Curious George ponders groupon

June 8, 2010

For consumers, the deal is simple. Sign up for free, and get an email every day or so with a “groupon” – an offer for a deep discount on a local purchase, good only if some minimum number of people participate. Discounts cover a broad array of products and services, including restaurants, gyms, spas, supermarket shopping sprees, etc. Most customers are well-educated, single (49%) women (77%) under the age of 35 (68%).

For providers of goods and services, groupons generate significant one-time revenue, and the chance to attract potential repeat customers. As an example, a NYC day spa recently ran a groupon for hot stone massages. They reduced their retail price by 59%, from $120 to $49. In return, they sold 2,267 massages, generating over $110,000 in revenue (time to hire more masseuses!).

For groupon itself, the business model is highly attractive. They take a 50% cut of groupon purchases, and are supposedly on track to generate $350 million gross / $175 million net revenue in 2010. Better yet, groupon is highly viral. Since consumers only get their discount if others purchase, they eagerly spread the word via email, twitter, Facebook, etc. That’s enabled groupon to attract millions of customers with little to no marketing expenses.

How’s it working? Groupon launched late in 2008, sold a million groupons in their first year, and have sold three million to date. They reached break-even in just six months, and the business supposedly throws off $1 million per week in profits. Originally in Chicago, groupon has since rolled out to 40 cities. And investors have noticed. Groupon has raised over $130 million, most recently at a valuation in the range of $1.35 billion. 60+ other companies have copied the Groupon approach, including GroupSwoop, ScoopSt, SocialBuy, BuyWithMe, SwoopOff, MyDailyThread and LivingSocial. And at least two companies have created aggregators that scour the web for the best offers each day.

How much room is there for growth? It’s anybody’s guess, but the evolution of the email newsletter business may hold some clues. In that space, a few major players dominate big categories (e.g. Daily Candy for 20-something women, Thrillist for 20-something men) and a long tail of niche companies concentrate on particular market segments and product / service categories – with varying degrees of success.


Bo Peabody interview: Business models

May 19, 2010

Bo Peabody is co-founder and Managing General Partner of Village Ventures, an early-stage venture capital firm. Previously, Bo founded / co-founded a string of startups, including: Tripod (one of the first social networks, later acquired by Lycos), Waterfront Media, VoodooVox, FullTurn Media, and UplayMe. He’s also an owner of Mezze, Inc, which consists of three award-winning restaurants. Bo wrote a book for entrepreneurs called Lucky or Smart? published by Random House. He is a graduate of Williams College.

UpStart:  What advice do you have for entrepreneurs pitching investors about their business models?

Bo Peabody:  “Entrepreneurs have the counterintuitive task of having to think big and act small. For any business that is going to attract venture investors, a big vision is important. But that’s the easy part. The much harder job is figuring out how to distill that vision into an actionable plan that has clear, incremental levels of success. Entrepreneurship is like a video game…you need to know what the levels are and then reach each one before going on to the next.”

UpStart:  Are there particular business models that you prefer to invest in?

Bo Peabody: “At Village Ventures, we prefer to invest in business models that are tackling mature markets. We’d rather bet on our ability to back the right team that can knock off existing competition than bet on our ability to see around corners. For instance, this is why we invest in vertical publishers in the interactive media space, rather than social media companies.


To publish, or not to publish…

November 19, 2009

I’m finishing up a draft of my first book, working title: “The UpStart Manifesto: Planning New Businesses with Speed and Flexibility”. Like any good entrepreneur, I want it published yesterday. So I met with a close friend who is a seasoned veteran and a senior exec at one of the largest publishing companies. I found it fascinating, so I thought I’d share:

  • If you epublish with us, it will take about 6 months before you can start selling
  • We’ll then want the rights to publish the hard copy, which will take 12 months to reach the shelves/Amazon
  • We’ll also demand 360 rights, which will impact the rest of your business (more on that soon; building an online school for startups with branding linked to the book)
  • Oh, and we won’t do much to promote your book, or give you much of an advance, since you are not a proven commodity in publishing yet
  • To top it all off, you won’t make more than a few dollars for every book (you promote and sell)

Needless to say, I wasn’t jumping over the table to sign that deal. So looked into self-publishing, which seems at first blush to be a better way to go.

My startup philosophy is about planning with speed and flexibility. By self publishing, I can move much faster, retain the rights to my other books and lines of business, and make much more money on each copy I sell.

The downside? I lose the cache of being published by a major imprint. That cache is important to traditional media companies, so it’s less likely I’ll appear on the Today Show or in the New York Times based on my book. Bummer, but I think I can still play well on the long tail, and if my distance learning business is a hit, I can use that to get big media coverage since it will be pretty innovative and unique.

Any gurus out there willing to share opinions?


236 people get married per DAY thanks to eHarmony

October 23, 2009

A few weeks ago I sat on a panel about exit strategies for startups, run by Collective-E and the American Business Women’s Association. I’d say most of audience members were what I’d call Digital Immigrants – people over 40 who were, on a relative basis, late adopters to phenomenon like social networking.

One of my fellow panelists had her wedding site acquired by eHarmony, and the question came up, “Why does eHarmony care so much about weddings?” The answer shocked just about everyone in the room:  On average, 236 eHarmony members marry every day in the United States as a result of being matched on eHarmony. Just then, a woman in the audience of about 50 people raised her hand. “I’m one of them,” she said.

