Who needs Groupon to find a good deal? New York’s markdown “mavens” already know how to sniff out the best bargains. And a community-shopping platform called Postabon.com that launched in 2009 was meant to harness that collective intelligence by allowing neighbors to organize the deals all in one place.
It made so much sense. Stuart Wall, the company’s cofounder, believed it was destined to work. And at first, it did. Residents found and posted bargains: free haircuts at Crops for Girls Salon on the Lower East Side, a 40% discount on Ralph Lauren togs in Soho, $1 off happy hour at Burp Castle in the East Village. Mashable called the website “a terrific idea.” CBS praised it for pinpointing “exact sales on exactly what you need in your neighborhood.” The year after the company was founded, Spark Capital, Google Ventures and others invested about $1 million.
But the “love child of Foursquare and Groupon,” as VentureBeat termed the business, was never meant to be.
Wall, who started the company months after graduating from Harvard Business School, discovered that even with 5,000 deals in the New York area, few people went online for discounts before going out to shop. People just didn’t look for bargains before leaving to grab Venezuelan cuisine with friends. (If they did, they could have paid only $12 for $25 worth of food at Williamsburg’s Caracas Arepa Bar.)
Instead, the Indianapolis-native discovered, discount deals were impulse buys. Consumers bought from Groupon, which was scaling up just as Postabon started, because the offers that would turn up in their inbox seemed like bargains. So Wall, who was never slow to change course when things weren’t working–after six months of being unhappy at a private equity firm he took a leave of absence to start his own company–adjusted. His company began sending out emails to advertise deals and relying on businesses to directly offer discounts, rather than on consumers to find them.
Wall was speaking at a July 2011 daily deal industry conference in San Francisco when he began to wonder if there was a problem with that model too. As more competitors–Groupon, LivingSocial, Gilt City–flooded the market, he reasoned, customers were less likely to sign up for new email advertisements and more likely to ignore or unsubscribe from the emails they were already receiving. Marketing costs would go up, and revenue per customer would tumble.
He left the conference early and spent the afternoon modeling Groupon’s unit economics. According to his estimate, which he published on his blog the following month, Groupon was on track to lose 52 cents for every dollar they spent on email marketing. He called companies still looking to gain traction in that market in 2011 “idiots,” referring to Warren Buffet’s comment that in every market cycle there are innovators, imitators and idiots.
By some measures, he’s been proven right. Groupon’s share price has fallen by about two-thirds since it went public in November 2011 and Bloomberg Businessweek reported that the daily deal giant is refocusing on software products such as an online appointment-booking system and a loyalty program.
Wall, who had worked at management consulting firm Bain & Company out of college, needed to change course to avoid following the idiots’ path. And his inspiration for the pivot came from his sister, Christen, who also attended the July daily deal conference. She had a degree in computer science and four years experience as a software programmer, but wasn’t able to use the Google AdWords dashboard.
If she had more computer experience than any other merchant there, Wall thought, there was no way most small business owners could effectively use the available programs.
So, in October, Postabon became Signpost. For no more than $149 a month, Signpost lets companies avoid the complicated ad tools altogether, taking over their marketing campaigns and placing online targeted ads on more than 1,200 publishers, including Google, AOL, Digital First Media, and about 800 local newspapers in 20 cities. Publishers benefit too since they don’t have to pay a sales force to find businesses to advertise.
And unlike daily deals companies that would send the same deal to as many people as possible, relying on mass emails to generate relatively small numbers of sales, Signpost was able to work with publishers to better target the deals. Going through Signpost also means that businesses won’t have to pay as large a percentage of their sales when customers buy a product through the ad. Companies like Google Offers may charge businesses that negotiate directly with them up to half of the sales they generate. Signpost, which passes along commission fees but charges none of its own, pays only 15%.
The result, Wall estimated in a May 2012 blog written for the Huffington Post, was that businesses using Signpost had to pay only $16 to acquire a new client, compared with $28 if they used Groupon and $124 if they used Google AdWords.
And while most daily deal sites focus on getting as many new customers through the door as possible, Signpost also has the flexibility to modify a campaign to better suit a client’s goals. Some clients, for instance, are interested only in drumming up business for slow times, and Signpost limits the campaigns to those times.
That’s helped business owners like Humberto Toledo, who runs acupuncture center Premier Integrative Medicine. Toledo, who launched his business in 2009, wasn’t established enough to advertise through the first daily deals sites he approached: he couldn’t provide the required online reviews; he needed a campaign targeted toward the two days a week he was open; and he couldn’t afford to hand over half of the income generated to the sites. Then he ran across Signpost through a Google search. It was more flexible, cheaper, and more targeted. The deal–Toledo would charge $30 to $40 for a first time visit, which would typically cost $150–generated about 15 to 20 new returning customers every three months that he ran the campaign, enough business so that he’s never advertised through another outlet.
Seven months in, Wall’s pivot’s working. Google Ventures, Spark Capital and their other investors quadrupled down on Wall’s business, putting in $4 million. The company’s valuation is “more than double” that of Postabon and revenue is growing at 50% a month, though Wall declined to disclose the overall figure or give a precise valuation. He expects the business to be cash flow positive early next year. In retrospect, he says he wishes he’d pivoted sooner.
“Admitting that you’ve failed, that the original business concept is not going to be successful, too many people think of that as a very bad thing, ” he said. “Now that I’ve done it once, I think it’s actually a really good thing.”
Simone Baribeau is a freelance writer based in Miami, Florida. She has written for Bloomberg News, the Financial Times and the business sections of the Washington Post and the Christian Science Monitor. Email her at firstname.lastname@example.org.
[Image: Flickr user Tony]