[dmerrick]

Back in 2010 I worked at a startup that ended up pivoting to a regional Groupon clone. It seemed like a good idea at the time, but the company ended up going under a year later.

What I remember most vividly was trying to come up with a good name. LivingSocial was starting to get traction and we wanted to differentiate ourselves from them. The conversation went like:

    Boss: What's the opposite of LivingSocial?
    Me: I dunno, DyingAlone?

[downandout]

I'm curious how you could possibly lose money in a business like this. Sure there is a sales cost, but there are alternatives to having a full-time sales force. I'd have tracked every company that has used Groupon/LivingSocial and figured out a way to electronically contact or advertise to as many of them as possible for very little cost (LinkedIn/Facebook enable advertising to employees at specific companies, for example).

[twblalock]

Dealing with small businesses is a total pain. Dealing with thousands of them is a major challenge for any business.

Many small businesses don't adhere to professional norms of communication, negotiation, payment, etc -- that's not a big surprise, considering that many of them are owned by people without a lot of background in big business. The amount of time put into each deal is very high compared to the money you can get out of it.

This is why enterprise sales are so much easier than small business sales. You can make millions dealing with a small handful of enterprise companies, or you can try to make the same amount of money by dealing with hundreds or thousands of small businesses.

[ThrustVectoring]

>You can make millions dealing with a small handful of enterprise companies, or you can try to make the same amount of money by dealing with hundreds or thousands of small businesses.

This is burying the lede, IMO. Your sales structure should either be set up to catch shrimp or whales. You can have a product that sells itself and provide it cheaply - say, a smartphone app that summons a car to get you where you want to be. Or you can have a product that takes a full-time professional sales force, and get a lot of money out of the few sales you make there.

[GFischer]

Joel Spolsky expanded on some of it on his famous blog post:

http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

"There's no software priced between $1000 and $75,000. I'll tell you why. The minute you charge more than $1000 you need to get serious corporate signoffs... So you need to send a salesperson out to the customer to do PowerPoint"

[joshu]

Dunno. I am finding a ton of it in the CAD/CAM world.

[monochr]

The problem is that small businesses are salmon.

[annnnd]

If only there existed a way to catch those... /s

[test1235]

>Or you can have a product that takes a full-time professional sales force

This is Just-Eat's model - they have an army of sales people in every country they operate, pitching to the local food places in their area.

[toomanybeersies]

I work for a company that primarily has small businesses as customers, and I agree that they're a handful.

We average something like 2 hours per customer onboarding. However, the value of each customer is pretty high. Good customer relations is also fairly important as there's a lot of staff transfer within the industry. Satisfied customers basically do your marketing for you.

[TuringNYC]

Problem is these companies have two sided acquisition costs -- the vendors and the customers themselves. Even if the vendor acquisition cost was zero using your technique, you still need to acquire users (along with the 50 other Groupon clones.)

[dmerrick]

Pretty much this.

A little background... the company was in the television industry. The original product was "clickable TV," in which they'd managed to deploy a small Java app to set top boxes over the cable lines, which could display a small icon appear at the bottom of the screen. When a user pressed 'select' on their TV remote, they would get an email sent to them with more information. It launched in a small US city and they approached local news channels ("click now to get the full story") and local businesses ("click to get a coupon code") to sell it.

The product did work (even if you DVR'd the program, which was my favorite feature), but most of the local business that were contacted said "cool idea, but we don't have any TV commercials, so come back to us if you can do something else."

When it proved too hard to sell the clickable TV product (perhaps obviously -- even in 2010 it was 10 years too late), they decided to reach back out to the local businesses with a new idea... a Groupon clone. We ran it for a while and it did "okay," but not well enough to keep the lights on, and the company closed its doors soon after.

[jonathankoren]

It's not just the two-sided acquisition costs, it's also that on the vendor side of the equation, daily deal sites have absolutely horrible retention.[0] No small to medium sized business would repeat, because the massive discounted price of the Groupon deal was never recouped by repeat customers. Instead they just attracted deal seekers.

[0] http://www.businessinsider.com/groupon-survey-results-2011-7

[sharemywin]

it's a great product for a bowling ally. Fixed space/costs So, each extra person you bring in has value. Horrible for food service where marginal costs are ~65%, so you lose 40% every time someone comes in.

[downandout]

Yeah but demand isn't the problem when you're offering crazy discounts on things.

[unclebucknasty]

>I'm curious how you could possibly lose money in a business like this

This implies that an unlimited number of people could have started profitable Groupon-like businesses.

[hoopism]

Somewhere a VC is nodding enthusiastically.

[bsder]

The customers you get via things like GroupOn are not the customers you want. And the GroupOn customers crowd out your good customers.

[manigandham]

The name is spelled Groupon, as a combination of group + coupon.

[dragonwriter]

> I'm curious how you could possibly lose money in a business like this.

Given all the stories that were going around for a long time about how offering through businesses like this was a losing proposition for most customers (really independent of the truth of those stories), I'm not surprised that there could be trouble making a profit in it.