What Went Wrong At Cookups: 4 Practical Lessons In Building Startups In Bangladesh
“After more than three years of operations, the Dhaka-based on-demand home-made food delivery company Cookups is shutting down its app and food delivery business today. The company announced in a Facebook post that it would be ceasing all operations for the Cookups app and food delivery service on Sunday, August 18, 2019. The company is ending operations immediately after it failed to raise sufficient funding to continue its operation.”
However, Cookups Rannagor will continue to operate and users could order through using other food delivery apps such as Uber Eats.
Cookups was founded in 2016 as a Facebook group for homemade food. The aim was to connect diners with the home cooks and create economic opportunities for women and supply homemade healthy food to diners.
The company started off well. The Facebook group grew quickly. It launched a monthly subscription plan for sellers where they pay a monthly fee to Cookups to be on the marketplace and sell their food.
The company then evolved into an independent marketplace for homemade food outside of Facebook. It transitioned from a Facebook group to web and app in 2018. Its Facebook group continues to be a major platform, but the company shifted its focus to the app.
As I mentioned earlier, initially, Cookups had a subscription model for cooks. To become a member and sell food on Cookups Pilot, sellers had to pay a monthly subscription fee. The company changed the revenue model when it transitioned from Facebook Group to web and app and like any other marketplace, it introduced a commission-based model.
Cookups officially transitioned to web and app in June 2018. The changes took a toll on its steady growth. Naturally, when you are in the middle of a transition, which is fundamentally about your business, it is hard to equally maintain the numbers. The company tried expansion. It launched a health food vertical called Cookups Fit. It launched a grocery vertical called Growups. It tried catering as well with CookupsX.
The company raised small rounds of seed investment. But it failed to raise further investment to fund its growth and announced the shut down of operation of its app and food delivery business except for its Cookups Rannagor, which is more of a cloud kitchen type operation.
One important lesson from Cookups is that while it is important to evolve as a company, you still could fall short after doing all the right things. Cookups has shown significant resilience as a company. It successfully transitioned from a Facebook group to a full-fledged independent marketplace. It tried many things but in the end, it failed to figure out a path to sustainable operation.
Startups are fragile things. It is not only hard to build sustainable companies, but it is also equally hard to figure out what works and what does not. This is true for every startup. Luck plays a greater role in startup success than anything else. This is the case with Cookups.
Over the past years, at Future Startup, we have extensively covered Cookups and its business. I interviewed the founders of Cookups on multiple occasions. Here are some lessons that I think you could take from Cookups journey and use in your own startups.
1) Raising money in Bangladesh is tough
This is the truth for most startups in Dhaka. It is tough to raise money. Cookups decided to shut down app and food delivery operation because they could not raise sufficient funding to continue operation. The company stated the failure to raise money as the chief reason for discontinuing operations.
Now, this is a real challenge for most startups in Dhaka. Dhaka’s funding environment is difficult for most founders. There is no local VC ecosystem yet. Only BD Venture made some meaningful investments in the last few years. Other local VCs are literally waiting it out. Good thing is that we now have a relatively better angel and seed-stage investment ecosystem. A growing number of HNI are taking interest and investing in startups. But the ticket sizes are mostly small. Beyond angel and seed, growth-stage funding is rare and difficult. But for a thriving tech startup ecosystem, we need an equally thriving funding ecosystem.
That being said, funding is equally hard in markets like the US. According to research conducted by the Kauffman Foundation, in the US, as little as 0.5% of entrepreneurs obtain capital from venture capitalists.
There are two lessons to learn from Cookups experience.
One, it is hard to raise money anywhere in the world. It is super hard to raise money in Bangladesh. If you want to raise investment, start early and try everything that you could.
Second, the best approach to building a startup would be if you could think of a way to build your company without taking any external funding.
Startups in Dhaka should prioritize building sustainable operations, getting to traction quickly and ensure that they earn enough to survive for a period of time. In fact, once you have a solid business, raising investment should be a more bearable challenge.
2) Product-market fit
While Cookups, a marketplace for home-made food, is an excellent idea on paper, it is not so much in reality.
There are several signs of product-market fit. The most sure-fire one is that you have a set of customers who are willing to pay for your products. Once you have a set of paying customers it does several things for you. First, it helps you earn money and extend the runway for your startup. Second, it increases your chance of survival. And third, it increases your chance of raising money when you so need. Fourth, you could grow consistently from recommendations.
Unfortunately, most founders don’t pay enough attention to finding product-market fit. And it is a costly mistake.
“Over 80% of the startups that approach me for funding stumble at the same hurdle: traction. The majority of these founders are in the early stages of developing their idea and think they need funding.
They need to find their first set of customers who will use or pay for their product.
This does three key things for first-time founders. Firstly, it builds their confidence and self-esteem, knowing they have landed on a solution that customers actually want. Secondly, it builds an income that extends their runway so that there is less reliance on external capital. Finally, customer-funded businesses remind founders to keep paying attention to customers’ unmet needs and focus on what they can do for them, rather than investors.
