☠️ 30%+ of startups fail due to lack of product-market fit. In this eBook, you'll learn how to avoid it. Only $10 for a limited time.
Robert was the co-founder of Cuddli, a dating app for geeks. The startup was based in the US but they had their development team in Croatia. Media features grew the app to 100k users but a combination of a small market and their inability to monetize the app forced the startup to shut down.
May 20, 2020
Sponsor Failory and get your business & product in front of +20,000 CEOs, startup founders, entrepreneurs, developers and marketers every month.
Do you want to grow your business? With GenM you can get free marketing from an apprentice as part of their training. The student will work 40 hours per month creating content, increasing SEO rankings, carrying out advertisement campaigns...
Want to take ownership over the growth of your business, but don't know where to start? Get 1-on-1 advice from vetted growth experts about your business.
Hire pre-vetted, remote talent and pay them while complying to local laws. Check how it works!
No more changing developers every time you start a new project. With our full range of development services, no project is too big, too complex, too mobile or too software for us to complete. We’re the only web-dev partner you’ll ever need.
A 5-minute read that's informative, witty and free? That's Morning Brew — the daily email that delivers the latest news from Wall Street to Silicon Valley.
I spent 13 years at Microsoft, working my way up from a technical writer to eventually running IT for, and reporting to the head of, Microsoft Research Asia while living and working in Beijing.
When it was time to leave Beijing, I decided to leave Microsoft and go for an international MBA in The Netherlands. For part of the program, I was an exchange student at INCAE in Costa Rica where I took a class in entrepreneurship and venture capital. During the course of that class, I got really excited about the possibility of leveraging my software skills into a startup, and the plans for Cuddli began to take shape. I worked on Cuddli with the team until the end of 2018. We were extreme bootstrappers and kept Cuddli alive through sheer force of will, but it never found a large enough market.
I currently work as a senior information security architect for the State of Washington. As it turns out, I learned a lot about security keeping users of our app safe. However, this was a limited time gig, it’s wrapping up, and the economy has apparently just collapsed amid a Coronavirus pandemic. I have my next role lined up after this (in theory), but ask me again in a few months whether it panned out or whether I’m even still alive. Also, if the airline industry ever becomes operational again (as I write this, global air traffic is heading toward a full ground stop), I help people book trips with their miles and points at my company AwardCat.
I wasn’t single when I moved to The Netherlands to start my MBA, but the relationship ended shortly after I relocated to Europe. I started using dating apps and the user experience was (and remains) incredibly frustrating. The basic business model of freemium dating apps (which is the vast majority of the market) is to introduce friction and charge users to remove it. This fundamentally puts the core interest of users (meeting people) at odds with the dating app’s business model.
I thought there was a better way to build a dating app and started from a business perspective on the problem (by the way, this sounds logical but was a fundamental error). What if a dating app, in its very design, had aligned interests with the users? That was the fundamental principle in starting Cuddli: it started with a business idea (which I still think is a good one) and worked backward from that into finding a market, rather than starting with a motivated group of users and finding a workable business model from there.
I also sought feedback from investors. They raised all sorts of (valid) problems with dating apps, such as the audience constantly changing, user churn (people had no reason to continue using an app after they met), etc. We solved for virtually all of these in the app design.
I went to visit my friend Steve in Croatia. We both grew up in the Seattle area but he fell in love with a Croatian girl and ended up moving there. We were talking about my relationship frustrations, the business idea, and the explosive growth of Tinder and we decided that we were going to build this thing.
Top-notch mobile app developers were affordable in Croatia, Steve is a developer himself and he could write the back end server code, and our mutual friend Pinguino joined as the third co-founder two weeks later (she’s an amazing designer and as it turns out, also the best boss I have ever worked for).
I started as CEO and later became COO, and took care of the business side of things.
Hire pre-vetted, background verified candidates who have experience working at top companies like Google, Amazon, TCS, IBM, Microsoft and the likes
We thought the app would sell itself. It was packed with amazing features that no other dating app had (there was no friction for users at all, every feature of the app was available for unpaid users), the design was incredible, and we threw a really great launch party in LA. We launched on Android first, since that had 90% of the mobile market at the time (everyone else was launching on iOS). We had, on a punch list, addressed every concern investors could possibly have about the sustainability of the business model. We honestly thought that the app was so well designed, so accessible, and removed so much friction that it would naturally take off. Our first indication that we’d made a really big mistake by launching on Android is when every single tech blogger and reporter who showed up at our launch party had an iPhone.
Little did we know at the time that it’s really hard to grow the audience for a dating app. Earned media is almost essential, and I really blew it by deciding to launch on Android. This was an absolutely critical error, and we’d have saved ourselves a lot of time and money by just shutting down then.
Most dating apps are segmentation plays, and there is only room for a couple of market leaders who can take advantage of a technology shift. Unfortunately, Grindr, Tinder, and Bumble had been first to market on mobile and had captured the vast majority of broad-based audiences. All that was really left were segmentation plays.
We also quickly discovered that we had almost nothing in common with mainstream audiences, so couldn’t create relatable marketing collateral for these audiences on our own. We’re all geeks, so what we did that eventually worked was to revert to our authentic selves. We tweaked the app to relate to geeks like us, and we started promoting the app in person to geek audiences at geek events like comic-cons and anime conferences. This truly resonated--we were a dating app by and for geeks. We started to get earned media coverage, became one of the top dating apps in Spain (for some reason, the app wasn’t in Spanish and we had never done any marketing there), and we literally created the category of geek dating apps, becoming the #1 app in the category.
People loved our app so much that they asked us how they could help. We responded by sending them “Ambassador Packs” with a Cuddli T-shirt, flyers and stickers which they could distribute at their favorite geek spots to help Cuddli grow. Yes, users loved our app so much that they were literally doing work for free to help us grow. I’d like to say that our marketing was deliberate brilliance but we literally just made things up as we went along and doubled down on everything we found that was working.
