Of course; a site that's just the staff commenting back and forth to each other is really a circlejerk, not a webapp. That's what killed inAsphere: it really wasn't all that interesting. Even after getting all sorts of publicity, we weren't retaining visitors. And our existing userbase (we folded cross-x.com into it) was leaving not bringing their friends in.

But there's a difference between a site that sucks no matter what you do and a site that could survive on its own if only it passed the initial attracting-users hurdle. Reddit's a good example of the latter: I checked it out about a week after it launched, and it was really quite boring. I came back a few months later, and it actually had a thriving community. If the Reddit founders hadn't stuck with it and just folded the site, they'd be out a few million dollars.