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Andrew: Hi everyone, my name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart and a place you come to listen to entrepreneurs tell you how they built their businesses. How does offering local deals help an entrepreneur build a multi-billion dollar company? Joining me is Tim O’Shaughnessy. He is the co-founder of Living Social, which offers daily deals on hand-picked experiences that can be shared with friends. The company was founded in 2007, is reportedly worth $3 billion and has ove25 million subscribers. Tim, welcome to Mixergy.
Tim: Thanks for having me, Andrew. It’s a pleasure to be here.
Andrew: So, Tim, as I was researching you, I saw that last year, people kept predicting what you revenues would be, and at one point, you did too. Can you say what your revenues ended up being last year?
Tim: No, we haven’t disclosed that. I think what we said at some point in time was that we would do over $100 million last year, which I can say that we definitely surpassed. What we said for next year is that we’ll do a billion plus.
Andrew: This year, a billion plus in revenue and if you do it or not, will you talk about it publicly even if you’re a private company?
Tim: Not really. We try and give a little bit of guidance so people know generally where we fit in the ecosystem, but one of the benefits of being a private company is that we don’t have go through various different disclosures and have the same requirements that the public companies do.
Andrew: Fair enough. And I don’t want this to be an analysts’ conversation, I just want to get a sense of where you are today and then go back in time and find out how you got here. How did I do about the number of subscribers? Can you say publicly how many subscribers you guys have now?
Tim: Sure. We’re at just under 30 million subscribers at this point. We’re adding somewhere between a million and a million and a half per week. It’s growing at a very aggressive clip at the moment.
Andrew: Yeah, it’s really hard to research you, because I felt that as soon as I had a number on you, a day or two later the number would be out of date. So I figured I’d let you say it. A subscriber for you means what?
Tim: It means somebody that’s given us their email address and has explicitly opted in for us to send them a daily deal, or one of several other products we have that people could interact with as well.
Andrew: Tim, why is it that when I come to Living Social, and I come there a lot, the first time I have to give an email address? Why did you guys decide to require email before showing the site, as opposed to saying, “Go have at the site”?
Tim: There are a couple of different ways you can get to the site. You can go to specific deal pages, etc. But that’s really how you interact with us, by going and establishing that connective tissue with us, where we send you a great thing to do every single day. In order to do that, we have to know what your email is. We would find that sometimes people would want to subscribe and wouldn’t really know how to do it, so we just made it as blatant as we possibly could.
Andrew: So from a business point of view, because I am an entrepreneur and everyone watching us is all entrepreneurs, we’re all thinking, “How do we put our stuff on the Web?” You’re coming at the audience from email. Should we be considering email instead, as the connection between us and our audience, and why should we?
Tim: I think it can be part of the story. It sort of depends on what your business is. Email is one of those things that people keep open as a tab in their browser all day long. So if you have a compelling value proposition, then it can work. So it’s really dependent on the business, but from a mobile perspective, that’s a rapidly growing aspect as well. I really think that email is a primary driver in what we do, but it probably will diminish in importance over the next several years. It will still be important, but other things, like mobile or people coming directly to the site, will improve over time.
Andrew: As you and I talked before the interview, the focus is on how you got here. Let’s just talk about one more thing on where you are today and then go back in time and figure out how you did it.
Andrew: One more thing is instant. I now have your iPhone app and I see that there’s a whole bar now on my iPhone that says “Instant Deals.” Tell people about that and why that is such an important part of your future.
Tim: Absolutely. We think that this is one of the big, new places that the space can go. How it works is that we provide real time offers to you with all sorts of different merchants, primarily merchants that are really around where you are at that moment in time, so they’re location based. It’s so interesting because it solves that problem of “I’m going with one of my coworkers, we’re going to grab something to eat, where should we go to lunch today.?” Right now, there’s really no way for merchants to compete for your business or try to compel you to go there when you’re in market. It’s almost like an offline Google search. If you went to Google and you typed in “nice blue handbag,” they’d give you a great set of results. If you typed in “where should I go to lunch today,” they don’t. It’s really providing the answer to that, and it’s obviously something that people do so often that we think it’s a really compelling experience that we can bring to our members.
