What are the biggest challenges startups face, thanks to the internet? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.

I wrote the challenges that startups now face in my book--that essay's called "Friends Don't Let Friends Start Startups." (I really, really hate startups.)

The biggest challenge startups face? Venture capitalists, Wall Streeters and other purported category experts cannot tell a hit from a flop.

  • Startups are being allowed to IPO without having to reveal much data at all about how they make money. Take Twitter. Twitter IPOed with millions of fake or "bot" users that polluted some crazy percent (if not almost all) of their paid transactions. Now, that's fraud. Plain and simple. Why would a Fortune 100 company pay to advertise to... Robots?! That's the equivalent of placing TV ads on televisions that are busily being watched by nobody.
  • Sadly, Twitter is an example of a media company preying on the fact that many of its customers (forty-to-sixty-something CMOs) don't actually use or understand their product. These execs often eagerly believe anything they hear about about various tech platforms, without ever truly using (or "dogfooding") those products for themselves. (I have an essay about how the Twitter sausage is actually made my my book, as well, and it involves a lot of outsourcing to twenty-somethings and leadership often only intervening when there's a mistake.)
  • As Twitter fails to grow, Wall Street is learning the hard way that there's a huge difference between directing ad dollars to Facebook vs. Twitter, but this lesson should have been obvious years and years ago. Facebook authenticates it user base--so you know you're advertising to actual people--and Twitter, as all those bots prove, absolutely does not. That's why Twitter's stock has lost half its value since its IPO.

I think that a number of famous startups are going to struggle to survive over the next two years, and that a correction would be a welcomed thing. It's not like the environment will get any easier: I don't understand how Uber plans to live up to that ~$70B valuation if non-rival goods allow for the creation of platforms like Curb, Lyft and Juno virtually overnight. My hope is that Uber losing 200K users in a heartbeat-- after responding terribly to the Muslim ban--made Wall Street very, very nervous. That's some breathtaking volatility.

The Internet made it easy to scale products--or give them the appearance of scale--very quickly. Now the challenge is in Wall Street creating a way of accountably determining what's a social toy, and will never be monetized at scale--like Twitter--and what's a market-altering phenom--like Facebook.

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Published on: May 4, 2017