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.
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'.
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.
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.