What’s the lesson here? Perhaps just an indication of how quickly and drastically the world has changed due to the web. The last time I was single was about 5 years ago, and while I consider myself to be pretty open to trying new things online, I never tried the online dating game. Now, it’s the norm, not the exception.


What to do when your competition is free

September 30, 2009

Skip the study, unless you have a PhD in applied math… but check out the excerpt from businessinsider:

A new study by Ramon Casadesus-Masanell of Harvard Business School and Feng Zhu of USC’s Marshall School of Business looks at how companies can respond to competition from ad-based rivals. The study examines the business models of over twenty businesses across a wide range of industries, breaking them down into four basic categories:

  • A pure fee-based model (iTunes or eHarmony)
  • A pure ad-sponsored model (Metro newspapers, broadcast television, or Facebook)
  • A mix of ads and fees for a single product (The Wall Street Journal or cable television)
  • Tiered content, with some ad-sponsored content and some paid content (Match.com, many news outlets)

The researchers found that once a free, ad-based competitor enters a market, the mixed strategies stop working. (More bad news for the newspaper industry!) Instead, successful firms commit one way or the other to an ad-sponsored or fee-sponsored business model.

When the competition stops charging, entrepreneurs need to take an honest look at the quality of their product. If it is better than what consumers can get elsewhere, don’t compromise its quality with ads; just keep being better and charge for use. Otherwise, make it free and beat the competitor at their own game.


Marching backwards into the future

August 6, 2009

Like many of you, I’ve been learning how to use social media to change the way I take in, and disseminate information, news, opinions, etc. So far, it’s working pretty well for me.

Most days, I teach workshops on topics like bootstrapping and business planning, and provide consulting to entrepreneurs (right now for a former NFL star making the transition to the business world). The workshops and consulting give me ideas and experiences for a book I’m writing (most likely to be both an e-book as well as a printed book). I blog about those same ideas and experiences. Then I tweet (@davidronick) about the blog entries. While I’m tweeting, I keep running searches in tweetdeck for topics like #business plan. If I find a clever tweet on one of those topics, I retweet them. If I find a link to a particularly good article, I’ll post comments, and sometimes interact with the author. Later I’ll circle back with that author to pitch my book or other things. About 2 or 3 times a week, a client lead reaches out to me as a result of all this. Plus the process helps me stay informed and connected to like-minded people. All good things.

But I just noticed an irksome policy: Some newspapers and magazines don’t include links. For example, one of my clients, DailyWorth.com, got a write up in Forbes online yesterday (note: DailyWorth is a free daily email with empowering personal finance tips. I read it every day and am a big fan independent of my client relationship). But Forbes wouldn’t link to DailyWorth, or even print their url. Why? Because they don’t want to drive people away from their sites. Huh? This morning I followed a tweet to an article on the Hartford Examiner, and made an opinionated post, with a link to a longer discussion on the top. I tried to submit the post, but got a message:  No links allowed in posts. WTF?

This is just one small reason newspapers and magazines are hurting. The world is clearly moving one way. But these old media companies are holding on by their fingernails to what worked for them last century. They are driving the car forward onto the web, but steering by looking in the rear view mirror. Ok, there, I said it. Harumph!


Curious George ponders Threadless

July 6, 2009

Curious George is at it again. This time, looking at one of the best examples of crowdsourcing: Threadless. Having worked for Tommy Hilfiger, Polo Jeans and Liz Claiborne, I know a few things about the challenges of the apparel industry. For example:

  • Design. You’ve got to hire a great design staff capable of coming up with hit products on a continuous basis. Great designers don’t come cheap.
  • Merchandising. Once the designers work their magic, you’ve got to do your best to predict demand down to the style / color / size level. If a product is a dud, you wind up with piles of inventory you must mark-down. When you come up with a winner, you rarely have enough, so you miss the chance to capitalize on your success.
  • Sales. Most apparel companies sell through department stores – typically a painful process. Department stores pay dearly for their space and their foot traffic, and never let their suppliers forget it. They’ll force you to pay markdown money, and hit you with fees for things you never knew existed, before they knock off your line with cheaper private label goods.

The team behind Threadless managed to circumvent all of these issues, and pioneer a highly profitable approach to the apparel business. Their secret sauce is a concept called crowd-sourcing. Here’s how they do it:

Threadless holds a t-shirt design contest each week. The prize for winner is over $2,000 – and respect from fellow designers – so they get thousands of entries. Good-bye, expensive design staff. People who enter the contests, along with shoppers, vote on their favorite designs, so Threadless knows exactly which styles to produce. That lets them predict demand precisely. Good-bye, merchandising woes. And the same  “crowd” that submits and votes on designs doubles as a customer base (mostly through the Threadless website), and promotion engine. Good-bye, department stores.

How’s it working? The company started as a hobby in 2000, and launched their business in earnest around 2002. Five years later, they cranked out $30 million in sales, which is not exactly staggering. But they generated $10 million in profit – a margin that makes traditional apparel companies drool. They also had about 800,000 unique visitors / month, and plenty of opportunities to extend into other product categories.