Tuesday, October 30, 2012

The only ways hype helps startups is to a) raise money b) attract customers c) recruit employees

At TechCrunch Disrupt, legendary venture capitalist (and Sun Microsystems co-founder) Vinod Khosla warned entrepreneurs against the dangers of hype:

"During his TechCrunch Disrupt talk, Khosla explained that the key role of early investors is not funding, but personal attention and guidance. But generating buzz too early can inflate a startup’s market cap and make them a less lucrative investment of time and money for the top-tier advisors they need. That leads to critical missteps like poor hiring decisions that can doom a startup."

Hype has its place, but it is possible to have too much of a good thing.

The only ways hype helps is to a) raise money b) attract customers c) recruit employees. Before you stir up hype, make sure you know how it's going to help you with those three things. Because hype carries a lot of downside as well.

To paraphrase Peter Parker's Uncle Ben, "With unrealistic valuations come unrealistic expectations." The poster child here is Color, which was lambasted solely because of the amount of money it raised.

During the dot-com boom, fashion startup Boo.com was similarly raked over the coals for raising (and squandering) $135 million.

I get a lot of entrepreneurs who want me to help them stir up hype. I always refuse to help them until they can explain exactly what they hope to accomplish with press. Far too often, people pursue hype for hype's sake.

Like dynamite, hype is a powerful tool. It can also blow your hand off. Use it wisely.

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