There’s a saying in startups, “For every ten startups you see, 11 will fail.” After 24+ months of work, this was a difficult reality to face but the right one.
After recently announcing the shutdown of Cream to our community recently, the real failure would be seeing commercial success as the only validator. We shot for the stars, didn’t even quite get the moon, but the journey provided more value and growth than (m)any alternate pathways could have.
In this post, I summarise seven key lessons learned about founding a startup:
- Make sure there’s a market and it’s big enough
- Growth Loops are incredibly valuable
- Kill your babies
- Chase big(ger) opportunities
- Speed is critical (duh, but still)
- Have technical skills on the founding team
- Have fewer barriers to customers
I’ve also written a post-mortem of what happened at Cream and why we decided to stop. Read that here.
If there’s anything here you’d like to talk about, I really welcome it. Get in touch this way. Let’s get to it.
Make sure there’s a market and it’s big enough
There are many great ideas out there, many of which will generate revenue and become a business, but many that won’t and will remain just a great idea.
“A business makes money — anything else is a hobby.”
The lack of a market is a leading reason why most startups fail. You can have an incredible idea and team to execute on the problem, but without a market that will pay for it, it will fail. And not just a market, but one that is big enough.
Cream was up against it from the beginning with a product that users (diners) wouldn’t pay for (and so requiring scale to sell their attention to others) and one without enough customers (venues) to create an exciting business quickly.
There were roughly 9M Australians in our target audience and not many have a restaurant discovery app on their phone. Zomato Australia, the leading restaurant discovery mobile app in Australia with a similar audience, only had 2M users across Melbourne & Sydney (24%) and that was for both a mobile and web product. Moreover, these 9M were potential users — not customers.
Users use your product, customers pay for it.
Capturing 10% of the market (900,000 users) in 3–4 years in our projections seemed exciting but unless they were helping to generate revenue quickly enough to keep you alive, numbers like these are misleading, a red herring. If we had that in 12 months, maybe.
On the customer front, there are only 50,000 restaurants, bars, and cafes in Australia (expected to be cut to 35,000 post-COVID-19). Using pre-COVID-19 figures, capturing 10% of this market (5,000 venues paying for our product) meant we needed to generate $1,666.67 in MRR (Monthly Recurring Revenue) from each restaurant to be an exciting and worthwhile opportunity ($100M+). Despite knowing this, we forged ahead. This figure is not required straight off the bat, but we had to be twice as successful (capturing 20%) across twice the number of revenue models (two) to achieve half of that — $50M. More on why that matters below.
Focus on customers and know the size of the opportunity from the outset. If capturing 10% of a market with one revenue model will generate $100M+, keep digging. Anything less will be more difficult in the scheme of things.
Growth Loops, and the whole team knowing how you grow, are both incredibly valuable
Growth loops are closed systems where the inputs, through some process, generate more of an output that can be reinvested in the input. There are growth loops that serve different value creation, including new users, returning users, defensibility, or efficiency.
Growth loops are an evolution of funnels and describe how the fastest products grow. Learning from Brian Balfour’s Reforge program, I designed growth loops for both sides of Cream’s market — diners and chefs — into our product so that growth was a system, and so everyone on the team knew how we grew and what to focus on.
“Compound interest is man’s greatest invention.” — Einstein
Growth loops provide sustainable compounding growth that can become exponential over a shorter time horizon. They make your product more defensible by combining how your product, channel, and monetization model work together in a single system rather than treating them as silos, which makes them harder for others to replicate, too.
Importantly, you approach growth differently because you now think of your whole business as an interconnected system. You stop thinking of numerous strategies and tasks and channels just to fill the top of your funnel and instead think about what tasks create a system that drives self-sustaining growth over the long term.
And if the whole team knows exactly how you grow, you might just actually do it.
Approach growth as a system embedded into every part of your product that everyone is responsible for, not just as a feature or tactic you hire someone to do. Design & build with growth loops in mind to achieve self-sustaining growth.
Kill your babies
I learned this term in advertising and it’s really important. It means not holding onto your vision for the product so tightly that you miss opportunities to solve the problem that customer feedback and data uncover.
Founders often hold on to their solution too tightly and too loosely to the problem.
They have a vision in their mind and the path of least resistance, mentally, after receiving feedback is to keep going down that path despite what signs you may see. I think ego is heavily attached to this; “Surely this has got to work, it just needs more time.”
