“Though rubber-banding a photograph to a roly-poly super ball increases its utility, its picture quality plummets after playing just a few rounds of fetch. Put a photo in a durable place with today’s Groupon: for $45, you get one 16″x20″ thick (1.5″) gallery-wrapped canvas from Canvas on Demand (a $126.95 value).”
That’s the text of a Groupon promotion I just received. If you somehow haven’t heard of them, Groupon is the daily deals business phenomenon currently valued at $30 billion dollars, though by the time you finish reading this, it might be $40 billion, or $200 billion, or $25 bucks. Much like the text of their promotions, Groupon as a company tends to bury a few facts inside a cute dumpsterload of rambling nonsense.
Now meet Rob. Rob used to be the lead bike tech at a bike shop I owned once upon a time. He’s now opened his own shop, Cycle Symphony, and it has all the makings of a quality shop.
Like most bike shops, Rob’s business model is relatively straightforward: he sells consumers products and services. His success or failure will ultimately depend on attracting customers and keeping them happy. Much like I’d done with my shop, Rob is catering to serious cyclists, and for anyone with a deep appreciation of mountain bikes and technology, his shop is downright amazing. I doubt you’ll find a larger collection of one-off custom made mountain bikes anywhere in Pennsylvania. And I don’t mean a Specialized with a Gore cable kit and some read headset spacers. I’m talking frames made only for Rob, most by famed frame builder Frank the Welder. Check it out.
Unlike Rob’s small, local shop, Groupon is a Prime Mover, an innovation-driven company and a potential major engine preparing to help salvage the struggling American economy, just as Pets.com did in the late ’90s. Whereas bike shops in America only employ people, Groupon Employs People! While bike shops out there just sell stuff, Groupon Sells Stuff! The difference should be obvious to you, but just in case, I’ve set forth some key distinguishing features:
1. Innovative Business Model
Bike Shop:
- Sell goods and services.
Groupon:
- Convince retailers to sell their products and services for at least half price.
- Take about half of the half they have left as your profit.
- Funnel as many customers as possible to them to clean off their shelves at drastically discounted prices.
- Dramatically increase customer base of the retailer to now include a zombie throng of new customers who expect everything to be at least half price.
2. Funding
I started my bike shop with about $25,000. Rob’s also doing his best to keep things lean and efficient. His first step was doing, as opposed to looking for those who can do for him while he powerpoints venture capitalists and dreams up phrases like “organic monetization.”
According to Groupon’s SEC filing, they spent almost $400,000,000 on marketing so far in 2011. And marketing’s not their biggest expense. Their administrative costs in the first two quarters of 2011 account for another $452,000,000. That’s nearly a billion dollars spent in just the first half of 2011. What are they buying with all this money? One word: talent:
A spaghetti noodle, much like a swimming-pool noodle, maintains its shape until it’s exposed to boiling water or sat on by children. Savor pasta’s forced flexibility with today’s Groupon: for $12, you get $25 worth of Italian fare at Tuscany Square Ristorante in New Castle, PA.
The chefs at Tuscany Square Ristorante recreate traditional Tuscan recipes, simmering savory sauces to ladle over a menu of pasta, steak, and seafood. Adept hands construct house-made lasagna, layering soft noodles between strata of bubbling homemade marinara and meat ($12.95). A 10-ounce slab of Choice sirloin ($16.95) ages for 30 days and debuts mature and ready to assume the responsibilities of pleasing a palate, filling a stomach, and refinancing a mortgage.
Chefs drizzle the chicken piccata with white wine, capers, and a spritz of lemon ($14.95), and they coat a grilled salmon fillet in pepper-berry seasoning that, like a cheerleader, has an enthusiastic kick ($16.95). Diners can fill their bellies in the more-formal setting of the dining room or munch in the more laid-back lounge, which is equipped with a full bar and three flat-screen TVs to ensure patrons won’t miss reruns of their favorite sports games.
That’s from one of today’s deals. Think you could’ve written that there, Rimbaud? Of course not. A huge part of Groupon’s absurd operating expenditures can be blamed on the exotic acquisition needs of their writing department:
- Seed clouds with magical eggs to lure and capture a live Care Bear.
- Force Care Bear to smoke cigarettes and watch gruesome footage of World War II narrated by Bob Saget.
- Buy copy of Microsoft Office.
Anyway, that’s why my next venture won’t be in retail, but rather an SaaS (not entirely sure what that is, but it’s very hot right now, and sounds like “Sass!”). I’m working on a cutting edge cloud-based consumer-facing social network management and motivational system for success-driven companies who like Web 2.0 sites with big font sizes and rounded corners (small fonts and sharp edges are so Pets.com). Four hundred times each day, auto-generated profanity-laden criticism of your company will be automatically created, distributed to Twitter, Facebook, Google+, LinkedIn, and some seriously huge social networks in China you don’t even know about, and then searched out, compiled and sent right to your customer service department, offering consumer-centric Fortune 500 companies a better idea of what consumers actually think about their companies. I’m right now putting the final touches on the artificial intelligence algorithms and hiring an app developer.
I’m accepting initial rounds of funding now (investment offers under $10M will not be considered, though I appreciate your interest). I have a good feeling I can land Groupon as my first client.