Elizabeth Holmes had a brilliant product—new technology that would change blood testing. No more needles. No more drawing vials of blood at the doctor’s office. In 2014, Business Insider described the vision of Holmes’s company Theranos this way:
“You might be able to walk into a Walgreens pharmacy for a reportedly painless fingerprick that will draw just a tiny drop of blood . . . The company can run hundreds of tests on a drop of blood far more quickly than could be done with whole vials in the past — and it costs a lot less.”
Lured by the transformation Theranos promised to bring to the lab testing industry, investors poured money into the company. Elizabeth Holmes had founded the company in 2003 and by 2015 it was valued at $10 billion. Time magazine named Holmes, now CEO, to its list of “100 Most Influential People.”
However, 2015 was also the year that Holmes’ empire started to fall apart. The Wall Street Journal published a story claiming that most of the blood tests Theranos completed were not done using the company’s supposedly revolutionary new technology. Rather, the article claimed that behind the scenes Theranos was using the same machines everyone else in the industry used.
Holmes defended her company, saying that the news story was false and blaming the charges on the fact that she was disrupting an established industry: “This is what happens when you work to change things, and first they think you’re crazy, then they fight you, and then all of a sudden you change the world.”
But as it turned out, Holmes was lying. Her vaunted testing technology couldn’t do nearly everything that she claimed it could. And yes, the company was using other machines for blood testing because its own technology didn’t work.
Soon the U.S. government was investigating. Theranos shut down operations in 2018 and the SEC charged Holmes with fraud. In January 2022 Holmes was found guilty of defrauding investors of hundreds of millions of dollars. She faces years in prison.
What kind of problem?
Elizabeth Holmes obviously had ethical problems—she was lying to investors, customers, the government, and the press about her company’s product. Ethics aside, Holmes had a product problem. She set a high bar, and her product couldn’t meet that bar.
What would you do if your product didn’t measure up to what you had promised? In situations like that, you have two options: fix the product’s problems, or change your message to match reality.
Theranos’s product problem resulted in a marketing problem. A lot of problems we face in business are not marketing problems, but they eventually become marketing problems if they are not resolved. Let me explain using the example of the supply chain problems that many of us have dealt with in the last few years.
Internal problems in the business often trickle out to impact customers.
Can’t get the materials you need? That becomes a marketing problem because it directly impacts your customers with delays, out-of-stocks, and more. Price of raw materials going up? You’ll need to raise your prices to stay profitable. Marketing has a role in explaining the added cost to customers and making sure that customers don’t jump ship for a competitor with a slightly lower price.
Business is about serving customers with a product or service they need. Internal problems in the business often trickle out to impact customers. If enough customers have a negative experience, eventually the business will see reduced sales. Let’s look at potential problem areas in business systems: operations, financial, and management. How is your business doing in these areas?
Long lead times. With today’s consumers accustomed to getting what they want without waiting, having items in stock or on a short lead time is critical.
A farm equipment manufacturer reported how a farmer called around to three dealerships till he found the part he needed. The dealer who had the item in stock was two hours away, but the farmer made the four-hour round trip the same day because it was raining. He didn’t want to wait for the local dealer to get it in and waste one hour of a sunny day.
Quality control problems. James Clear wrote, “Good marketing can sell once, but only a good product can sell twice. In the long run, your performance reverts to the value you provide.” If 1 out of 100 of your products is defective, how many unhappy customers does that make?
Good marketing can sell once, but only a good product can sell twice.
Product problems. Does your product perform as intended? As marketed? Products can be inferior due to low-quality materials, design flaws, or other factors.
Sasha Aickin wrote, “When you buy something cheap and bad, the best you’re going to feel about it is when you buy it. When you buy something expensive and good, the worst you’re going to feel about it is when you buy it.” You want your customers to feel good about their investment in your product or service.
Order fulfillment inaccuracies. Have you ever opened a package to discover that the product inside was the wrong size, the wrong color, or the wrong model? In addition to disappointing customers and hurting your reputation, mistakes like this cost you valuable time and money to correct.
