Investors never see everything 

In the classic Star Trek episode "The Menagerie," the USS Enterprise visits a planet where a dying race of subterranean telepaths — the Talosians — endure their grim living conditions by conjuring, through sheer force of will, an alternative reality to live in.

Apple engineer Bud Tribble believed Steve Jobs had a similar power: “In his presence, reality is malleable,” Tribble said. “He can convince anyone of practically anything.”

Through a Talosian-like force of will, Jobs would convince both himself and his employees that every impossible engineering request he made was, in fact, possible. Engineers who entered a meeting 100 percent sure that building the first Macintosh in less than a year was nothing but a fantasy would leave having promised to do it.

“The best way to describe the situation is a term from Star Trek,” Tribble explained. “Steve has a reality distortion field.”

Investors sometimes got caught in the field as well.

When Jobs went on stage to launch the first iPhone, the prototype he demoed for the audience was far from a finished product. To make it look like it was, Apple’s engineers developed a “golden path” for Jobs to follow — “a specific set of tasks, performed in a specific way and order, that made the phone look as if it worked,” The New York Times later reported.

The product that Jobs said “works like magic” did not work hardly at all. But investors reacted as if it did: Apple shares surged 8% during Jobs’ presentation.

That was the correct response, of course. The iPhone did eventually work, Apple’s shareholders reaped historic profits, and Jobs cemented his legacy as a business visionary. 

Had it failed, however, Jobs’s reality distorting demo might have gone down in history as a deception.

“To some people, calling it a reality distortion field was just a clever way to say that Jobs tended to lie,” Walter Isaacson wrote in his biography of Jobs.

The distinction matters because lying to investors is what got Elizabeth Holmes sentenced to 11 years in prison.

The engine of capitalism

Despite all the real-world evidence to the contrary — her incarceration included — Holmes maintains her absolute innocence.

She refuses to concede that the blood-testing mini-lab she built at Theranos didn’t work. She continues to believe it could be the “most important thing ever built.” She steadfastly maintains that she told the truth: “I’ve never tried to deceive anyone.”

I walked out of a movie theater yesterday believing she believes that. Nathan Fielder’s hit film “You Can See Everything” documents just how strong a reality distortion field can become.

The filmmaker’s deadpan questioning suggests that Holmes has sunk so deep into her own reality that she’s incapable of imagining any alternative point of view. She seems genuinely puzzled when Fielder pushes back on her claim that the Theranos mini-lab “can do any test.”

Holmes seems to use the word “can” in a way that anyone outside of her reality distortion field would define as “could.” The mini-lab was a platform, she explains, and it could have done every test if chemists had developed them to work on her platform. Therefore, it “can” do every test.

Fielder is flummoxed by her logic. But is it so different from Jobs’ belief in his prototype iPhone?

When Holmes pitched her own nonworking prototype as a finished product she may have been impersonating Jobs, whom she famously revered.

An anecdote from “Bad Blood” by John Carreyrou illustrates the extent of his influence:

By the book’s final chapter, she may have internalized Jobs’ signature technique: distorting reality.

Like Jobs, Holmes refused to accept that something she needed to be done was impossible, or that any claim she might make about Theranos was untrue. Told that her blood-sampling machine didn’t work, for example, she simply said that it did.

This can be an admirable trait in a business founder.

Jobs, for example, could assert with total conviction that some deadline or technical specification that everyone told him was impossible would have to be done, regardless. Often, the engineers would somehow do it — or get far closer than they otherwise would have.

Apple co-founder Steve Wozniak explained that “his reality distortion is when he has an illogical vision of the future, such as telling me that I could design the Breakout game in just a few days. You realize that it can’t be true, but he somehow makes it true.”

It didn’t always work. At NeXT, for example, Jobs’ illogical demands nearly bankrupted both him and investors.

But investors need founders that have an illogical vision of the future.

Daniel Kahneman argued that markets and the economy are dependent on entrepreneurs systematically underestimating their odds of failure. Without this miscalibrated belief in themselves and their products, few new firms would start. He called this entrepreneurial optimism “the engine of capitalism.”

In “You Can See Everything”, Fielder asks an engineer working with Holmes’ partner on a new version of her blood-testing machine — “Theranos 2.0” — whether her earlier statements about Theranos 1.0 gave him pause. They did not. “Entrepreneurs make claims that are not true,” he tells Fielder, suggesting that untruths are a standard part of innovation.

Holmes told investors a lot of things that are not true.

She said Theranos’ device could run hundreds of tests from a few drops of finger-prick blood. In reality it could reliably run only a few. They ran most patients’ samples on machines Theranos had bought from established firms like Siemens.

Had the machine eventually worked, investors would not have held that against her. In time, her wild exaggerations likely would have become admired as a strategy of fake-it-till-you-make-it. Like Jobs’ introduction of the iPhone. Or the public  demonstrations of light bulbs and the phonograph that Thomas Edison fudged to show what they could do as if they could already do it.

But Holmes also told investors that Theranos had generated over $100 million in revenue in 2014 when she must have known that the real number was close to $100 thousand. And that Theranos devices were being used by the US military on battlefields and in medevac helicopters when they weren’t.

This is perhaps the dividing line between the good and bad kinds of reality distortion. 

Distorted product demos? Good. Investors are happy to be temporarily misled by delusionally optimistic founders.

Distorted accounting? Bad. Investors will not be lied to about numbers.

It’s the difference between Enron and WeWork — both of which make perfectly timed cameos in Fielder’s film. WeWork’s Adam Neuman is a billionaire because he delusionally exaggerates the prospects of his various startups. Enron’s Jeffrey Skilling went to prison because he lied about numbers. 

The reality distortion field documented in “You Can See Everything” gave Theranos a chance to build something that nearly everyone said was impossible. That’s good.

But it may have become so powerful that Holmes believed in imaginary numbers. That’s bad.

Fielder’s film revolves in part around whether Holmes was misquoted by The New York Times. Did she say the media was “playing a character I created”? Or a character “they created”?

Holmes insists she was not playing a character. That she played it straight. That she only ever said what she believed.

Talosians would understand. 

At the close of "The Menagerie," the last of the telepaths are offered passage to escape their dying planet.

They refuse, fearing their power to distort reality would spread — and bring other worlds to ruin.

— Byron Gilliam

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