Andrew: I have such great experiences with it. Olivia and I move from city to city a lot and we happen to be in D.C. right now. In DuPont Circle one evening, looking for a place to go, we brought up instant and we saw a bunch of different places around us. We said, “All right. Even if the place stinks, now it’s $10 cheaper, so it doesn’t sting so badly that the experience stunk.”
Tim: Hopefully it didn’t stink as well.
Andrew: No, I don’t think I’ve had a bad experience yet.
Andrew: We’ll find out. On Saturday I’m doing a rock climbing deal, so we’ll find out. If I’m alive afterwards, then it’s good. I love the company, that’s why I’m having you here. I admire the success of the business and I want to know how you got here. One thing that I heard was that you were influenced to go into entrepreneurship by your dad. How? What did your dad do and how was he so influential?
Tim: Sure. I come from a family of people that have started and sold and lost businesses many times over when you look at my father and uncles and grandfather, etc. But my father in particular has run a small business for the last thirty years and it pretty much has been less than eight employees and no more than about thirteen employees that entire time. It was almost informational in what I grew up around. He was responsible that the business ran, that they got new clients and that everybody made payroll, and how you deal with all these things like HR. It was impossible for him to not be an influence when that’s the kind of environment that you grew up around.
Andrew: You said that in the family there were businesses that had been lost. Can you talk about one that your dad experienced and how it influenced you?
Tim: Well, he’s been doing the same business for the last 30 years or so, so he’s managed to have a good deal of success. I’ve had uncles and grandfathers that have had businesses that worked and had business that didn’t. If they get one that doesn’t work, they typically have dusted off the gloves and gotten up and tried something again. I think my grandfather has started seven or eight different businesses. Some of them have had great success and some of them haven’t, but he always is trying.
Andrew: I remember growing up that my dad was an entrepreneur and there was one time when a company that he ran did close and dusting himself off was not so easy. It wasn’t as easy as just ‘Get yourself back up and go on.’ It’s something that’s stayed with me and I fight so much because I don’t want to end up feeling that same pain. Can you describe how one of the setbacks might have influenced you?
Tim: Sure. I think it’s very much a world where you need to figure out, “What did I learn here, how can I apply that to the things that I do, and what are the things that I enjoy in life?” I like working for myself. I like trying out new things. I did both of those things in the last company that I worked for that didn’t ultimately have a happy outcome, but in the next company that I work for, I want those same things to still exist. As long as you have that belief in yourself, that even if it didn’t work for X or Y, you’re going to learn from it. The things I really enjoy about running a company are working for myself, being the person at the end of the day, having that flexibility. I think it’s been very good to see that people that I know from a familial perspective have had that experience. They have extracted things that are great from experiences that didn’t have a level of success that people would normally attribute to it, and then applied them to experiences that did have that level of success.
Andrew: The company that you mentioned earlier was Revolution Health?
Tim: I’m sorry?
Andrew: Sorry, I wanted to make sure that we clarify the company that you were with before, that had a setback that you were referencing.
Tim: Oh, no. That was just with family members that had companies that I’ve seen.
Andrew: Got you. Okay. One more area of your pre-business life that I’m interested about, it seems that you were starting companies from an early age. I read that you were peddling candy at eight. Tell me about that.
Tim: Yeah, I don’t know if when you’re eight you’re really starting companies. But, I learned the concept of buying wholesale and selling retail at a very early age. I think I was always of a mindset of wanting to figure out how you can do something better and where the inefficiencies are in markets and if you can provide solutions for them. I didn’t realize the fact, when I was eight or nine year old, that if you brought candy to a park that you bought at the local drugstore in the giant bags and sold it in individual pieces, you were actually solving an inefficiency. The fact that you couldn’t buy candy in a park was an inefficiency, but it just made sense. I think that that’s been true in a lot of things that I’ve done. Even the businesses that Living Social has been in have largely been around new markets and new opportunities where we think that there are going to be some inefficiencies that we can help make more efficient. I think that’s how my brain is programmed or wired: I like trying to solve inefficient markets.
Andrew: There’s also a certain amount of salesmanship. To be able to walk up to someone else and say, “Give me money in exchange for something that I happen to have that I know you’re going to want.” That takes some sales courage. Were you always a salesman?
Tim: I don’t know. I’m not even sure how much I consider myself a salesman at this point in time or at least in the sense that a lot of people do. I do think a lot of what I do has sales components to the job, whether that’s raising money or making sure people understand the core mission, beliefs and values of the company are. I think that’s something I’ve gotten better at, those communication skills that allow me to get people on the same page and convince them to do something with us. That being said, we’ve got a lot of people on our team that are a lot better than I am at traditional sales role for sure.
Andrew: Considering that you were selling candy so early, that you had entrepreneurs in your family for so long, why did you go to work at AOL? Why not start your own business at that point?
Tim: It’s not an intuitive thing necessarily to graduate from college and then immediately go and start something. I think there were two big reasons. One was that having the capability to pay rent was a good, positive thing. I probably had hundreds, or low thousands, of dollars in my savings account when I graduated from college. So the ability to finance a company was not really there. Second, and probably the bigger piece, was that I didn’t know how to work in a company environment. Everything I had done had always been very, very small or by myself. Understanding spaces and industries and what makes people tick was something that I didn’t have as much. I think working in an environment, even if it was only for a couple of years, really gave me that core base, which has certainly been very, very helpful today as Living Social has grown.
Andrew: And you met your co-founders at AOL, right?
Tim: I met them at Revolution Health.
Andrew: I see, at Revolution Health. Okay. So, you worked at AOL and you said you learned a lot there. What did you learn working at AOL?
Tim: Well, some of the stuff I just touched on. I think the biggest thing was how to work with other people.
Andrew: Can you give me an example of that?
Tim: Sure. When you’re 21 or 22 years old and in college and you do a group project, that’s the extent of interactions with other people in a working environment that you generally have. A professional environment is a different environment than a wait-staff environment or a lot of traditional college jobs that people have. I think it was very telling to understand the things that make people tick in a professional environment. I remember even going into some of my first meetings, it was like an entirely new world because you understand that there’s actually somebody who takes notes on all these meetings and then sends it out to everything. And I was wondering: Is that efficient? Is it not efficient? Is that accepted practice? Is it not accepted practice?
Having that base level of understanding of why people do things in a professional environment, specifically in a consumer technology company, was a core set that I really needed to have in order to have some degree of ability to do something on my own later.
Andrew: Tim, you said that everything you’d done before was sort of on your own and smaller. I didn’t read about any of the business that you’d launched before. Did you mean that you launched start-ups before then?
Tim: No, not really “startups” in the traditional sense that most people would think of start-ups. When I was in college, I started a handyman business for awhile. I hired some other college friends and we would get people to pay us an hourly wage to paint their fences and do things like that. We ended up having four or five people that did stuff and it worked out well. Another thing that I did was a lot of rndc. As a college student, I would go on Craigslist and I’d see that people were posting things all the time for really basic engineering skills. You could make $40 an hour or something like that building a basic database on the front for somebody to go do a data entry project or something incredibly easy like that. So I taught myself some skills to do that type of thing. But that wasn’t necessarily a business, per se, that was kind of in a vacuum where I thought I could make some decent dough and learn some skills.
Andrew: So then you decide around 2007 that you’re going to launch a business, Living Social. What was the original idea that made you say, “It’s time, I’ve got to go launch.”?
Tim: It was less a specific idea and more a set of circumstances. I had gotten to know the other co-founders and we made up the core product development team at Revolution Health. I ran the product and design group. Another one was the lead front-end engineer, another was the chief architect, and the other ran the ops team. So we were kind of the core parts of building a consumer technology company. When Facebook opened up their platform in May of 2007, it was really one of those things where I had been thinking, “What can I do? Are there opportunities that are out there?” Suddenly, that platform opened up and two light bulbs went off. The first was that if you had something mildly interesting, you could probably acquire users faster and cheaper than you ever could in the history of the web, which fundamentally seemed like a good thing. The second was that you could get generalized location data on a per user level. So I could know that you were in the Washington, D.C. network or somebody was in the New York network. My question then was that if you could get a lot of users and knew where they lived, what could you build that would be an interesting model? So we started to build products where they told us what they like to do in real life. We thought if we knew what people like to do in real life and we knew where they lived, that’s a couple of interesting data sets. We didn’t necessarily know how we were going to monetize that other than that we were trying to do things in more commerce verticals or actually spending money. It wasn’t that they liked to go jogging, it was that they liked to read books or go out to eat, etc. We thought if we had those data sets, we would have an opportunity to build a product and figure out what the model was later.
Andrew: Steve Case, early investor, you worked for him at AOL. He’s been a supporter from the very beginning. What kind of feedback did he give you on this idea? How did he help shape your vision?
Tim: We first started in the summer of 2007 and we got our first investment round about a year later in the summer of 2008. Steve, his firm Revolution and one other firm, GrowTech, were the two investors that led that round. Initially, he took a little bit of a wait and see approach: were we getting some traction? We’d been able to get some traction, and then at that point in time I think he thought it was interesting that we might have been onto something. We’ll be the first ones to admit, and he will as well, that we didn’t know exactly where it was going. But we built products, we’d started to build a team, we had users on it, we had a little of revenue coming in. We were there. One of the things that he’s always said and that’s been helpful is that when you really do see the model and you feel that you understand the model and it works, you just need to totally slam the pedal down and don’t be shy about things. Because when you’re shy about things, that’s opportunities for other people to come and try to take a piece of your pie.
Andrew: All right. I’m going to come back to what happened in 2007. Slamming on the pedal, today, means what for you?
Tim: “More, better, faster,” is probably the best way of putting it. At the beginning of 2010, we were about 33 employees and today we’re about 1,500. So it’s been really tremendous growth overall and we think it’s still very early in this space. This is a global brand. We’ll do some substantial growth from an international perspective at this point in time. We think that there are a lot of new products and services that we can launch. Really, we view our jobs as: We’ve got a giant megaphone in every city in the world. Consumers are looking to us to give them something to do each day. We also have a great merchant base in all the communities that we’re in. And it’s our job to provide that connective tissue between those consumers and those merchants. I think that will evolve over time. The daily deal business is primarily how people have done it, but we’ve launched something called [inaudible], we’ve launched the instant product, etc. A lot of putting the pedal down is making sure our brand is known by a lot of people, getting more users, expanding globally, and then taking these products that are conduits between consumers and merchants and really making them something that can fulfill their full potential and really be that place that people go to in order to interact with local businesses.
Andrew: Okay. Going back to 2007, you told us what the original idea was. What was the first thing that you launched based on that idea?
Tim: We launched something called Visual Bookshelf, which actually, to this day, still exists. It’s one of the larger book-sharing applications on Facebook. At one point in time, it got more book reviews per day than Amazon.com got. It was actually a pretty successful product.
Andrew: Overall, I think you got to 80 million items, 6.4 million beta users who collectively reviewed those items, huge success. When you launch something, even though you have the fire of Facebook at the time, which was helping, how do you get to that size?
Tim: A little bit of it is luck, but it is also really understanding that platform and understanding what is going to make somebody want to share something else out with their friends.
Andrew: What is that, that makes people want to share?
Tim: It’s psychological more than anything. What are the rewards that they’re going to get for sharing? Are they going to be viewed in higher esteem by their friends? Are they going to get something financially for doing it? Are they going to feel smarter or superior for doing it?
Andrew: Can you help illustrate those ideas, maybe with one specific example of how you applied them back in the early days of Living Social, to increase virality and increase use?
Tim: Sure. We launched a product called “Pick Your 5” at one point in time. People could kind of pick their five favorite anything and then go share it out with the world. That made them seem really smart. It’s the online analogy of coffee table books. People in their living room, they pick things that they want other people to perceive about them and the same thing kind of existed here. People would pick “My 5 Favorite Movies of All Time.” In reality, some of their favorite movies might have been ‘Tommy Boy’ and ‘Animal House,’ etc., but they would pick things like ‘The Piano’ and that type of thing because they wanted to be perceived in a certain light. We would give them tools to reflect this persona that they wanted other people to see about them.
Andrew: So they used the tools to reflect the persona that they want people to see. How do you get them to spread it, to be more viral about it? To not just put it on there the way someone might put a phrase in the ‘What are you doing now?’ box on Facebook? How did you supercharge it? How did you step on the gas, as you say?
Tim: I think a lot of that was an effective use of the Facebook newsfeed, which is the primary place where everybody goes on Facebook. So we would give people the opportunity to post that out to their newsfeed. A lot of people would take it because the content that they were producing was things that they wanted to share because it would make them seem smarter or those things that I just talked about. Newsfeed was a very significant driver of growth. As Facebook has changed some of their policies over time, that’s changed a little bit. In the 2008-2009 heyday, it was a very large driver of growth.
Andrew: When you were feeling around for the next model, did you think you had it at any one point, when you were trying to figure out your business model?
Tim: Sure. We actually had built a pretty substantive business. We had a lot of users on these applications. We had actually started to build a site that was outside of Facebook that users could interact with as well and that had started to get some traffic. We’d had some good traction. We were dealing, not in the tens or hundreds of thousands of dollars, in seven figure amounts from an advertising perspective per month. We had big clients like Coke and Target and various things that were actually leveraging us as a way to reach consumers via social media. It was really one of those things where we’d built up this asset base, but we weren’t really sure we could see the business going from what we were doing in advertising revenue to ten million dollars a month, certainly not going to $100 million a month. That was kind of our aspiration, just seeing that we were at this moment in time where a confluence of social media, location, more sophisticated ways to advertise, all these things were coming together. You could build a really big business due to that confluence. We just had aspirations higher than doing something that would do a seven figure amount per month. We wanted something that could do eight or nine figures per month. So we kept re-cranking to figure out if we could find that model.
Andrew: That’s interesting. That’s one of the big questions I had about your evolution. How do you end up with a successful business by many people’s standards and then say, ‘No, that’s not right for us, we’re going to go and shift, more than pivot, into something completely different,’ which is what Living Social is today?
Tim: There’s a slightly more natural evolution. If you look back at the core premise that we had, which was that if we could get people to tell us what they like to do and we knew where they lived, those seemed like some pretty strong assets to have. So the initial products that we built a reasonably strong advertising business on were really all around those people telling us what they like to do and building that user base. Then we were trying to figure out if there were better models. We acquired a company at the very beginning of 2009 that had a local sales force on the ground in a couple of different markets, in Boston, New York and D.C. They actually were working with restaurants and bars and then also big beer wine’s beer distributors. Bacardi would go to them and say, “Hey, we want a thousand people in New York to try a Bacardi and Coke in the next 30 days. We’ll pay for the cost of the drink and give you $20 per person that you get to do it.” Then they would go sign up these bars and restaurants and say, “If somebody comes in with this sheet of paper or this thing on their phone, give them a free drink and we’ll cut you a check for it at the end of the month. You get all the upside,” and everything like that. We actually bought that company because we knew the psychographic that would be interested in that type of product through their interactions and their behaviors with us already. We knew that they lived in the New York area. So we would say, “Hey, do you want free booze?” That is a reasonably compelling value proposition for a certain type of person. Then they would say, “Yes,” and they would go and print this thing out or send it to their phone and walk into the bar. It was really doing that online to offline commerce whirl. The evolution happened. That’s not exactly what we do today, but it’s the same general family tree. That evolution sort of happened, but we were trying out things like that because we really wanted to find that model that could be the $10 million to $100 million a month model.
Andrew: The company was BuyYourFriendaDrink.com?
Tim: That’s right.
Andrew: You say you were trying out things like that. Tell me about one other thing that you did that maybe failed. I don’t want to communicate to people that, “Hey, this is Tim, a guy who anything he touches works out well.” I want to humanize this story and make it more relatable by seeing, “Here’s how he thought through it.”
Tim: Everything I touch definitely does not work out. There’s one thing I can communicate. Earlier on, we thought we could potentially do a world where we could arbitrage off of an affiliate model. Amazon has an affiliate’s program and we had a lot of users in books and we thought that we might actually be able to build a sticky net product where we could go and acquire a user at some amount and they would buy enough stuff through us that a referral link that we would have a positive arbitrage business. We geared up. We shifted the product to have certain pathways through and everything. We could do it, but we could do it at an ROI positive level. We could go and spend $10 and only make $9 back, but we couldn’t do the inverse. We spent a lot of time figuring that out. Then one of the things we learned was that a business model built on affiliate models are kind of crap.
Andrew: I love that. How about one other one, one other attempt?
