Comment by TeMPOraL | Hacker News Reader

Comment by TeMPOraL | Hacker News Reader

> So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company(...) But that doesn't work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want. Startups are as impersonal as physics. You have to make something people want, and you prosper only to the extent you do.

I don't believe this is true. I think the startup ecosystem actually learned how to game "making something people want". After all, startups are companies, companies need to profit, and "making what people want" vs. "making what people will pay for" are similar, yet not perfectly aligned goals.

pg may be right that startups are "as impersonal as physics", but users aren't, and herein lies the trick. One of the most blatant ways of gaming the system is the exit-seeking, toilet-paper startup. It exploits the disconnect between "growth" and "making something users want". The algorithm works like this:

  - find something people apparently "want"
  - make a half-baked solution, maximize it for user-acquiring candies
  - market the living hell out of it
  - keep the growth until you can sell your startup or get acquihired
  - kill the product; who cares about it, anyway? oh and don't forget to thank your users for the journey, you couldn't all share this awesome moment without their help.

I want startups to be like pg describes. Maybe the most successful ones are like that. But there are so many that don't care about users that people are already developing a huge mistrust with everything-SaaS. I guess it's exactly like univerity - you can game your way through it if you treat is as an intermediate step. That your trick-grades don't reflect any actual knowledge doesn't matter after they get you a good job.

The 'gaming the system' section gave me insight into both why 'growth hacking' is such a popular idea and why I hate the term.

Founders know they need growth, so they ask themselves "How do we...", and "Hire a Growth Hacker!" is an easy response. It sounds like a way to game the system. After all, growth is right there in the job title, and we all know hackers game systems.

The appeal of a 'hacker' for growth is that it sounds like it solves the hard work of growing by building something people like. We'll just game around it with our hacker!

I don't think that's the conscious intent, but I do think it's the subconscious intent. And both why the term is appealing to founders and why it bugs the hell out of me. It's the subliminal implications of gaming the system.

Honestly, with fierce hatred I hate that term. It basically means "word 'hacker' sounds cool, so let's make marketing cooler by renaming it to 'growth hacking'". Seriously, just look at the Wikipedia article[0] and see how meaningless this term is. The whole text is just basically pile of buzzwords.

But you're right. Growth is hard, and if you're a hacker at heart, focused on developing your idea/product, someone specialized in "all that murky businessy client-getting stuff" is godsend. You don't want to distract yourself with it, you have better things to do.

I also think that it can sometimes be a way to out-source conscience. You pay the growth hacker to do "the magic", and you don't care what it is that he is actually doing. You can hire one that will do black-hat SEO and abuse social networks without feeling any guilt, by simple virtue of not thinking about it.

[0] - http://en.wikipedia.org/wiki/Growth_hacking

The people being "hacked" by the title "growth hacker" and the folks who do the hiring.

  I don't believe this is true. I think the startup ecosystem actually learned how to game "making something people want". After all, startups are companies, companies need to profit, and "making what people want" vs. "making what people will pay for" are similar, yet not perfectly aligned goals.

When startups do what they're supposed to do (making things people want), that's not gaming the system. That's being industrious. Gaming the system is about not being industrious with regard to producing things that will sell.

The important distinction is between what people want and what people are prepared to pay for. So when your startup is making something people want, but few are prepared to pay for, you can get a massive user base that make it look like you have a very solid startup which you manage to sell for huge amounts of money, while the company only has a tiny chance to ever make a profit. Then you have gamed the system.

Are there any good examples of startups creating a "massive user base" but not making any money? The likes of WhatsApp were valued significantly higher than the readings of their cash flows would convey. So such examples of massive valuations in spite of zero or negligible cash flow are not good examples.

Could Quora be such example?

Yeah. I think so.

Found this while Googling for Quora's valuation: http://techcrunch.com/2014/04/09/quora-forever/

Yup, that's what I was thinking about. It was brought to my attention by @idlewords. From the article that is probably the most linked thing in comments this year, [0].

Take the case of Quora. Quora is a question-answering website. You type a question and a domain expert might answer it for you.

Quora's declared competitor is Wikipedia, a free site that not only doesn't make revenue, but loses so much money they have to ask for donations just to be broke.

Recently, Quora raised $80 million in new funding at a $900 million valuation. Their stated reason for taking the money was to postpone having to think about revenue.

Quora walked in to an investor meeting, stated these facts as plainly as I have, and walked out with a check for eighty million dollars.

That's the power of investor storytime.

So yeah. No one games anything here.

[0] - http://idlewords.com/bt14.htm

Probably not an exact match, but until Twitter shows a profit, it would fall into this category. It has millions of users but tiny amounts of revenue, yet did a big IPO and is valued at an incredibly-hard-to-justify share price.

I mean, there are insurance and retail stocks that have billions in revenue, showing serious profit each quarter and their share price is half of Twitter's. But, to be fair, Twitter didn't 'growth hack', they did build something people wanted to use. But their exit (as of now) would have to be considered 'gaming the system'.

Ecomom could be one. They sold below cost and essentially just bled money, if I remember correctly.

It seems like the question is talking about large, zero-revenue startups. Ecomom definitely doesn't fit here, since they were collecting over $1M/month in gross revenues. Of course, they were discounting so much that each order had a negative margin, but that is a different story.

I think the most dramatic example of this (other than WhatsApp) is Snapchat.

I was thinking about something exactly opposite - tricking people into paying for things they don't really want that much. But your take on it is interesting. I guess you can game the system at both extremes.

Reply on news.ycombinator.com