Archive for January, 2011

Autopsy of a Startup – What I’d do differently next time.
January 26, 2011

I still think Fairway Pass is a good idea in Austin. Despite knowing very little about the available market, I imagine that the company could sell somewhere between 100 and 1500 discount vouchers each year. At $80 each, that isn’t bad money for a “side business.” And considering the popularity of coupons and vouchers right now, there is bound to be a market for the product. I also like the fact that once the product is “built” (via getting courses signed up and the design/printing done) there is not a lot of overhead involved.

So what would I do differently next time? A couple things….

1. I’d bring in a partner. As I outlined, my inability to be tenacious in the sales-process was one of the main reasons for a lack of success. I’d find a partner with the time and energy to chase down the right people at the right courses to build the Fairway Pass offering. Someone with a background in the golfing sector (or a regular player at a course) would be a benefit, but mostly the person would need to be willing to do the sales work I didn’t do.

2. I’d plan my calendar a bit better. I painted myself in to a corner by creating a strategy that focused on getting to market by the Holiday season. Once I missed that window, I lost most of my interest in the project. I thought that it would be a slam dunk to have the Fairway Pass ready in November for gift giving. What I ignored (and shouldn’t have) is that a good idea in December is a good idea in July (or April or January). Next time, I’d make sure the product-development cycle was on a timeline (like 100 days from the first course signing up to product launch) but I wouldn’t start the clock til a little traction had happened.

That’s about it. The site/product failed because (1) I didn’t do the hard work out on the street and (2) I lost passion to do that work once I heard “no” a couple times. In hindsight, it’s amazing that such simple things, things that I had complete control over were the reason Fairway Pass never got going. Maybe next time…

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Groupon – Should have taken the 6 Billion…
January 19, 2011

If any of you were making wagers on when the other shoe would drop for Groupon, the person who picked January 19, 2011 would have won the pool. Why? Because Living Social finally pulled back the curtain.

Today, Living Social is selling a $10 voucher for $20 off at Amazon.com. Similar to Groupon’s GAP deal last summer, the Living Social offering is a nationwide offer. Despite voucher limits, they have sold a staggering 522,650 vouchers as of this moment. That’s over $5,000,000 in sales.

Considering that Amazon is a huge investor in Living Social, my guess is that the latter is receiving no money from today’s offer. The benefit to Living Social is going to be hundreds of thousands of new signups, some national and viral buzz, and probably some mainstream news coverage. Amazon, which sells practically everything, also benefits. They have extraordinary customer service and this offer is likely to get tens of thousands of new customers who were hesitant before a reason to try out Amazon. Even if only 1 in 10 vouchers is sold to someone who has never bought anything on AMazon before, spending $100 to acquire a new customer is probably money well spent for Amazon at a time when eCommerce continues to explode.

So what does this have to do with Groupon? Well, many people have thought that Groupon’s massive geographical presence and full bank account made it the main player in the group buying sector. SOme went so far as to declare (incorrectly) that this was a winner-take-most market and Groupon was best positioned to be the winner. But Living Social’s Amazon deal throws that theory out the window in favor of another, more logical theory: any site with a great offering can “win” while any site with crummy offerings will “lose.”

THink about all the group buying sites out there. Most of them target suburban soccer moms by offering dining and spa experiences. Occasionally something unique will show up, like Stripper Pole Exercise classes or a ride on a helicopter, but 90% of the time its either food or spa. These offers are appealing certainly, but only to a specific sector of the audience. As a result, the average buy-thru rate for deal sites is 1-4%. WIth that math in mind, an easy case can be made that the key to succeeding is having as many people viewing the deal (email, facebook, website) as possible. And as a result, its easy to see Groupon as the “winner” because they have so many people in their audience.

But the reality is that having a zillion people see a deal is simply masking the crap that’s being offered. While most marketers are content to have a 1% return on mass mailings and similar marketing, daily deal sites should be working hard to avoid this label. People see Valupaks in their mailbox and 99% think of them as junk-mail. 1% buy, giving Valupak a viable business. But is the point of Groupon (and other similar sites) to simply be online versions of Valupak? Oof.

That brings us to today where Living Social has, all at once, proven what many people suspected: offer something AWESOME and the buy through rate goes up. WAY up. The broad lesson is that instead of working to be a mass-mailer from the internet, group sites should take it to heart that the real value comes in offering something that appeals to lots of people. The more specific lesson is that Groupon isn’t the only site capable of offering something fantastic that goes viral and sells a ton of vouchers. And if Living Social can do it, why can’t KGBDeals? And if KGB can do it, why can’t DailyDeals? And if they can do it, then why not….

The point is that the shine is definitely wearring off the apple now for Groupon. Living Social has demonstrated that quirky CEOs and funny cats and interest from Google don’t sell nearly as many vouchers as offering something AWESOME. And oh yeah, in the time it took me to write this post they sold another 28,000 vouchers. Cha. Ching.

Groupon is not a “winner take most” market.
January 14, 2011

A lot of blogger types are parroting the same silly analysis about Group Buying and Groupon. Their conclusion is: “this is a winner take most sector and Groupon is going to be the winner.”

They are wrong.

