Friday, April 1, 2016

8 Reasons Online Dating Sites Are a Business Dead End

online-dating-sitesAspiring entrepreneurs often approach me as an angel investor, touting their innovative idea for yet another online dating site. I agree the need is out there, with over 91 million interested singles between the age of 19 and 45 around the world. Yet almost no one in this business makes any money, since it comes with a larger list of challenges than most other opportunities I see.

Thus, I encourage you to consider these challenges as reality checks for your own business idea -- dating or otherwise -- before spending all your time and someone else’s money in vain.

  1. The market is already oversaturated with competitors. According to statistics, there are more than 5,000 dating sites worldwide with 1,000 new ones appearing every year. If you check your market on Google and find numbers like these, I suggest you look for another opportunity where the number of competitors you can find is less than 10.

  2. This business suffers from the 'Facebook model' startup problem. Many business opportunities, like this one, need thousands or millions of existing users before new users and advertisers are interested to pay real money. Thus, the investment in time and money required before payback is huge. Facebook spent $150 million before positive cash flow.

  3. Barriers to entry are difficult to establish. For a new startup, the best way to assure survival is to file patents or other intellectual property to keep future competitors from copying your success. Dating is not a highly scientific process, and the first-mover advantage has already been taken. Think about this challenge for your best idea.

  4. Separation from existing major businesses is small. In reality, dating is a form of social networking, so Facebook could easily enhance their services in this direction, if the market traction of others was evident. Google or other search engines could add image-matching or other focus to capture this market. The best startups have real differentiation.

  5. Business area is fraught with misrepresentation. Online dating scams to get money or attention are a very common and growing problem, according to several articles on the Huffington Post. For starters, 40 percent of frequent site users are already married. If your new idea has that same potential for misuse, is it worth the risk to your reputation?

  6. The customer value proposition is difficult to quantify. Investors and customers alike want to see return that can be measured against the costs. Value propositions such as “easier to use” or “find better partners” rarely compete with terms like “half the cost” or “50-percent faster.” Make sure your new innovation has a quantifiable value proposition.

  7. Beware of high turnover and minimal loyalty situations. Loyal repeat customers who become locked in by a high cost of switching are the dream of every investor and smart business. Dating services lose customers quickly when they find a match -- or when they don’t find a match. Look for a business opportunity with low customer churn potential.

  8. Steer clear of business areas that are not squeaky clean. Dating sites are tagged as having historically high failure rates and a hint of business hustle, so they are avoided by professional investors. Others in this category would include online gambling, debt collection and work-at-home offerings. Your new opportunity should avoid these qualms.

Yet the online dating market, like every other one, has many new opportunities for those entrepreneurs willing to think further outside the box. Recent ones that I have noticed include DoggiesMatch for pet dating, OurTime for singles over 50 and SupernaturalDating for paranormal enthusiasts. Even though these all sound interesting, please don’t ask me to invest.

I always tell entrepreneurs that even if you are bootstrapping and not looking for investors, it’s still important to apply external investor thinking to your new venture. As founder, you are always the biggest investors and should apply the same reality checks. How well does your latest startup idea avoid the challenges outlined here? Your success and livelihood may well depend on it.

Marty Zwilling

*** First published on on 03/23/2016 ***



1 comment:

  1. Marty,

    I will forward this post to a friend who has a dating site for people interested in health and fitness.