Before we begin, new episodes of the startup ideas pod are live. They are both tutorials.
- A tactical $10M growth guide of what's working in content, finding creators, seo and paid ads right now. YouTube, Apple, Spotify.
- How to build a viral video game with Grok3/Claude 3.7. YouTube
Can't wait to see what you build with it.
|
Vibe revenue
This week, I tweeted something that clearly struck a nerve:
Fine, I’ll say the thing that no-one is saying… There’s a bunch of AI companies with $1-10M “ARR” raising big VC money on what I’ll call “curiosity revenue” - not real sustainable ARR.
The post went viral, with founders, VCs, and operators all sliding into my DMs with variations of “thank you for saying what we’ve all been thinking.” One message particularly stood out:
“You perfectly articulated what I’ve been thinking about for the past week – this ‘vibe revenue’ thing is so real. The extension is ‘vibe businesses’ – entire products/companies that are working right now but tbd if they are defensible or have real staying power.”
That term – “vibe revenue” – crystallizes exactly what’s happening in the AI startup ecosystem right now. Let’s dig deeper into what this means and why it matters and I felt like Greg's Letter was the perfect place to do it.
What Is Vibe Revenue?
Vibe revenue is money coming from customers who are paying out of curiosity, novelty, or FOMO rather than because a product solves a genuine, persistent problem in their workflow.
Think of it as the business/internet equivalent of an impulse purchase. We’ve all bought something cool that we barely used after the first week. That’s what’s happening with many AI products right now – except the purchases are showing up as “Annual Recurring Revenue” on fundraising decks.
The hallmarks of vibe revenue:
- High initial conversion (everyone wants to try the shiny new AI thing)
- Impressive short-term growth curves
- Poor retention past 3-6 months
- Limited expansion within accounts
- High sensitivity to new alternatives
The Vibe Revenue Cycle
Here’s how the cycle typically works:
- Launch with a Sizzle: Startup debuts a slick AI demo that genuinely wows people
- Initial Traction: Early adopters and tech enthusiasts sign up in droves
- VC Attention: Growth metrics look spectacular for the first few months
- Fundraising Win: VCs compete to get in, often at eye-watering valuations
- Reality Check: Around month 4-6, customers start realizing the product isn’t actually changing their workflow
- The Plateau: Growth flattens or declines, but it’s hidden from public view
- The Zombie Phase: Company has money in the bank but can’t hit metrics for the next round
The problem is that in the AI space, steps 1-4 are happening at warp speed, while steps 5-7 are still in the future for many startups that raised in 2023-2024.
The Revenue That Feels Like PMF (But Isn’t)
What makes vibe revenue particularly dangerous is that it perfectly mimics the metrics of genuine product-market fit in the short term. The graphs look identical for the first 3-6 months:
- Growth curves trending up and to the right
- Healthy conversion rates
- Strong initial engagement
- Positive user feedback (“This is so cool!”)
But there’s a critical difference: with true PMF, these metrics strengthen over time. With vibe revenue, they inevitably weaken as the novelty wears off.
It’s like dating someone who seems perfect in the honeymoon phase but turns out to have no long-term compatibility. The initial chemistry can be so intoxicating that it masks the fundamental mismatch.
Why This Time Is Different
We’ve seen hype cycles before – crypto, web3, metaverse – but the AI hype cycle has a unique characteristic that makes vibe revenue even more deceptive: the products actually work and deliver genuine initial value.
Unlike previous hype cycles where products often didn’t work at all, today’s AI products can genuinely impress users… at first. ChatGPT, Midjourney, and other AI tools create “wow” moments that immediately demonstrate value. This makes it much harder to distinguish between products with staying power and those riding the vibe.
The challenge isn’t whether the technology works – it’s whether it delivers sustainable value in actual workflows over time.
The Defensibility Problem
Another dimension of the vibe revenue problem is the rapid erosion of competitive advantages in AI:
“Unlike previous tech cycles (mobile, web), where advantages could last years, AI competitive moats are filling in weekly.”
We’re seeing users switch from ChatGPT Pro at $200/month to Grok or Perplexity for free with barely a second thought. Brand loyalty is minimal. Switching costs are practically non-existent.
This creates a brutal environment where even companies with genuine product-market fit can see their advantage disappear overnight when a new model or interface emerges.
How to Spot Vibe Revenue
If you’re an investor, employee, or founder, how can you tell if you’re dealing with vibe revenue versus genuine PMF? Look for these warning signs:
- Usage patterns: Are users engaging deeply or just playing around?
- Retention curves: What happens after month 3? Month 6?
- Expansion metrics: Are accounts growing their usage over time?
- Workflow integration: Has the product become essential to daily work?
- Price sensitivity: Do users balk at price increases?
