What made Groupon work?

Groupon held its first holiday party in the apartment of Ken Pelletier, its CTO. He cooked for the whole company and their guests. The next year, this was slightly less feasable. The company had grown to over 300 employees. And the year after that? Over 5000.

How did Groupon, the deal-of-the-day website, grow so fast despite being based on such a simple concept? What allowed them to become ‘the fastest growing company ever’? What can we learn from Groupon?

Introduction to Groupon

Today Groupon has over 10,000 employees. Their revenue is in the billions. Despite all this, the company’s origins were a bit more humble. It all started with a website called The Point.

Andrew Mason started working on a platform for bringing groups of people together to solve problems in early 2007. The website was backed by his employer, Eric Lefkofsky. Before this, Mason had been a developer for one of Lefkofsky’s companies, InnerWorkings. Mason brought the idea to Lefkofsky, who liked the idea. With $1 million in backing, the website’s future looked bright.

Unforunately, the reality of it was a bit different. The website wasn’t getting much traction. Mason, Lefkofsky, and a few early employees would meet up weekly to discuss the progress. The problem with the website was that it was too unfocused to gain traction. There were campaigns for a huge variaty of different problems, many of which weren’t getting any attention. There was, however, one campaign that caught Lefkofsky’s eye.

A group of people had made a cause for saving money on buying a product. They thought that if they could get enough people who wanted to buy the same item together, they might be able to get a group discount. After some discussion, the group decided to spin that concept off as a separate page dedicated to group buying. They named it Groupon.

The following year was full of huge growth. In this article, we’re looking at what made Groupon catch on so fast. Let’s dig in.

Providing a good, tailored experience

One problem with The Point, the platform Mason worked on before Groupon, was that the experience was inconsistent. The quality and purpose of campaigns varied immensly. The people submitting them had different ideas of what ‘doing good’ would be.

The team developing Groupon decided not to make this mistake again. They realized that just adding a collective buying tab to The Point wouldn’t be enough. Instead, they decided to be in charge of curating and handpicking the campaigns on the website themselves.

They also decided to limit the amount of offers to one per day. This allowed them to have successful campaigns despite their small number of early users. The community wasn’t huge, but if focused on one offer, it would still get results.

Going local

Another important decision early on was to focus on local. Take note- this is a common theme in the startups I write about here. Groupon was kicked off with the 500 people in its office building. This number obviously wasn’t just Groupon employees; Other businesses, including The Point, were working there. But going and talking to them about what your team is working on was a lot easier than other launch methods. The first campaign was also as local as can be (and helped attract more people in the office space). It was a half-price offer for pizzas in the first floor restaurant of its building.

According to Mason, the decission to go local was influenced by how group buying happened during the first Dot-Com boom. The companies that tried to go nation-wide still couldn’t beat the prices Amazon or Walmart had. These giants were so big that they could negotiate better prices than a thousand people on a group-buying website.

Groupon avoided competing with them by avoiding consumer goods that you can buy anywhere, and instead focused on finding unique products from local businesses. This helped with negotiating offers. To achieve low prices on consumer goods such as televisions, computers, and so on, you need to have a huge amount of people pledging money. With local offers the process is different. Some of the businesses with great offerings have never done any kind of marketing before. Finding good deals in that kind of space is much easier.

A focus on email

Groupon is heavily focused on email. Even today, you can’t see their list of offers without signing up. While it may seem like this could turn off some people, Mason thought that it was worth it. Why?

Without an email list, a person might visit Groupon and not find anything they want to buy. You’ve lost that potential customer forever. But by driving people to an email list, you get more chances at finding something that they like. You can email them multiple times, with different offers- making it more likely that the person will find something interesting.

By taking this approach, Groupon’s value proposition isn’t a specific deal. Instead, it is having a great deal emailed to you daily.

Getting to the market fast

Mason didn’t want to sit around developing a platform for Groupon. He didn’t waste time building a big team of experts, or trying to get a lot of feedback. Instead, he hacked Groupon together and started finding local customers.

The first version of the website was a simple WordPress blog on which the team would post their offers. It wasn’t pretty. To select a clothing size, you had to email the team and say which one you wanted. The coupons were individually emailed PDFs. But it worked. It proved the concept and showed that people were interested.

The early team wasn’t much more organized than their initial product. There were about seven people, and they were all doing whatever they could to help out. Everyone called businesses to introduce them to Groupon. One person took care of writing the copy for all the deals. But again, businesses loved what they had to offer and went along with it.

In my opinion, this approach to launching is much better than spending months on end developing a platform without being sure that people will use it. Having a pretty website early on might help, but not as much as having people actually using your service.

Offers that spread

The Groupon team decided to focus on offers that were likely to be shared. The deals that they featured were inherently social. Going to restaurants, or cafes, or to the movies are all things that you do with other people. People are encouraged to share the deal for two reasons: they want to ask people to come with them, and they want the deal to receive the amount of buyers it needs to go through.

Making businesses like them

Getting businesses on Groupon wasn’t too hard. When a small business owner wants to advertise his business, he might put an advertisement in the local newspaper. It costs hundreds to thousands of dollars, and is followed by suspense as you wait to see whether people show up.

What Groupon had to offer was different. Getting featured was free; you only ‘pay’ when a customer buys the offer. And better yet, you only participate if the number of people buying the offer is high enough to be worth your while. This safety feature helped businesses feel comfortable with Groupon early on. It was a form of marketing that the small business owners had never seen before, and it blew traditional advertising away.

Businesses were also able to see results. People would walk in with the coupons, driving home the benefits of being on Groupon.

So there we have it. The main features behind Groupon’s success. Looking back at what they did, we can pick out a few lessons that might be useful to most of us.

Have you put enough thought into making your service easy to understand and consistant in quality, like Groupon did when switching away from ThePoint?

Do you have a way of getting visitors back on your service after they leave? Groupon did it with their email signup.

Are you spending too much time developing before launching? Mason threw together a WordPress blog on which the team posted offers, and that worked a lot better than trying to build a platform before having users.

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