by a culture of secrecy that kept everyone in the dark about what was really going. It was doomed by Holmes' hubris -- the belief that she could do anything and would never need a backup plan. It was doomed by a desire to hear only what she wanted to hear. It was doomed by a PR machine that painted Holmes as the second coming of Steve Jobs.

The click-hungry media bought it, hook, line and sinker. Holmes somehow became an instant entrepreneurial icon before she'd ever accomplished a thing.

Related: Theranos Is Laying Off Another 155 Employees

Investors should have known better. They were so enamored with Holmes, so swept up in the unicorn feeding frenzy of the private equity bubble, that they failed to conduct basic due diligence. They invested in Holmes' vision, sight unseen. The technology was never validated by any third-party testing or peer reviewed journals.

In the meantime, the company was mismanaged by a delusional founder who should not have been running anything, let alone a company that sticks needles in people's arms and provides data that doctors rely upon for critical medical diagnoses.

This is not how it's supposed to work. Selling a bill of goods to investors, partners, federal regulators, the media, patients and the public is not business as usual. Getting sanctioned by federal regulators, being banned from the business, having to shutter labs and void two years-worth of blood testing, and being sued by Walgreens, investors and customers, is not how entrepreneurship is supposed to work.

This is what happens when people feel entitled to run the show without the experience or talent to be effective. This is what happens when people treat ventures so casually and callously that risk becomes immaterial. This is what happens when people are so taken with the fashion of the day that they're blind to the realities of business.

Today, there are 186 venture-backed startups valued at $1 billion or more and countless companies valued above $100 million, according to CB Insights. Not too long ago, Theranos was near the top of that unicorn list with a valuation of $9 billion. We still have no idea if it's a one-off or the beginning of a trend.

Remember the Theranos saga as a cautionary tale. Nothing about it is the way business should be. Nothing.

Steve Tobak

Author of Real Leaders Don't Follow

Steve Tobak is a management consultant, columnist, former senior executive, and author of Real Leaders Don’t Follow: Being Extraordinary in the Age of the Entrepreneur (Entrepreneur Press, October 2015). Tobak runs Silicon Valley-based Invisor Consulting and blogs at, where you can contact him and learn more.

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