First-time founders need to ruthlessly prioritize — it could prove pivotal to the survival of their startup.”
When a company has the product-market fit, traction is easy. Growth is inexpensive. Raising money is not a challenge.
Cookups struggled to find traction after its transition from a Facebook group to an independent platform. From Cookups shutdown story:
“When we first covered Cookups in 2017, it had about 100 cooks/merchants on its platform, which was a Facebook group, 16,000 members and were serving around 1500 orders a month. The latest we covered the company in 2018.
At the time, it evolved into an on-demand home-made food delivery company. It launched web and app. It claimed that it had thousands of daily active users, expanded to groceries, health food and catering. The company was trying to position itself as an ecosystem of products and services around safe food. While it was trying several new things, it was struggling to grow its daily order numbers.
Cookups was an interesting startup. It started as a Facebook group and successfully made the transition to an independent platform with its own app and website. While it has evolved as a product, it largely failed to find a product-market fit, build a scalable business model and generate enough traction to sustain its business.
On-demand homemade food delivery sounds like a sexy idea but in reality, it is a tough business to execute for various reasons.
First, home cooks are not professionals. As a result, maintaining consistency with quality and service as well as with supply is an uphill battle. This hurts the growth aka demand.
Second, many home cooks are reluctant to share a cut from their revenue regardless of the support they receive.
With the number of professional home cooks who are consistent and willing to share a commission, it is hard to scale a business.
All these challenges make it pretty challenging to build a venture-funded business in homemade food delivery space.
That’s what happened with Cookups.
These realities exacerbated Cookups operational challenges.
The company failed to find a product-market fit where it could routinely grow without investing much into discounts and all the other things for growth.”
For the most part of Cookups existence, Cookups numbers were not that promising. While it had managed to build a small loyal user base, it mostly failed to scale that base up. Instead of fixing its fundamental business model and product-market fit challenge, it tried to expand into other verticals such as health food, grocery and so on making the situation even more precarious for it.
Focus is a mistake many early-stage companies make. It mostly arises from a lack of product-market fit. When a company fails to get expected traction, founders and teams often try various things. And that is when they make serious mistakes. Instead of trying to fix the product problem and build a product that people want, they try to find easy fix such as expansion to adjunct verticals, launching new products, introducing new things and so on. This takes away focus from the fundamental product problem, increases burns and eventually shortens the runway of a company.
Cookups started off pretty well. When I first interviewed the company in 2017, it had over 100 paying home cooks who used to pay a monthly subscription fee to be able to sell on Cookups Facebook group.
When Cookups transitioned from Facebook to web and app, it changed the model to a commission-based one. With commission-based model came new challenges. Now sellers only pay you when there are sales since the commission is tied to sales. This crippled Cookups revenue generation effort because after transitioning to an independent marketplace outside of Facebook in June 2018, Cookups struggled to grow its number in the early days, which is a very normal thing to happen.
The mistake Cookups made, however, is that instead of addressing the traction issue head-on and trying to improve its daily order numbers, it expanded to other verticals such as grocery, catering, and health food significantly rising its expenses whereas its revenue was not showing any promising growth.
This is a common strategy among startups in the advanced markets where raising money is relatively easy because investors often invest in future opportunities and your addressable market size is often indicative of your potential opportunity.
Cookups played that card well. Its expansion into multiple verticals around safe food was aimed at putting a value proposition that is lucrative to potential investors. However, the funding scenario is quite different in Bangladesh. As a result, Cookups could not manage to raise further investment while it had invested quite a bit in expanding into different verticals instead of growing its number.
Had Cookups focused on one thing, which is the product and growing its number, it could have ended up in a better position today.
Over the past two years, competition has significantly grown in the food-tech space in Dhaka. Companies like Foodpanda, Pathao, Shohoz, HungryNaki and now Uber Eats are investing heavily in the market.
According to several insiders, it has become a discount-driven market where growth is heavily tied to discounts and offers. A significant percentage of users orders for discounts. Without equally deep pockets, it is a tall order to compete in this market. Since raising money is difficult, it was a challenging task for Cookups to fight the onslaught from multiple food delivery players who are spending heavily for market dominance.
The failure on the part of Cookups, however, is that it had failed to build any competitive moat around its business. The company offered home-made healthy food, which is markedly different from the value propositions of other competitors, but it failed to scale beyond a small loyal customer base, who would stick to it regardless of discounts in the market for its value proposition.
Startups die all the time. There is nothing new to it. For Cookups, this is far from the end. The company says its restaurant/cloud kitchen type operation of Cookups Rannagor would continue to operate and people could order food through other food delivery apps such as Uber Eats and Shohoz. It could even be possible for Cookups to come back later with more perspective and a better strategy.
The lessons Cookups story offer are valuable ones. Most companies take product-market fit for granted and try to compensate it with promotion and expansion and trying various unnecessary things. The wise thing to do when facing such a situation is often the easiest – go back to basics. Fix your product.
Ruhul Kader is the Co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at [email protected]