The Hype subsidy

Hype should be looked at with an awe and fear. Applied at the right time it can make a startup, while the wrong moment can doom it.

Its best to avoid hype as long as possible. Until you hit the PMF and have a strong flywheel system. Once you have that then hype can really turbo charge your growth. If not then it will simply break your system altogether.

Economic subsidy vs hype

For example, if Uber is starting off today they might want to subsidise their ride cost to get the flywheel running. Then they can slowly reduce the subsidy and expect the model to keep working and generating a product led growth. Similar to Swiggy where they had a lot more offers and subsidised order values in the early days. But now that they have built that habit and users have gotten into the habit of ordering food, they have been slowly reducing the subsidies yet hopefully still expect a good retention and growth in their business.

Hype creates the aura that something is bigger, more important, and more inevitable than it actually is. In this way, it acts like a subsidy on engagement in a consumer social network.==

But on the other hand the problem with hype is that the founder or the team has little to no control on it. This poses 3 risks:

PMF

In a hyped up environment the data and user behaviour you deduce and take actions on might be completely distorted. Usually everything you do would always be better (and different) than it would have been without the hype. You’d be reading into false data with the hype subsidy.

An unstable flywheel

There is a cliché in startups that building a startup is like building the plane after it’s taken off. This is most true in viral consumer networks, and it is MOST MOST true in consumer networks going through a hype cycle.

‘Houseparty’ app was a great example where their flywheel depended heavily on push notifications. While it seemed great in the beginning, as everyone started jumping in the bandwagon due to hype, the push notifications started to get annoying to users. People started ignoring or unsubscribing from the notifications. This broke their model and eventually doomed them. The point is that its okay to make such mistakes but with hype you hardly have any time to think properly about such nuances and tweak things. Before you know, a huge audience have tried your product, got bored of it, and uninstalled.

They’ve already formed an opinion about your product before you have even figured it out. Changing that opinion is so much harder than building something new.

Snapchat on the other hand were tweaking and maturing their product and growth loop for months, in a smaller scale without the distortion of hype. And when they were ready, they used hype to spin their flywheel faster.

Competition

Its great to be underestimated from outside in the early days. A classic case that played out with clubhouse was that Twitter probably wouldn’t have aggressively launched Spaces if they didn’t see it as an existential threat in the future. Big competitions would just wait for you to validate such models and once you do and establish that space they’d simply take over. Its hardly a big deal for a team of that scale to build that feature. And they already have the network. How do you beat that?

Companies like Pinterest, Etsy, and even Facebook seemed like a small niche product until they were really ready to scale and that seems like a smart strategy.

Conclusion

Basically, hype is like a double edge sword. It works great once you have PMF and you know what you are doing. Getting hype in early stages of product development might feel like a great validation in the short term but mostly sets the product up for doom.

At SuperShare we had a similar experience were our reward based model took off and the numbers looked great. But it dawned on us quickly that its not sustainable. We ended up attracting the wrong kind of low quality users, the business would cease to exist without the subsidy and eventually called for us to pivot from that model. The only good things that came out of it was that we were able to validate some of our hypothesis on the consumer social space & raise a Series A just before the recession phase began.

Basically at best you get a round of fundraise with those hyped up numbers, a lucky acquisition or a tough time rewriting the perception of the world regarding your product.