The ‘pivot or persevere’ question often appears where you choose to keep forging ahead through this rough time, you know, “It’s always darkest before the dawn”, or change tack and follow the believable feedback. It’s really difficult to make this decision, especially when the change would be substantial.
I was guilty of this at different times throughout Cream. We/I had a vision and wanted to see it through, which produced times when we/I disregarded feedback. It’s difficult to know what to and what not to listen to, especially if you’re not really listening.
Ray Dalios ‘believability-weighted decision making’ is a strong path forward.
“The best decisions are made by an idea meritocracy with believability-weighted decision making in which the most capable people work through disagreements with other capable people who have thought independently about what is true and what to do about it.
The most believable opinions are those of people who 1) Have repeatedly and successfully accomplished the thing in question, and 2) Have demonstrated that they can logically explain the cause-eﬀect relationships behind their conclusions. When believability weighting is done correctly and consistently, it is the fairest and the most eﬀective decision-making system. It not only produces the best outcomes but also preserves alignment, since even people who disagree with the decision will be able to get behind it. — Ray Dalio, Principles.
Data and stats help with point 2. They make choices more simple and when we began to do this, outcomes improved and I’m now less emotional and more rational about my work.
Don’t hold onto the solution, hold onto the problem, and use believability-weighted decisions on your product instead of gut feel.
Chase big opportunities
Venture Capital (VC) is a tool designed not to help you discover product-market fit, but to help companies with huge markets grow, fast.
Restaurant discovery isn’t one of those, unfortunately.
In Cream’s case, getting VC (if that’s your goal, which it definitely doesn’t need to be) with our original revenue model was unlikely as we needed multiple revenue models, each achieving 10–15% market share to (almost) reach the $100M+ qualifier for their time. A good product, but not a good business.
Pre-COVID-19, there were only 50,000 restaurants & cafes in Australia and post-COVID-19 they’re expecting there to be just 35,000 — a 15% contraction in market size. Using CreamChat as an example, assuming we captured 10% (as a rule of thumb) of the market over 3–4 years at our existing price of $199/month made it an $8.3M/yr opportunity — $91.7M short of the $100M market to qualify for a brief second look by a venture capitalist.
A good friend’s quote that rings in my ears:
“When you pitch a hospitality startup to VC’s, all they hear is zeros falling off the cheque.”
You don’t have to prove you could create a $100M+ company; $8.3M a year is a great, ambitious pursuit, and $100M is tougher in a landscape like Australia. $8.3M is a lot of money and generating extreme wealth isn’t the only way to justify the way you decide to spend your time. Just be aware of the path you’re taking and that it probably won’t have investment from venture capitalists on it.
Companies capable of achieving $100M+ are usually solving bigger problems with bigger opportunities that many are going after so you need speed. These attract the biggest and most successful VCs, which attracts bigger cheque sizes and a more attractive, sexier story, which attracts & affords the best talent, and talent is the frontier and often the performance-defining component in technology.
So, creating a tech company that can’t display a clear path to $100M+ means you most likely won’t attract the best talent to solve your problem in the best and fastest way, and you’re probably not solving a big enough problem. Compound this with the daily unicorn pitches VCs receive and it becomes more understandable that your product is most likely not worth their time.
There are many more pathways than VC to create a successful company and happy life in technology. Be clear on the opportunity and the problem you’re solving and realise that if it’s not large then your journey, whilst still definitely worthwhile, will be slower and longer as you and your team solely eek your way forward, living off very little throughout.
Know the path you’re on by getting clarity on the size of the opportunity. Only the biggest opportunities act as a magnet. Restaurant discovery isn’t a big enough opportunity for VC in Australia right now.
Speed is critical
Focusing on solving one, acute problem for a specific customer and testing it quickly to evaluate is critical. Tech is expensive, but not as expensive as your time.
Done is better than perfect.
Write down your spec, time-box it, then cut it, then cut it again, then bring customers in on the journey as early as possible to measure and learn and build again. It’s your job as a founder to build as little as possible to get proof with customers regarding your assumptions.
Whilst we improved significantly, Cream spent far too much time and money to launch a product. Our time to market was eight months and this lack of quick execution combined with a product-led team with high expectations brought with it numerous other problems, namely feature creep.