Unfortunately, it wasn’t a large enough category, which I’ll get to in the next section.
Most startups fail because of founder infighting, running out of venture capital, or a failure to find product-market fit. We built Cuddli ourselves, and never took outside investment. We all remain good friends and have worked on other projects together. And we had an excellent product-market fit: we were the #1 app in our category, with over 100,000 users and creating thousands of beautifully geeky “Cuddli couples.”
So why did we give up, after four long, hard years of building a category-leading app (and after I invested my entire life’s savings)? We simply had no path to profitability or to exit, and we were all out of personal runway. We knew that we needed to either sell or close the app.
Our core plan for monetization was clever, but incredibly difficult to execute because we were just too early. We integrated Foursquare into the app and built a date scheduler. Because we could prove that our users visited a physical location, we thought restaurants, bars, and other date spots would be excited to partner with us. The reception was lukewarm at best - these are businesses that operate on razor-thin margins so selling to them is tough, and getting paid is even tougher. If I had to do this over again, I’d partner with Airbnb and sell their experiences as date experiences (this wasn’t an option since Airbnb initially launched “Experiences” shortly before we shut down).
We also sold custom digital stickers in the app, along the lines of LINE. We spent weeks and thousands of dollars building the functionality to do so, and I think we only ever sold 3 of them.
In the end, when we were looking to sell the app itself, nobody wanted to buy it except for spammers who would do terrible, unethical things with it. We were strongly values-driven (to the point that our values were on our front page), and put our money where our mouths were, refusing to sell to anyone who wouldn’t uphold them. We ultimately closed the app.
My biggest mistakes were (a) building the app based on a business model rather than an audience, (b) making a strategic error on the launch platform that cost us extremely valuable earned media, and (c) being the wrong CEO for the company.
I already addressed (a) and (b) above, but being the wrong CEO for the company was very important learning. One thing that I think we did right is to build the company on a foundation of values and hold ourselves accountable to them. These were ours:
Following the values of communicating openly and honestly and solving problems, not creating them, we’d have very deep conversations. Bear in mind that Pinguino, Steve, and I have all known each other for over 15 years, and we were all good friends before we started Cuddli, so we were uniquely positioned to do this. But we were also all older, and I think this helped a lot--we were more mature.
There was a point in the company where it became obvious that my marketing initiatives were gaining limited traction, Pinguino’s user acquisition initiatives were gaining considerable traction, and the most important thing our company needed to do was get users, not do MBA stuff with business models. I stepped aside as CEO and moved into a supporting role as COO and chairman of the board. Pinguino stepped up as CEO, and the fact that she did kept the company alive for another two years.
We were extreme bootstrappers. To build the app and run it for 4 years, including all software development expenses, marketing expenses, hosting expenses, corporate filing (in two countries), etc. cost a bit less than $200,000. This is because we did all of the work ourselves, apart from coding the mobile apps (the server code was written by Steve, and in parallel, he worked with developers in Croatia who built the mobile apps based on Pinguino’s design).
But at what personal costs? I lived in a neighborhood so dangerous my neighbor was murdered. I was so poor that I qualified for Medicaid. I started to look at spaces under bridges and started seriously thinking “if I lived in a tent under there, I could extend my runway.” Pinguino’s relationship with her partner became strained from lack of income. Steve lived in a Soviet-era building where--I swear I’m not making this up--raw sewage was pouring from the ceiling during one visit. We all stretched ourselves to the limit--and then some--keeping the app afloat through sheer grit and determination if not outright lunacy.
The app never made money and we lost everything we invested.
It seems painfully obvious now, but there are two things that I will not do as an entrepreneur going forward.
I think the best people to learn from are other founders, at founder events. For example, WeAreLATech has an “experience club” where LA area founders can come together and enjoy an activity such as an escape room, but also have conversations with people who can uniquely relate.
Be sure to get to know founders at different stages, not only early-stage founders. Later stage founders “pay it forward” a lot and they can be invaluable sources of information; just bear in mind that they are busier than you.
Some of the least valuable sources of information are venture capitalists. They are sharks--they’re smart, but they also have sharp teeth. One huge mistake I made was listening too much to the opinions of VCs and not (at least initially) finding people who could be potential users and talking to them. VCs say they care about profitability and business models, but what they really care about is the market size and exponential growth. They want to hit as close to the bottom of a hockey stick in growth as possible. They write and talk about what they want to publicly signal they’re investing in, but a lot of their advice only sounds good with the benefit of hindsight. Also, VCs who would never really invest in your business will still kick the tires and poke all sorts of holes in it. Those holes may be both entirely valid and also not even close to the most important thing to focus on. Some will even give you advice that is borderline unethical.
Note that VCs who have invested in your company or who are personal friends are an entirely different breed. You’re part of their portfolio (or social circle) then, and your interests are (at least somewhat) aligned. An unaligned VC’s blog is an interesting data point but usually no more than that.
I think that many tech entrepreneurs “pooh-pooh” business resources in the community that are super valuable. I teach a class on startups and entrepreneurship at a local college, which is informed by the very real experiences we had. You may find a former founder teaching a similar class at your local community college. The SBA hosts workshops for prospective entrepreneurs. This is a great way to meet other founders who you won’t be competing with and may even collaborate with. It’s also very much worth going to pitch competitions (here’s our pitch deck, btw) to see what other startups are out there, and what investors are currently most interested in funding (this isn’t to say that you should chase trends, only to gather intelligence).
You should also give a read to my article: “Is your unicorn really a shark?”.
Invite us into your inbox and get immense learning and 80+ deals on tools to help you scale your startup (worth up to $50,000)!