The Effect of FOMO on Stakeholder Enrollment Susan L. Young, PhD Kennesaw State University Kennesaw, GA Ph: 470-578-4536 [email protected] Birton Cowden, PhD Kennesaw State University Kennesaw, GA Ph: 470-578-36781 [email protected] 1 The Effect of FOMO on Stakeholder Enrollment Abstract Stakeholder theory suggests dishonest ventures would struggle with stakeholder enrollment, limiting resource access and ultimately failing. Yet cases exist where amoral entrepreneurs do enroll stakeholders through deceit. We propose “fear of missing out” on an opportunity facilitates enrollment by encouraging stakeholder acceptance of information asymmetry. To illustrate we use exemplar Theranos: a biotech firm which convinced stakeholders it would revolutionize healthcare, rising to a $10 billion valuation through 15 years of sustained deceit. We contribute to theory by demonstrating the dark side of stakeholder enrollment, where opportunism increases venture power over stakeholders, and deceit can endure long past start up. Keywords: stakeholder theory, stakeholder enrollment, entrepreneurial deceit, fear of missing out, legitimacy 2 The Effect of FOMO on Stakeholder Enrollment “Theranos had demonstrated a commitment to investing in and developing technologies that can make a difference in people’s lives, including for the severely wounded and ill. I had quickly seen tremendous potential in the technologies Theranos develops, and I have the greatest respect for the company’s mission and integrity.” (Johnson, 2015) — 4-star General Jim Mattis, U.S. Marine Corps, Retired U.S. Secretary of Defense, 2017-2019 The Securities and Exchange Commission today charged Silicon Valley-based private company Theranos Inc., its founder and CEO Elizabeth Holmes, and its former President Ramesh “Sunny” Balwani with raising more than $700 million from investors through an elaborate, years-long fraud in which they exaggerated or made false statements about the company’s technology, business, and financial performance. (Securities and Exchange Commission, 2018) — U.S. Securities and Exchange Commission press release, 2018 Imagine a technology that will provide hundreds of medical tests using only a drop of blood, for a fraction of the cost of traditional techniques. Imagine Theranos, the firm that invented it, rising from a valuation of a few hundred thousand to ten billion dollars in only 15 years, poised to revolutionize healthcare and save millions of lives. The problem: both Theranos’s technology and its shining vision of the future were based on a lie (McKenna, 2018; Securities and Exchange Commission, 2018). How did Theranos rise so far, for so long, without its deceptions called into question? The key lies in the phenomenon of stakeholder enrollment, and why Theranos’s stakeholders were willing to accept high information asymmetry. Nascent entrepreneurial ventures often need resources they do not possess such as financing, marketing or product development capabilities, additional human capital, or access to important networks (Cooper, Woo, & Dunkelberg, 1989; Freeman, 1984; Rawhouser, Villanueva, & Newbert, 2017). Stakeholders can help a start-up succeed by providing access to these resources (Alvarez, Young, & Woolley, 2020; Hite, 2005; Jonsson & Lindbergh, 2013). 3 While entrepreneurs may employ many stratagems to engage stakeholders (see Burns, Barney, Angus, & Herrick, 2016; Rawhouser et al., 2017), such as simple contracts (Argyres & Mayer, 2007), times exist when a stronger affiliation is vital to induce a stakeholder to go ‘above and beyond the call of duty’ and supply key resources or evangelize for the venture (Meyer & Herscovitch, 2001). Stakeholder enrollment is the process by which entrepreneurs create this deeper psychological bond (Burns et al., 2016), usually seen as a positive feat, to secure superior resources and legitimacy (Burns et al., 2016; Rawhouser et al., 2017; Zott & Huy, 2007). However, less is known about the stakeholder enrollment process when the venture has amoral intentions. Much of the literature assumes that stakeholders will engage in proper due diligence about the venture (e.g. Harvey & Lusch, 1995), and that stakeholder enrollment cannot occur unless there is trust, reciprocity, and transparency between the venture and its stakeholders (Bosse, Phillips, & Harrison, 2009; Pollack, Barr, & Hanson, 2017; Überbacher, 2014; Venkataraman, 2002). Yet examples exist where stakeholders have built a psychological bond with a venture, even though the vision was based on half-truths or lack of technological feasibility (Baker, Miner, & Eesley, 2001; cbinsights.com, 2019). Such cases could not occur unless stakeholders were willing to accept a lying entrepreneur's words as truth. This begs the question: why are