Feature creep is when features are excessively added to a project that makes it too complicated or difficult to use. Additional features add to the complexity of your design, can diminish the usability of your product, but dangerously, they push out your launch date.
Our first product had unnecessary features we thought it needed when we should have started with a bare minimum generated from customer feedback. As much as we liked to think we were agile, we had half-slid into ‘waterfall’ territory; the team only moves to the next phase of development or testing or launch once the previous step is completed successfully.
Once we employed OKRs in January 2020 and worked to instill a “done is better than perfect” mindset, our execution speed improved significantly and we made staggeringly better progress but the damage was already done; our runway was much shorter from spending capital on features we didn’t need and taking too long to execute fatigued the team.
We stretched our capital so much further than I could have ever imagined (we were really good at that) and I’m proud of the product we built with the money available, but it’s not how to be successful.
Test and learn quickly, ideally one element at a time. And if you’re not testing your hypothesis with customers within three months, you’ve probably taken too long.
Have technical skills on the founding team
Not being able to build the vision in my mind myself was really painful and handicapped our possibility of success.
Founders don’t need to have the skills of a full-time software engineer, but building MVPs (Minimum Viable Products) that let you test quickly and take you from 0 to 1 whilst understanding the possibilities & limitations of technology is a necessity of any modern founder I now believe.
We never had an engineer on the founding team in a full-time capacity and this hurt; we couldn’t move quickly, building cost a lot of time and money as we were outsourcing to a dev shop, and we didn’t have a proactive technical mind on the team. This is a core lesson.
A core ingredient of a founder’s makeup is proactivity with the problem.
If your co-founder is technical, you have a proactive member solving from a technical standpoint and driving progress from the heart of the business and product. They’re always on, thinking about your product and solving problems before they become one.
Dev shops, like any talent-for-hire setup, are only reactive to requests from the team (why would they do extra work outside of scope that they don’t know is required?) and your work slides up and down their priority list in correlation to how much revenue you generate for them.
This is the typical agency model and it makes sense. It’s so exciting when they come on board and make your dream a reality, but you learn the significant difference in outcomes.
Dev shops are incredibly useful, just know the path you’re on.
I believe the partnership can be great for scale-ups or established businesses, but very difficult for startups.
Their usual model is to do your first project at a competitive rate then sit you on a monthly retainer of maintenance + any new work, scaling with demand. This is a strong model for scale-ups and established businesses who are generating solid MRR (Monthly Recurring Revenue) and need technical talent without the hassle of recruitment, training, employee contracts etc, but not for startups (or the dev shops IMO):
- It is expensive (typically $100-$200/hr) and you have limited capital.
- There’s always more work, bugs, updates to be done that you can’t scope for.
- The amount of work you need each month is not typical so pricing is difficult and creates tension on both sides. Throttling mechanisms around pricing can help but also can’t.
- It’s a reactive relationship rather than proactive.
- The startup always wants more than what they can afford, and
- The dev shop, regardless of how amazing they are, will always have high (sometimes unattainable) expectations placed on its head.
Across our journey, I used three different dev shops with varying levels of success. The last dev shop we worked with was fantastic and I’ve no question they delivered a better quality product than what most people could have. They were very well-skilled and went above-and-beyond what they needed to do (to their financial detriment) to get our product to where it was —at moments it felt like the three of them were on our core team (if you need a dev shop, I can highly recommend). They are still good friends to this day as a result of great communication, honesty and good intentions, but the misalignment of priorities meant we couldn’t progress after the initial build stage.
In July 2020, I began the no-code journey and in Feb 2021, finally enrolled in a full-stack boot camp to solve for this whilst also improving my skills as a Product Manager. To potentially be a technical founder one day makes me laugh.
Have technical skills in-house, period.
Have fewer barriers to customers
Getting someone to download an app to their phone is more difficult than we anticipated. It requires a significant amount of trust for someone to grant you the luxury of being one of the few apps getting a spot on their phone screen.
There are numerous steps a potential user of a mobile app must follow in order to even land on your home screen, with each one hurting acquisition and activation. For example, to get to a mobile app’s home screen, a user must:
- See your ad
- Be convinced enough to click your ad
- Visit your website (or app store listing if you think you’ve enough social proof to convert them)
- Be convinced by the brand and positioning enough to press the App Store or Google Play Store button.
- Land on the App Store or Google Play store, be convinced by the positive reviews, images, and positioning again, not get distracted by similar apps, and press ‘Get’ or ‘Download’.