Scheduling problems. Marie stayed home from work on Tuesday morning because the plumber was coming. Only he never came. Now Marie is frustrated. She will have to take more time off work and re-arrange her busy schedule again.
Accurate and dependable scheduling is a challenge but well worth it. Customers love businesses that show up on time.
Customer service problems. Do you have enough people to answer the phone? Do you return calls and address complaints promptly? Do your behind-the-scenes operations people know and care about how their work affects customers?
Shipping/packaging problems. You can’t control whether the freight carrier’s forklift driver rams your pallet into a post at the trucking terminal, but you can control whether you wrap and strap your product well before it leaves your facility.
You can’t control whether the UPS driver throws your boxes around, but you can pack your product securely inside the box. You can’t control whether your box splits open when it gets mishandled, but you can buy sturdier shipping boxes.
Capacity problems. Booking new business is great, but what if you end up with more business than you have the capacity to fill?
Regulatory issues. Do your homework to reduce legal headaches and mistakes. You don’t want your product to run afoul of a regulatory agency, or to receive a cease-and-desist letter because your name or product is too similar to someone else’s.
Financial reporting. For many business owners, getting things done is a lot easier and more fun than digesting a page full of numbers in a profit and loss statement. But businesses run on numbers, so put the effort into learning to understand the financial health of your business.
Invoicing problems. No one likes paperwork, but pay attention to the details to ensure that you are billing for all the work you complete for your customer (and not more). Providing prompt, easy-to-understand invoices is a service to customers.
Cash flow and inventory issues. In his book Street Smarts, Norm Brodsky points out that business owners are often enthralled by their sales numbers. They like to see those numbers keep going up. But sales aren’t everything. Brodsky writes, “Sales are nice, and profits are nicer, but businesses live and die on cash flow—and less cash flow means trouble.”
Businesses can end up investing too much money into inventory to meet sales, and run out of cash as a result. In his book Customer Pillars, Curt Clinkinbeard quotes a business owner as saying, “I nearly grew my company right out of business. We had a line that was flourishing and I started ramping inventory levels up to keep up with demand . . . The problem was the inventory actually required a cash investment—and we didn’t have the cash. We became so cash-poor we almost went out of business. I never would have guessed that success could lead to such a significant problem.”
Problems in a business eventually rise to the level of management. Business leaders are involved in dealing with the issues we’ve already looked at, but here are two areas directly connected to leading the business.
Delegation and systems problems. A business consists of not only a group of people working together but also a number of interconnected systems. These systems are often outlined in documents such as Standard Operating Procedures.
Systems and procedures are important but sometimes a business outgrows them. In an article entitled “Why This CEO Appointed An Employee To Change Dumb Company Rules,” Hootsuite CEO Ryan Holmes told how an outdated policy required an estimated $200 worth of time for an employee to get permission to give a $15 T-shirt to a customer.
The policy had been implemented when Hootsuite was a small company and wanted to tightly control expenses. But it had long since grown into a large and profitable business. The rule requiring permission to give out swag no longer made sense.
An even more common problem than outdated policies and procedures can be a lack of clear systems and procedures, leading to delays, confusion, and inefficiencies.
Employee hiring and training. In a tight job market, hiring is even more of a challenge than usual. But even in a tight market, you need to be careful not to put employees into a role where they will struggle.
The first step when dealing with an employee who isn’t a good fit for the job is to recognize the problem. A retail store was struggling with “marketing,” spending thousands of dollars on advertising that ate up their profits. Those dollars were largely wasted because the salesman was not effective. As a result, people who saw the ads and came to the store would end up leaving without making a purchase.
A tough year in the industry became a crisis for the business. The root of the problem wasn’t marketing or sales. Rather, it was a lack of leadership—management seemed unwilling to replace the salesman. When they put a moderately skilled salesman back on the floor, the situation turned around.
A thoughtful and systematic plan for onboarding employees so they can be better equipped to serve the customer takes time and money, but will pay off in the long run.
The best way to deal with a problem is to get to its root cause. Symptoms of the problems we’ve looked at in this article may show up in marketing, but they can’t be solved by marketing. They will persist until you diagnose and treat the real disease.