While I was reading about Theranos, I kept thinking about how much of the fraud was explained by "Symbolic Action." In a classic paper, Zott & Huy find that founders who skillfully use symbols do better. They identify 4 categories of symbolic action, all exploited by Holmes. 1/6

The first category is showing personal capability, and the paper describes multiple ways of doing this: you can look the part of the entrepreneur; you can conspicuously show connections to top schools; or you can show that you are personally "all in." Elizabeth did all three. 2/6

The 2nd category is showing that you are organized like a real professional organization. Common ways for entrepreneurs to indicate this are to have professional office spaces and the trappings of what people expect to see in a real firm. Elizabeth was very aware of this. 3/6

The third category is to show symbols that your business can achieve its goals. The three classic ways to do this are to show off half-working prototypes, win industry awards, and show that you have received money from prestigious funders. 4/6

Finally, we have a demonstration of key stakeholders, because if important people back your company, it must be good right? (See the Theranos Board) One way to build stakeholders is with personal attention, which is described by @JohnCarreyrou in his book Bad Blood. 5/6

We can't know which founders will eventually win, so instead we look for symbols that suggest the companies are for real. This isn't usually bad; it shows that founders are going down the right path. But Holmes used symbols to substitute for reality, and it worked (for awhile)! 6