When I graduated with my MBA, I was armed with a ton of industry research and fresh ideas on how to approach the dating market with a new business model. And the need for a new business model was evident — as early as 2005, Paul Graham was writing about it. I came up with the name Cuddli, put together a phenomenal team to help build it, the foundation was an absolutely bulletproof business model, and we shipped a year later.
We started three years ago. We shipped two years ago (on Android, at least — we’re finally close to shipping iOS after being burned by an iOS developer who failed to deliver). We still haven’t taken over the world, and it turns out our business model isn’t so bulletproof after all. Now, don’t get me wrong. I still think there is need for disruption in the market. In fact, the original business model we sought to disrupt has been significantly challenged by new players in the intervening years. However, I paid far too much attention to the concerns of the investor community when designing our app and not nearly enough attention to our users — despite the fact that our #1 company value is “everything we do starts and ends with people.” In the end, it nearly killed us. Startups are hard.
As a founder, when you talk to investors, conversations largely consist of them scoping out your team and then trying to poke holes in what you’re doing. If you don’t have a good answer for the hole they poke, they’ll probably pass. But the part I didn’t know is that they’ll probably pass anyway, whether or not they can poke any holes. After attending a number of startup functions and talking to lots of investors, I was able to find out the gaps most investors see in the dating business. And to be completely fair to the investor community, the structural issues with the business they will quickly point out really are issues. They are problems that you will need to figure out how to work around. Eventually. However, many of these are not the most important problems to solve first. Sequence matters. And the fact that someone is having a conversation poking holes in what you’re doing doesn’t mean that they will ever in a million years write you a check. They might just enjoy the conversation as an intellectual exercise.
There is a priority stack in the problems you attack and problems investors are (often legitimately) concerned about may be low priority early on. This is certainly true in dating. As I pointed out in Ten Times Better, you need to focus first and foremost on the most important problem for your users. Those problems may be the same as the ones that concern investors, but the problems are just as likely to have little or nothing to do with investor concerns. The important thing is to do your homework. Talk to people who will use your app, do it in the right way (without asking leading questions) and make sure that you really are solving the most important problem.
I know what you’re thinking, though. As a practical matter, when you’re a founder, you’re trying to get funded. What you might not know is that it’s entirely legitimate to tell investors “I acknowledge that this is an issue, it’s not the most important one right now, and it’s on our roadmap.” I wish I’d known that. Instead, I sought to design a bulletproof business and in doing so I wasted 6 months of my team’s time and most of my life’s savings on building features that turned out to be absolutely fruitless. I’m going to walk through some of the stuff we built in response to investor concerns about the dating space. In the end, our users didn’t care, and it didn’t get us funded anyway.
People date for a limited period of time. This is the perennial problem in the dating app business. People meet someone in your app, and if all goes well, they then stop using your app. D’oh! From a business perspective this is a problem because if you only have users for a few months, you have a limited amount of time to make money from them. Most apps respond to this financial incentive to be bad at their jobs by … well, being bad at their jobs. They crappify the user experience to drag out the amount of time you’re dating.
We didn’t do that. We instead had a brilliant, bulletproof solution. We built a “couples mode” that allowed people to keep using the app to communicate after they were already part of a couple. How bulletproof is it? In 3 years, our test accounts and my parents have used that feature.
Users don’t pay. While most dating apps make money by selling premium memberships and features, the vast majority of users don’t actually pay for these features. Most dating apps load themselves up with ads and use a “freemium” model. So far, this has been the most financially successful approach. Unfortunately, it puts dating apps at odds with their users; the whole business model involves creating friction that users pay to remove.
However, I thought (and still believe) that there had to be a better way — there’s a whole part of the value chain that is missing in dating apps and that’s the actual dating part. So we built a really cool feature set that lets you find places to go on dates (powered by Foursquare), schedule them — it’s so slick it even automatically adds the date to both calendars (and allows time updates, lets you notify the other person you’ll be late — the list goes on, we really went overboard with this). It’s ready for building a business of selling date experiences, which would be super cool. Literally nobody does that. We figured we’d initially partner with the likes of Groupon or LivingSocial, building out a marketplace ourselves later (I knew nothing then about just how hard it is to sell to restaurants and bars, the places where the majority of people go on dates). The only problem, apart from the difficulty in monetization? Users don’t actually expect these features in a dating app, and don’t really care about them very much. In Cuddli, hardly anyone uses them. There’s a “wow factor” when we demo it but it doesn’t translate to usage. Bulletproof? Not so much.
