The Danger of Early Hype in Consumer Social: A Lesson from Fast Retailing's Chairman

The Danger of Early Hype in Consumer Social: A Lesson from Fast Retailing's Chairman

Hype is an inevitable part of any successful consumer startup. It can propel a startup to new heights or lead to its downfall. While hype may be tempting, it is crucial to avoid it for as long as possible. Unlike economic subsidies, which startups have control over, the hype subsidy is beyond a founder's control.

We have seen the power of subsidies in on-demand marketplaces like Uber, DoorDash, and Instacart. Subsidies can be a valuable tool to kickstart growth. However, they can also blind startups to the reality of their business model. It's easy to achieve rapid growth if you're selling a product for less than its actual value. Hype creates an illusion that a startup is bigger and more significant than it actually is. This illusion acts as a subsidy on engagement in a consumer social network.

Consumers are drawn to hype because they want to be part of the next big thing. They invest their time and engagement in a platform, expecting future rewards or status as an early adopter. However, applying hype too early can be detrimental. It becomes difficult to predict how consumers will engage once the hype subsidy is removed. Startups risk optimizing for the wrong things and face a sudden drop in engagement when the hype subsidy disappears.

To avoid this pitfall, it is crucial to wait until a startup has achieved product-market fit before stoking hype. Product-market fit ensures that the product's flywheel is spinning smoothly and can sustain growth. Being underestimated in the early days gives startups more time to figure things out. By the time incumbents realize the potential threat, it's often too late for them to react effectively.

Japanese fashion retailer Fast Retailing's Chairman, Tadashi Yanai, offers valuable insights into the sense required for successful leadership. He believes that strategy is not about combinations but about considering the sequence of events. Those with a sense of strategy can create narratives that connect various events coherently. They can abstract situations and extract logical insights, allowing them to navigate any circumstance effectively.

Yanai emphasizes the importance of constantly thinking, "So what?" This mindset enables leaders to create meaningful stories that resonate with others. A leader with a sense of strategy understands the underlying logic and can apply it to any situation. They have the ability to quickly move between the concrete and the abstract, making connections and decisions at a rapid pace.

In conclusion, the danger of early hype in consumer social lies in the potential for startups to optimize for the wrong metrics and fail to meet the expectations set by the hype subsidy. It is crucial to avoid hype until a startup has achieved product-market fit and has a solid foundation for sustained growth. Being underestimated in the early days allows startups to fine-tune their strategies and gain an advantage over incumbents. To succeed, founders should focus on building a strong product and flywheel before considering any hype. Here are three actionable tips to remember: