Wednesday, January 18, 2012

Groupon is causing me flashbacks to 2000 and not in a good way


UGH!  Another cleaning company is running a Groupon today.  It is immensely hard to sell my services at full price when it seems like once a month someone is offering deeply discounted services.   It seems like every company in my area runs one of these offers once, gets burned, and never does it again.  However it seems like Groupon finds a never ending string of victims.  The last 3 companies are little start ups I have never heard of before and they probably will not survive the experience.   I know Groupon and the copy cats will die because they are not delivering enough value.  But in the meantime it is just no fun to be getting my butt kicked my people losing money on purpose.  It also brings back memories.


My Maid Service is not the first company my brother and I have worked on together.  Way back in the frontier days on the internet, my brother and I had a web site called
www.theaquaticshop.com.  Shawn is a very serious animal enthusiast and breeds fish, reptiles, has a dog, a couple frogs, and a falcon.   His house is literally a zoo but he takes fantastic care of his animals.  Shawn saw an opportunity to set up a web site to sell hard to find high end supplies needed by people that keep fish rooms, not fish tanks.   It was a small community and Shawn had a great reputation.  My home just happened to be near the largest distributor of pet supplies in the world.  Shawn would run the community and I would pick up and ship the orders.   It seemed like a great idea.  We would provide a far greater catalog than the local store and at better prices.  The high end stuff we were selling was not in most stores and if it was they sold 2 or 3 a year so they marked it way up. It  We opened our doors in November 1998 and it was a huge success….. for three months.   Then in early 1999 Pets.com opened.

Pets.com was backed by venture capital funds and Amazon.com.  Our most profitable items were medications.  Pets.com was selling them for 25% less than our cost AND offering free shipping.  They were killing us.  We could not figure out how these guys were making money.   We tried to hold on but in March of 2010 we declared defeat and shut down the shop.  You can provide the best service in the world and offer great advice but when the other guy is selling 50% less than you, there just is nothing you can do.  Pets.com had over $100 million in venture capital funding and they went public at $14.00 a share raising even more money.  It was the dot com boom and Pets.com was everywhere.    In November 2010, after just 18 months and it was over .  Pets.com burned through hundreds of millions of dollars and shut down.  Once it all fell apart it became public that Pets.com was selling most items for 25% less than COST.  Hah, just what we always knew.  But it was too late for us.  We had closed up shop.

So what does this lesson have to do with Groupon?  Well I think Groupon is pets.com part 2.  They are growing like mad but they are losing money on every sale.  The businesses they buy from are by and large not happy with the results.  And they are causing pure havoc on every industry they touch.  Pets.com just hurt the pet care industry.  Unfortunately, Groupon is hurting every small business in America.   The good news is I do think the ride is nearly at an end for Groupon.  Just like Pets.com, the news is coming out that Groupon is losing money, their suppliers are not happy, and the glow is coming off them.  So hold in there.  Every now and then I wish Shawn and I had kept theauquaticshop.com.  We knew what Pets.com was doing was not sustainable but we just could not tolerate the pain anymore.  Don’t make that mistake.  Hold on, Groupon will fade just as Pets.com did.  In the meantime.  DON’T EVER FALL FOR IT AND RUN A GROUPON!  I will run another article on why later but please do nothing that feeds the beast and keeps it alive for another day.


6 comments:

Joanna said...

AMEN! We will never ever do a groupon, living social, dealfind, wagjag, or teambuy or whatever new fancy name they give it. Sewers the market. Well played Derek, well played.

Gary Goranson said...

The Groupon experience should be a lesson (albeit an expensive one) to everyone in ourindustry (and probably every other service indusry) that these kind of offers do not attract the kind of clients we can actually earn a livingon. As you know, I do not even like or recommend $10 or $20 discount coupons on your cleanin g service. I have NEVER heard anyone in our iondustry with good things to say after participating with programs like Groupon.

Derek Christian said...

Another factor with groupon is it also is very bad for your reputation. When I am home and have all my notes, I am going to write an article on my experience with the Angie's List BiG Deal.

Tiffany said...

I am so glad I read this blog. I was setting up an account the other day to get started doing Groupon so I can receive more business in my area. I want to Thank you for helping me not to painfully make this mistake. I want to make money and gain new customers and establish great customer relations.

Derek Christian said...

Tiffany, I will write another blog on Groupon later but yes they are a very bad idea. At the annual residential cleaning convention this year I was running a session and I asked people to raise their hands if they ran a groupon like promotion. About 70% did. I asked them to keep there hands up if they would do it again. We dropped to about 5% and they may not have finsihed yet. The worst part with groupon for most people is the two weeks before expiration when they all call you at once wanting on the scheudle and get evil when you say no.

Susan Buckley said...

Derick, with any common sense I don't see how anyone could remotely think of trying Groupon. How could it possibly work in a service business unless some fluke happens? It's a total loss leader that can't be made up for in other areas like a retailer can. So 200 people sign up....that's 200 people that you'll be paying out to clean their homes and more than likely will never be back. Wow! Where do I sign up?? :)

Love your blog BTW.