Chicken and egg. Seeding the userbase to attain critical mass for growth is the one investor concern that was both completely legitimate and super important to be at the top of the priority stack. However, it isn’t the one that we prioritized appropriately or early enough, and we didn’t preserve nearly enough capital to successfully accomplish this. Actually, growing a userbase is the #1 problem every social app has: you need to find a way to get traction. And the reality is, you’re not going to have a good answer before you start doing it, because heaven only knows what will work for whatever you built. There is no one right way to do things. You have to try a bunch of stuff before you find a formula that works, and most of the formulaic and questionably ethical stuff that accelerators and investors will urge you to do both doesn’t work and just pisses off your users.
For our part, we still struggle with this. It’s really, really hard to build a community in a new dating app. Like any social app, you need to attract enough users to get critical mass so the thing starts to grow on its own. However, you need to continually keep doing this because people find a match and drop out of the app. It only really works when you become a household name and everyone thinks of your app when they think of dating in the segment where you play (and almost all dating apps are segmentation plays, another problem investors will appropriately bring up, which is market size). Through literally years of sustained promotional effort and thousands of dollars invested, we have managed to hold our own in the Los Angeles and Seattle markets, along with — completely randomly — Spain (where we have never been and have never done any promotion, Spanish people just love Cuddli for some reason even though it’s not even translated into Spanish). The whole rest of the world opens up the app and sees people 600 miles away. I’m exaggerating a little but not much. It’s really very expensive to launch a new social app and you pretty much never stop launching because you need to attract new users constantly. We now know what works for Cuddli, but it means going to every geek conference in the world, setting up a booth, dressing up like bunnies and making an ass of ourselves on twitch.tv, running events etc. For each of these activities we’ll get a few thousand users, and we need to do that again and again and again in every given market.
Bulletproof? Not hardly. There is literally no bulletproof business model for attracting users in the entire industry. There is no solution short of being in the right place at the right time with the right amount of publicity and a massive amount of luck. I’m convinced Tinder is where it is because of the Sochi Olympics. Olympians hooking up on Tinder was the top story of Sochi. It could just as easily have been Badoo and we’d all be talking about the Badoo Banging of Sochi instead.
So, what happened? Despite all my efforts to build a “bulletproof” business model for Cuddli, thoroughly answering the concerns of people who asked a lot of questions and didn’t write any checks, we didn’t initially focus on the most important thing: user acquisition. This is what would have solved the most important problem for our users. The app (predictably) fell flat, our business model fell even flatter, and the team — well, although it had every right to fall apart, we stuck together. My cofounder moved to a cheaper apartment in Zagreb, Croatia. I ate Costco free samples for lunch and frozen pizza for dinner, driving my LDL cholesterol level to 175 (by the way, don’t do that, I have traded 3 years of bootstrapping for a ~7 year shortened life expectancy).
These days we’ve carved out a niche. We’re the #1 geek dating app in the world. I’d like to say we have a massive user base, but we don’t. I’d like to say we’re growing rapidly, but we’re not — we’re growing steadily in the markets we’ve won, but we don’t have any capital to win new ones. We’re still figuring out how we can grow with no money in the bank and only some of our time (after 3 years, we have no savings left to burn through), but that’s where we are. If we fail, it will be because we starved to death, not for lack of trying. A supposedly “bulletproof” business model didn’t help us. It will not help you. When investors raise concerns, smile and nod and stay laser focused on your most important problems. And if you don’t know exactly what your most important problems are, then you shouldn’t be building anything — not yet.
The very best investors know what I didn’t: No business model in the history of ever is totally bulletproof. If you think it is, you’re probably missing something. Early stage investors are betting on a combination of the business you’re in, the team you have, and their faith in your ability to execute. Most of them won’t touch dating — at all. But if you’re talking to someone who is mostly focused on poking holes in your business model rather than talking about your team and how you plan to grow, they’re probably not ever going to write a check anyway. And for the sake of all things holy, if you have to take outside capital, focus on finding the very best investors. Ones who have invested in your industry. These are the folks who will understand the most important priorities and will be able to help you achieve success.
