Hacker News Reader

Comment by Ma8ee | Hacker News Reader

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.

View on HN

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.

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.

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'.

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

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.

Reply on news.ycombinator.com