Tim: Let’s see. I’ll give you another example. We started to build up a business when we had all the Facebook apps and all the traffic around this idea of possibly doing a data business around it. Could we give insights to a book publisher or something? Here is somebody that’s read five books of the same genre of this new author that came out. You’re trying to promote this. Look, they’ve read five books of this author or this other author that’s very similar. We can go and promote to these people.’ We weren’t wrong in the fact that we believed that there was a pretty high likelihood that our consumer would be in the right market and that they would actually want to read that book. What we were wrong in was the fact that publishers just would believe/get/understand that and actually want to spend the money beyond very, very small test amounts to actually put that to a real business-scale test. So we would go say, “We can provide you with these people that are highly likely to want to go buy or read this book.” And they would say, “Yeah, we sort of understand that, uh, if you can do a bunch of free tests for us, that’s great. Maybe we’ll do some stuff after that…” We had this belief that we could move tens of hundreds of thousands of books, but it was one of those things where we couldn’t lead the horse to water to drink enough. Ultimately, that means it was going to fail. It didn’t matter how good of an idea it was going to actually be. If the person that needed to power that business model from a financial perspective didn’t want to play ball, it didn’t matter.
Andrew: I read that as a kid, you were called “Stat Man” because you just knew stats on baseball cards, you were great at numbers. How does being “Stat Man” today help you analyze ideas like the ones that you just told us and maybe even help you deal with them when they don’t work out?
Tim: You have your dossier well done there. I’ve always like numbers. I’m neurotic about it in many ways. I remember when I was a kid, I used to take all the change in my jar and stack it little dollar piles to see how much the change in the jar was actually worth. I would always be running calculations and things like that, figuring out pacing. If I added this amount of change that I added over the last three months, then I’ll have a $100 six months from now. I was doing that type of thing, and it’s not really any different than what I do now, it’s just kind of different items and on a different scale. I think it’s very important to understand the core metrics that drive the business and to feel the pulse of it. It’s one thing to look at the daily reports. It’s another thing to understand how the numbers got there in the daily reports. Are behaviors changing? Are more purchases occurring after lunch than there usually is? It’s understanding those nuances. I feel like stats are clearly something that are inherently quantitative. But I feel there can be a qualitative understanding of the stats, and the feeling associated with them, just like with a baseball player. At the end of the season, he might end up a 300-hitter, but there’s a story as to how he got to become a 300-hitter over the course of that year. I think the same thing will exist in most metrics for a business.
Andrew: Statistics, planning, spreadsheets, numbers and analysis of them is something that is under-reported and under-discussed in the tech industry, because it doesn’t make for fun reading. It’s not something that most people outside of the entrepreneur world, or the tech world, care about. I have an opportunity with you on, to understand it better and to draw out the purpose of it. I want to use that. Can you give me maybe an example of how your ability to analyze a situation using stats helped improve your business? Because through that, we are all going to take away the understanding that we need to do it and get a sense of how we can do it.
Tim: First things first, you can drown yourself in metrics. That’s, I think, a common thing that happens. Everything is trackable but not everything should be paid attention to. Step one is just understanding the core things in your business that you really need to know. It’s got to look a lot more like three or four stats than 30 or 40 stats. Identifying what those are and then doing a checkpoint every three or four months: Are these still the same, right metrics that I need to be tracking? Because if your business isn’t evolving over time, either you are in a fantastic industry or you’re not paying enough attention. This will get a little bit to the pacing and the feel.
The first thing that I look up when I wake up in the morning, which is usually on the earlier side, is what’s revenue at so far in the day? How many emails have been sent out? Things like that. It’s kind of funny. I’m actually our early warning system. If there’s a problem with our email delivery for some reason, I’ll just kind of sense that the stats are running about 10% less than they should right now, just intuitively. So I’ll shoot off a note to our development team and ask if everything’s going OK. If you really understand the stats that are important for your business and know what the revenue numbers should be at, at this point in time, and understand the feel and the pacing, it can really help drive and be an early warning system. The second thing to talk about in stats is cohorts. Cohorts are incredibly important. They can be an early warning system for your business. Are the people that are joining your service now, whether it’s a free service or it’s a paid service, are they behaving similarly to or better/worse than people who joined your service six months ago? To know and understand that is like the early warning sign on your business. If they’re behaving more poorly, why are they? What’s happened? What’s changed this? Do you need to impact other things on your business to make sure you’re adapting to what that new behavior is? From my perspective, that’s one of our core things that we track, how the cohorts behave over time.
Andrew: Was there a change that you had to make because of that? Did you at some point early on maybe see that the new people were much more engaged in some aspect of the business and you had to shift to that? How did that get used?