A winner-take-most market is when multiple vendors offer similar items or services yet one of them ends up with the lion’s share of the business. Group buying sites don’t work that way. Why? Because shopping for coupons is (1) not time consuming and (2) not exclusive. If Groupon has a good offer one day and Living Social does too, I might buy both. If both offers suck, I’m likely to buy neither. Absolutely NOTHING about Groupon’s daily offering is going to affect the decision of someone looking at other sites as well. Groupon may have a great offering, but that isn’t going to prevent me from buying someone else’s great offering. No one on the internet wakes up and says, “I have $20 to spend on a voucher today….only one site is getting my business!” The idea that Groupon will be a winner-take-most case is silly. If ever there were a long-tail market, group-buying is it. LOTS of daily deals companies can prosper without any one of them being more of a winner then another.

Scale gives Groupon a huge footprint. They are already in a zillion markets and a billion countries. But being big doesn’t matter this time around. While I imagine Groupon’s sales will soon enter the realm of billions on an annualized basis, I’m not sure that a company with 3,000 employees selling 3 billion a year (1 MM / employee gross) is more valuable then a company with 50 employees grossing 50 million a year. The difference is that the 50 employee company can likely be built without outside funds while Groupon can not.

I realize this rant is a bit scattered, but I think about Groupon constantly. I am partially in awe of their success because the idea is so PAINFULLY simple that anyone could do it. And I am partially horrified by their success because the idea is so PAINFULLY simple that anyone could do it.

How easily? Let’s look at the math: A Groupon clone site can be made and well-designed for about $300. A sales force of two or three people in a market working commission-only (say, 30% of net from the merchants they book) could be assembled in a matter of days. Facebook connect and Twitter integration make it so that starting with 100 people paying attention could quickly mushroom to a mailing list of 10,000. Using the average low sell-through rate of group buying sites (about 2% on average), that would result in 200 sales per day. Assume an average voucher price of $20 with half going to the merchant and PRESTO your little project is making $2k a day. $600 to the salesperson leaves you with $1400 a day or just right around half a million bucks a year. Put it in 4 markets located near each other to facilitate central-management (Houston, DFW, Austin, San Antonio..?) and you’ve put a dozen people to work and grossed $2 million on the year. On paper, it isn’t all that difficult….which is why Groupon is facing THOUSANDS of competitors.

This is not a winner-take-most market. Groupon is going to make a lot of money. SO are THOUSANDS of competitors around the world.

THat said, this could be a winner take most market if only Groupon (or someone else) would integrate a number of tech mechanics that are already readily available and reliably proven. How? You think I’d tell you? I’m saving that one for myself…

Autopsy of a Startup Part 2 – What went wrong.
January 7, 2011

There were a number of places where things went wrong for Fairway Pass last summer. Here are a few…

1. Going it alone – I am part owner and co-founder of a successful business. It has been a lot of work but very rewarding and keeps getting better every day. But in this case, I decided I wanted to see if I could start a profitable venture on my own. I wanted to see if I could take an idea to something profitable all by myself. This was problematic for two reasons. First off, starting a business of any type – regardless of how big or small it is or is going to be – is tough to do. There simply is too much required to go it alone. Even if your partner is a friend or spouse with no vested interest that simply serves as a sounding board and a shoulder to lean on when things get tough, it is usually best to have someone else involved a little. Having a partner or cofounder is akin to having someone to work out with. Just like having a training partner inspires (or obligates) you to go to the gym on snowy days, having a cofounder inspires AND obligates you to do work you might not want to do because your partner is counting on you. Carrying the weight on your own is borderline impossible. Most of the great companies out there were founded by two or three people together. There is a reason for that.

2. Lacking Tenacity – I viewed Fairway Pass as a side business, a part time effort. And it showed in my efforts. I carved out an hour or two each week to make sales calls and send emails. I figured that leaving a message on Tuesday and following up with an email on Friday was enough. Of course, with a sales background I should have known that a half-assed approach to sales would get me half-assed results. I like sales but like many people, initial contact (cold-calling) is not my favorite thing. I was counting on getting a course or two to signup and then using that as leverage to get more courses interested. So instead of working tenaciously and contacting as many courses as I could to close the sale with as many as possible, I only contacted a few courses a little bit. That wasn’t ever going to work.

3. Unpreparedness – I guessed that I might be able to sell 1,000 passes each year for somewhere between $50 and $100 each. So I was guessing that my immediate market was $50,000 to $100,000 annually. That’s a nice chunk of change, no doubt, but it led me to a rather stupid conclusion: that isn’t enough money to split with a partner or two and make it worth the trouble. Problem is, I have absolutely no idea how many potential customers there are in this market. I have no idea what they would pay (if at all) for something like the Fairway Pass. Sales could have been 30 passes for $50 each, which would be awful….or perhaps it could be 3,000 passes at $100 each…I had no idea then and I have no idea now.

There were other mistakes as well, but most of them are tied to the three above. I lacked a partner to motivate me (and I them), to discuss things with, to bring another perspective. I lacked the commitment and tenacity to truly give myself to the success of the business. And I lacked the information necessary to form a real business plan with a chance to succeed.

The worst part is that above ALL else, I believe in EXECUTION. Mediocre – even bad – business ideas can make money with the proper execution. And the best business ideas ever don’t stand a chance with poor execution. So I didn’t eat my own dog food and the business failed long before it ever was a business.

NEXT – Part Three – What I’d do differently