Last month, Elizabeth Holmes, founder and CEO of Theranos, was convicted of defrauding investors after a landmark trial in the USA.

Central to the trial was the theme of making false claims about its products.

While the full implications of this ruling are still to be determined, what lessons can we draw from this for tech start-ups?

Using the public as your Beta Tester

‘Fake it ‘til you make it’ is phrase often heard in technology product development. Indeed, Silicon Valley has a history of using consumers as ‘beta testers’, releasing products that are buggy and far from being ‘bullet-proof’.

Entrepreneurs often quote Reid Hoffman, the founder of LinkedIn, who said: “if you are not embarrassed by the first version of your product, you’ve launched too late”.

While it is true that over-development and potentially over-engineering can lead to missing the competitive opportunity, consideration of the application and market can be key.

There is a world of difference in releasing a consumer electronics product that turns out to be annoyingly buggy and a healthcare product, which in the case of Theranos, could deliver incorrect, damaging diagnostics.

Understand the market you are trying to disrupt

Of course, many disruptors come from outside the mainstream, but it pays to understand the intricacies of the market you are looking to replace.

When Elizabeth Holmes started Theranos, she did so without a strong background in medical diagnostics. Experts working in the field could not understand how the fundamental principles to which they themselves were working could be circumvented so quickly by a new entrant.

Running a large array of tests from a pin-prick of blood is challenging for several reasons – not least because the composition of blood from venous sampling can be different due to physiology.

And, while ‘lab-on-chip’ technology is real and hugely promising, to achieve the aim of running large numbers and classes of tests in a single machine is a huge engineering challenge.

Experts matter. Investors and developers should try to talk with as many as they can.

Not all patents are created equal

Investors in technology start-ups like patents. They like the validation they bring and they like the ‘protection’ that this gives to their investment.

Start-ups looking for investment will often pursue patents as a strategy to entice investors and Theranos had more than 700 patents. No doubt there will be many of these that are worthwhile, but many will not be.

Figures vary, but a general consensus is that 97% of patents fail to recoup the cost of filing. More than half expire before full term.

Patent protection can last 20 years, but for technology products the lifespan is often much shorter. So, while patents can be valuable for both investors and start-ups, other strategic considerations such as time-to-market, product quality and customer service are just as important.

Secrets and lies

Theranos had an agreement with Walgreens, a US pharmacy store giant, to offer tests at dozens of store locations.

Unbeknownst to Walgreens, due to the inaccuracy of the Theranos system, the testing involved the use traditional blood testing machines.

Elizabeth Holmes hid this from the client with a defence of trade secrecy, but accurate communication is the backbone of your commercial relationships.

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Be honest with investors about Technology and Market Readiness Levels (TRL/MRL). Investors expect a certain amount of optimism and hyperbole, but be careful when this deviates into untruth.

Likewise, customers will expect your product to meet the specifications that you claim for it. Technical data sheets often show ‘best case’ performance, which is fine as long as the performance conditions are also stated.

Prototype, test (repeat) and get out of the lab

Good product development is iterative. There is a well-known mantra in technology circles which goes ‘fail fast, fail cheap’. That is to say develop quickly, experiment, and find out early what doesn’t work.

Concentrate on the new innovative parts of the product in proof of concept and alpha prototype phases. Use whatever materials you have to hand or what you can get hold of quickly.

Equally important is testing. Test as much as you can as early as you can and get out of the lab as soon as it is feasible to do so. Only by testing in the intended environment will you find out if the design is really going to work.

This will also unearth most of the ‘edge cases’ that so often lead to poor performance. Finally, if you wouldn’t buy it yourself, don’t launch it.

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