As a VC, I saw it operate often in the Startup Ecosystem - companies succeeding through mostly, or almost entirely, the perception of what others thought.

When this process does happen it can be destructive - success can be decoupled from the underlying merits of the business.

Though this is dismaying, I comforted myself with the thesis that while this is bound to happen some of the time, most of the time more merit-based factors are the decisive ones. Or perhaps simply most of the money is made off of true value creation.

However, the longer I've been in the business, the more I'm forced to admit that even really strong ventures owe much, if not most of their value to this principle. Without everyone doubling down on the already-declared winner, their valuation would be a fraction of what it was. This is a pernicious thought as an investor or entrepreneur, since it demotivates you from thinking independently about how to create things people need, and rather on simply getting one step ahead of hive-mind-hype-machine, (good band name?)

How much of startup success is attributable to this sort of process? if it is a lot, is this as bad as I'm painting it? If so, what is the source, and what can be done?