Hype can either make a startup blow up, or set it up for failure.
First, a primer on flywheels and economic subsidies
The value of participants in the marketplace expands as the network grows
- Think of it as the flywheel spinning faster as the network grows
- Subsidize the transaction by getting the flywheel spinning
- When applied well this can help a marketplace a lot and appeal to a larger group of people
- If a marketplace has true network effects, the subsidy will work better and faster over time
My hype advice… Avoid, avoid, avoid, Grab!
Hype can be effective once everything in your startup is set up and ready to go
The hype subsidy
Hype creates an aura around something making it seem bigger than it actually is
- The hype factor is why some startups are able to get celebrity endorsements or investors at early stages
Three critical risks
“Hype-market fit”
- Sometimes if you take away the subsidy people stop using the product
- Hitting the hype air pocket
- When a bunch of users sign up for the site all the flaws in the code become obvious
- Some will become frustrated and stop using the product
- Catalyzing competition
- Other companies that are larger with a bigger workforce may see the trend that you cause and disrupt your industry
