- Smart Stack
- Posts
- The Vibe Revenue Trap: Why Your AI Startup's Growth Might Be a Mirage
The Vibe Revenue Trap: Why Your AI Startup's Growth Might Be a Mirage
The Dangerous Gap Between Early Traction and True Product-Market Fit
Arzoo Batra
08 Mar • Read Time: 4 minutes
In partnership with
Greg Isenberg recently posted something that struck a nerve across the startup world:
"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 essentially saying "thank you for articulating what we've been thinking." One message to Greg particularly stood out:
"You perfectly articulated what I've been thinking about for the past week – this 'vibe revenue' thing is so real."
What Is Vibe Revenue?
Vibe revenue isn't fake – the money is real. But it's fundamentally different from sustainable growth.
It's revenue driven by:
Curiosity ("Let me try this new AI thing")
Novelty ("This demo is mind-blowing")
FOMO ("Everyone's talking about it")
Not by solving a persistent problem in someone's workflow.
💡: Early traction in AI is often a measure of curiosity, not utility.
The Deceptive Growth Curve
The dangerous part? Vibe revenue perfectly mimics product-market fit... for about 3-6 months.
You see all the right signals:
Impressive growth charts
Enthusiastic user feedback
Strong conversion rates
VCs fighting to invest
But then comes the reality check. Users realize the product isn't actually changing their workflow, and usage plateaus or drops.
By then, founders have often raised millions at eye-watering valuations based on metrics that won't sustain.
The Defensibility Dilemma
Unlike previous tech waves where advantages could last years, AI moats fill in weekly.
We're watching users casually switch from ChatGPT ($20/month) to Claude or Gemini without a second thought. Brand loyalty is minimal. Switching costs are virtually zero.
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.
Writers, stop wasting your time!
How much time do you spend manually updating your portfolio? And how often is it still outdated?
With Authory, that’s a thing of the past. Authory creates a beautiful, self-updating portfolio that automatically pulls in your new articles as you publish them, no matter where.
And that’s not all: Authory also backs up all your published articles automatically, so you never have to worry about losing your work.
Join thousands of writers who already use Authory to impress potential clients and employers.
Spotting the Difference
How can you tell if a company has vibe revenue versus sustainable growth? Look at:
Retention beyond 3 months: Are users still active after the honeymoon phase?
Workflow integration: Has the product become essential to daily work?
Expansion metrics: Are accounts growing their usage over time?
Alternative resistance: How quickly do users switch to newer options?
The Coming Reckoning
We're likely 12-18 months away from seeing a wave of "zombie AI companies" – startups with millions in the bank but unable to raise again because their metrics have flatlined.
The employees who joined thinking their equity would be worth millions will be the real casualties.
Building Beyond the Vibe
For founders building in AI right now, the imperative is clear: get beyond the vibe.
Focus on:
Retention over acquisition
Solving persistent problems, not creating cool demos
Building network effects and community
Becoming part of users' muscle memory
The AI companies that will thrive won't 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.
Until next time...