Overreacting to the Competition

A Silicon Valley startup had revolutionized blood testing. It had created a machine that would allow users to obtain health results with a simple finger prick. Now, Walgreens could get these machines in its stores.

But something didn’t seem right.

For starters, Theranos had denied Walgreens access to its lab and had refused to do a basic result comparison to show the company the accuracy of its tests. And when the president of Walgreens’ pharmacy business had his blood drawn for a trial, Theranos didn’t even give him his results.

But Walgreens forged ahead.

“We can’t not pursue this,” said Renaat Van den Hooff, who headed the pilot for the company. “We can’t risk a scenario where CVS has a deal with them in six months and it ends up being real.”

Theranos CEO Elizabeth Holmes will go on trial for fraud in the coming weeks, but it’s really the steps that led Walgreens to partner with her company that have the most relevant leadership lessons for us.

The problem with Walgreens, reporter John Carreyrou writes in his book Bad Blood, was that it was constantly looking over its shoulder at CVS — and was paranoid its chief rival would obtain the machines first.

“Theranos had cleverly played on this insecurity,” Carreyrou writes. “As a result, Walgreens suffered from a severe case of FoMO — the fear of missing out.”

The mistake was costly. Walgreens had invested $140M, was forced to remove the machines from its stores, and faced several class-action suits as a result.

It’s easy to laugh in retrospect and wonder how a multi-billion dollar corporation could be so stupid.

But this scenario isn’t unique to Walgreens. Far too often, leaders formulate their strategies based more on their competitors than on facts and reason.

Nixon’s worries led to Watergate. Ford made its disastrous Pinto to keep up with GM’s Chevy Vega. Coca-Cola created New Coke, which lasted just 79 days, to try to outdo Pepsi.

It’s always wise to be aware of a competitor’s strengths and the threats it could pose.

But there’s a fine line between awareness and paranoia. Crossing it can lead to some catastrophic mistakes.

Walgreens was worth billions at the time and had more than a century of tradition to fall back on. Ford and Coca-Cola were big enough to overcome their missteps as well.

The next company may not be so fortunate.

Know the competition, recognize its strengths and the threats it may pose.

But don’t let it single-handedly determine your course of action.