enrolled stakeholders so willing to accept entrepreneurial lying? We use stakeholder theory to examine this dark side of stakeholder enrollment as it relates to the potential of an entrepreneurial opportunity. While this dark side can impact different types of stakeholders (i.e. investors, employees, customers, technology partners), we focus on those that financially invest in the venture in order to gain depth of understanding of this phenomenon. We argue that stakeholders’ “fear of missing out” (van Balen, Tarakci, & Sood, 2019) on the opportunity will rise as their perception of the venture’s legitimacy and 4 acceptance of the entrepreneur’s lie increases, while their knowledge of the venture’s true capabilities decreases, due to information asymmetry. The greater the stakeholders’ fear of missing out, the more likely they will enroll with the venture. In turn, stakeholders are willing to accept more information asymmetry in order to stay enrolled, consequently reversing the power asymmetry between stakeholder and entrepreneur. We illustrate the fear of missing out experience by analyzing stakeholders who invested in the now defunct biotech startup Theranos. This conceptualization extends our knowledge of stakeholder theory in several ways. First, we establish stakeholder enrollment has a dark side, where amoral entrepreneurs can use entrepreneurial lying and opportunism to gain resources for an illegitimate venture. Second, we challenge the boundaries of stakeholder enrollment by examining the phenomenon under stakeholder’s perception of risk conditions, though the actual context is uncertain, and identify the construct of stakeholders’ fear of missing out as a previously overlooked enrollment mechanism. Third, we extend the entrepreneurial lying literature by demonstrating that entrepreneurial deceit can continue long past the pre-legitimate phase of a startup. Lastly, we contribute to research on entrepreneurial legitimacy by revealing how entrepreneurs can fabricate signals of legitimacy, which can accumulate over time, to enroll even more stakeholders. Assumptions in the Stakeholder Enrollment and Entrepreneurial Lying Literatures For many new ventures, acquisition of needed resources cannot occur through simple market transactions, because new firms often lack the capital and/or the legitimacy required to do so (Klein, Molloy, & Brinsfield, 2012). These ventures must induce stakeholders to form a richer psychological bond—or “enroll”—with the venture. Stakeholder enrollment is defined as “the process of getting essential groups or individuals to accept, invest, and act in ways associated with entrepreneurial efforts to advance an uncertain endeavor” (Alvarez et al., 2020, p. 289). As 5 research on stakeholder enrollment is in the early stages within the entrepreneurship literature, however, several key assumptions applicable to this study exist that have not been fully tested. The first key assumption is that actual stakeholder enrollment, rather than simple stakeholder engagement (e.g. through contracts), more typically occurs under conditions of uncertainty than under conditions of risk (Alvarez et al., 2020; Burns et al., 2016; McBride, Thiel, & Wuebker, 2014). Under conditions of risk, potential results of an opportunity can be probabilistically determined prior to its exploitation (Alvarez & Barney, 2007; Knight, 1921), such as the cost to bring the opportunity to market, likely competitors and market demand (Young, Welter, & Conger, 2017), if not yet actual financial returns (Burns et al., 2016). Under conditions of uncertainty, however, potential outcomes cannot be probabilistically pre- determined, and context conditions related to the opportunity are ambiguous at best (Alvarez & Barney, 2007; Knight, 1921; Young et al., 2017). Due to the experimental nature of opportunities developed under conditions of uncertainty, when stakes and outcomes are unknown ex ante (Knight, 1921), research has assumed a deeper bond is required to encourage stakeholders to aid the venture’s success (Burns et al., 2016), and they must more fully participate in value creation. Under conditions of risk, however, stakeholders may also bond with the opportunity (Burns et al., 2016), because enough information is available for them to determine probable outcomes and successful rates of return. Opportunity development under conditions of risk, paired with stakeholder engagement with the opportunity (Shane & Venkataraman, 2000), has been well explored in the literature, but few have taken a stakeholder enrollment lens. However, what if the context is only perceived as knowable by stakeholders, but the reality is actually much less known? What if stakeholders enroll, assuming they are operating under conditions of risk, but