- Press ‘Open’ in the App Store or Google Play Store. Don’t forget: many people download an app then leave the download screen before it’s done and sometimes never even open the app.
- Land on the first screen and scan the myriad of sign up options without getting fatigued by this whole process and this screen, then press ‘Sign Up/Create a Profile’.
- Go through your onboarding screens, most of which they’ll skip.
- Land on your home screen, most likely full of overwhelming app tips on how to use it.
Compare this to a web app or site:
- See your ad
- Be convinced by your ad enough to click on it
- Land on your home page and experience your value, usually a lite version of your product that delivers your core value but with limited feature options in a bid to convert them.
Much faster. The lure of mobile apps’ substantially better retention when compared to web apps is foolish— you’ve got to get them there first.
Don’t start with a mobile app — start with the fastest path to a customer.
Thanks for reading
I could keep writing, I’ve learned so much from this journey, but…
Done is better than perfect.
“Success is going from failure to failure without loss of enthusiasm.”
I feel wiser from the experience realising how little I know and how much there is to learn but incredibly energised for the next challenge.
I’m actively looking for new opportunities that leverage and improve the product management, growth, strategy, brand marketing, and UX skills. See this and other work on my site I’m constantly tinkering with.
Outside of this, I’m following a “river of inquiry”, a term coined by Blackbird and Samantha Wong, in virtual healthcare:
Since July 2020 and with my sister, Dr. Lucy Nijam, I began Joey Health: a virtual healthcare project. Going to the GP is inconvenient, costs too much, and our healthcare system can’t scale quality. So we’ve redesigned the GP consult to deliver 75% of it with software so you can access a GP from anywhere and over time, reduce the cost of a GP consult by up to 70% by using technology instead. Chat to me if you’d like to hear more.
Any questions or feedback, I really welcome them. Reach me on Twitter or at thomas dot nijam at gmail dot com.
I’ve learned more from this experience than any other in my life.
I want to deeply thank those who helped me throughout Cream’s journey. There are too many and I look forward to paying it back in spades in the future across your projects and my own.
The 150+ chefs & restaurateurs who helped and supported us from the beginning. Definitely not confined to and in no particular order: Nick Kutcher, Jesse Gerner, Karen Batson, Matt Lane, Michael Bascetta, Casey Wall, Manu Potoi, Shannon Martinez, Alex Ghaddab, Nic Coulter, Lisa van Haandel, John van Haandel, Kelly O’Loghlen, Jason Lui, Dave Mack, Iain Ling.
Sanjay De Silva for being an exceptional co-founder since hatching the idea in 2015 over a coffee in Trunk Diner with Barun Chatterjee and I, and an even better friend since we were 13yrs old in country Victoria.
Barun Chatterjee for being a great co-founder with forever-timely counsel, skill, and wit.
Liv van Haandel for her excellent, contagious co-founding energy and for being the best product evangelist I can think of.
Darcy Tuppen and Tessa Mansfield-Hung for being the best crew members we ever had, and then some.
Josh Nijam for his unflinching guidance, Dr. Lucy Nijam for her unending support, and Mum & Dad for their unwavering confidence in me.
My close friends for listening, for sharing, for letting me interview them, for being early users, and for the positivity.
Loris Campanile, Matt Hayward, and Callan Delbridge for engineering our dreams into reality and being great people throughout the ups and downs.
Stephan Brown for his infectious, proactive engineering mind, friendship, and ongoing work on our next product.
Derek Blank for his technical work, guidance, support, and walks around Albert Park Lake.
Special thanks to Adam Schwab, Simon Holland, Jane Newton, Rod Hamilton, Megan Flamer, Rohan Workman, Maxine Lee, Marc Hammond, Luke McInnes, Erika Geraerts, Sam Chapman, Susie Robinson, Jodie Crocker, Leanne Clancey, Rebecca Bellan, Hugh Stephens, Josh Brown, Michael Boyd, Amy Whitfield, Saxon Quinn, Tim Williamson, Ed Morgan, Will Egan, Brendan Wilde, Ashish Kumar, Christopher Doyle for your help, your support, and for your ears.
The RMIT Activator community especially Paz Pisarski, Julie Stevens, Adam Seedsman, Sukanya Banerjee, and Matt Salier for their undying support and provision of both a space to call home and opportunities to take.
Thanks for reading.