- Alternative resistance: How quickly do users switch to newer options?
The most telling metric is cohort retention beyond 6 months. If that’s strong and growing, you likely have real PMF. If it’s decaying rapidly, you’re probably looking at vibe revenue.
Examples of Vibe Businesses vs. Real Businesses
Some companies have built genuine AI-enabled businesses solving real workflow problems:
- Replit and Cursor are deeply integrated into development workflows, saving real time and improving output
- Bolt had spent years building core technology before adding AI features
- Perplexity is evolving from curiosity engine to genuine research tool
- Anthropic and OpenAI are creating fundamental infrastructure
On the vibe side, we’re seeing:
- AI companions with high initial engagement but rapidly decaying usage
- “AI-powered” productivity tools that are essentially ChatGPT with a different UI
- Vertical AI solutions that demo well but don’t integrate into real workflows
- Tools that generate impressive outputs but don’t fit into any sustainable use case
The key difference isn’t the impressiveness of the technology – it’s whether the product solves a persistent problem in a way that becomes habitual.
The Coming AI Winter?
I’m not predicting an AI winter – the technology is too fundamentally transformative for that. But I am predicting a coming reckoning for vibe-based businesses:
“We’re probably 18 months away before we start seeing a bunch of zombie companies.”
When these companies try to raise their next rounds with flattening or declining metrics, the conversations will be brutal. The employees who joined thinking their equity would be worth millions will be the real casualties.
Building Beyond the Vibe
For founders building AI companies right now, the imperative is clear: you need to get beyond the vibe.
This means:
- Focus on retention: Optimize for long-term usage, not just initial wow factor
- Solve real problems: Find persistent pain points, not just opportunities for cool demos
- Build community: Create defensibility through network effects and community
- Develop proprietary data: Your data moat may be more durable than your model moat
- Establish workflow integration: Become part of users’ muscle memory
The companies that will emerge from the coming shakeout won’t necessarily be the ones with the most impressive demos or the fastest initial growth. They’ll be the ones that focused relentlessly on building genuine utility that persists long after the initial novelty has worn off.
The Vibe Economy
Beyond startups, this pattern extends to what we might call the “vibe economy” – businesses built on temporary enthusiasm rather than sustainable value. We see it in:
- Memecoins that capture attention but can’t sustain communities
- Creator businesses built on algorithmic trends rather than genuine connection
- Business models dependent on continuous funding rather than unit economics
In each case, the pattern is the same: growth without retention, enthusiasm without habit, revenue without sustainability.
So where do we go from here
Vibe revenue isn’t fake revenue – the money is real. But it’s fundamentally different from the sustainable, growing revenue that builds enduring companies.
As the AI landscape matures, we’ll see a natural filtering process where companies built on vibes alone will struggle, while those built on genuine utility will thrive. For investors, the challenge is distinguishing between them before the retention curves tell the story. For founders, the challenge is building products that transcend the initial wow factor to become truly essential.
The companies that survive won’t just be the ones with the coolest video demos on X. They’ll be the ones that solve real problems in ways that become indispensable – long after the vibe has faded.
I'm more interested in those indispensable businesses.
Note: you can hire LCA, to design, brand and build your indispensable business here. We are the design firm for the AI age.
Or email my personal email if you're friends with me or DM me on X. We work with 12 clients per year.
I can't recommend LCA enough.
Greg's Bookmarks are brought to you by BoringAds.com
BoringAds.com is like having an army of AI agents and marketing ninjas on your side to build ad campaigns. Their AI is like a bloodhound, sniffing out the perfect audience and whipping up ads that convert like crazy. Then their human experts come in and sprinkle magic dust to take it to the next level.
Speak to them here.
|
#1
If you're confused if you want to be a designer, PM or engineer, you'll probably outperform this decade.
#2
Reminder, being alive is extremely cool and lucky.
#3
Beyond "vibe revenue" and "vibe coding", a new type of marketing, "vibe marketing" is emerging coined by the must-follow account BoringMarketer.
I think it's right. The future of marketing is giving agents outcomes ("i want 15% more leads") and having them do it for you. Humans in the loop. This is a tutorial of using AI generate viral youtube scripts here or the episode I did this week building a video game to generate buzz.
I also think the other end of the spectrum, highly curated, handmade, human made marketing will excel in the AI era too.
#4
I think this is the most clear and concise way that explains how to develop taste in a world where every product looks the same.
Thank you for reading Greg's Letter. I hope you it got your creative juices flowing. You can forward this email to a friend that might benefit.
You might also enjoy joining our paid membership Startup Empire to accelerate your ideas and business.
Until next week.
Be well,
© 2025 Late Checkout LLC
113 Cherry St #92768, Seattle, WA 98104-2205
Unsubscribe