Tim: Sure. We are a marketing intensive company. We spend a lot of dollars on online advertising, on offline advertising. One of the things that we look at all the time is the cohorts based on source. Are people that are coming from Google behaving the same or are they from? Every single week, or every single day, we will absolutely adjust our marketing spin, or at least look at whether to adjust it, based on how these users are actually performing at this point. So it’s a very real thing. The cohort analyses for us very much drive our marketing spin.
Andrew: Okay. Back to the story. In 2009 you acquire Buy Your Friend a Drink. It helps influence the direction of the business going forward. At what point did you know this was your new direction? How did you know what you learned from there was it?
Tim: I think we looked at what we learned from there and the overall asset base that we’d built up. If we look at the competitive landscape, there are a lot of people now starting to play in that local commerce sandbox. Just seeing that all these happening made us say, “Look, we can see an opportunity. We think that this is something that could scale. Not only scale domestically, but it could be a global business. Let’s give it a go.” So we did. It was a little risky because we had an actual advertising business that was doing a substantive amount of money every month. But we just saw a path on this where the advertising business was going to be hard to get to a $10 million a month number, and pretty much impossible to get to $100 million a month. We saw that this could scale and actually get to something that substantive.
Andrew: Why was building to $100 million a month, or whatever the number is, why is that so important?
Tim: It’s not necessarily the $100 million a month number. It’s just that we thought the potential in the space overall would support a couple of businesses. If you look at Living Social and Local and all the confluence of things that were coming together, there were going to be some companies that were that large that were going to be built out of that space.
Andrew: Forgive me, I mean to you. Why is it so important to you, to Tim, that you build a company with $100 million a month? I’m not saying this as criticism or praise. I just want to get to know the person behind the business. What is it about it that was so important?
Tim: Once again, it’s less about the number and more about fulfilling potential.
Andrew: Your personal potential. Your personal potential couldn’t be fulfilled with just a small, $1 million Facebook company. You knew you were capable of more. Is that what you’re saying?
Tim: No, I don’t think that’s it. It was more that we had the skill set and the personnel to attack this really big market that there were going to be a couple of winners in. We felt that we had this internal drive and that we owed it to ourselves to give it our best shot. If the market hadn’t existed, I think we would have been totally fulfilled with building something that was doing a couple million dollars a month as opposed to more. But it was more of the desire to go after opportunities and to take as big a swing as we could. If as big a swing as we could take was a couple million dollars a month, great. But we thought the biggest swing we could take was going to be substantially more than that. That’s kind of what drove us.
Andrew: You said you saw this opportunity and it was a sort of risk because you had this successful business behind you. Could you have, or did you try to, run both of them at the same time?
Tim: No. We pretty much, in a very short period of time, decided that we had to prioritize what we were doing, because it’s very hard to have two mistresses. You need to have all of your focus. Frankly, we were taking a much bigger swing and we owed it to ourselves and our investors to have that level of focus. In some ways, I feel like we were dragging people to get there. It’s hard to go to your board and say, “We just had our best advertising revenue month ever, but also, we’re going to go try out this model that we think has a lot of potential.” To their credit, they gave us the leeway to actually do so, but it was risky.
Andrew: Wow, I didn’t realize you did that. You basically said: We have this thing that’s working. We’re giving it up to do this new thing that we believe, not see yet, but we believe it’s going to be huge. Am I understanding that right?
Tim: Yeah, that’s a big part of what the equation was. It was all-around potential and how much we believed in it. Did we want to take that bet? Could we convince our investors that it was a good bet to make?
Andrew: There are a lot of people who are young today, who fifty years from now are going to be looking back and saying, “I knew that this was coming, but I couldn’t make the change. I couldn’t leave a job in order to pursue this whatever it is.” You were able to do this, not in a matter of years and not in a matter of months. It feels to me, looking at just the dossier that I have on you that’s very CIA-worthy, that in a matter of days or weeks you were able to get yourself to shift. How do you do that? How do you tell yourself, “No, this is the right thing to do”?
Tim: I think it’s a bunch of things that compound together. It’s understanding the market, understanding team capabilities. It’s understanding if you have the financial cash balance to do this. It’s really putting all those things together and then trying to make the best decision you can. That’s a lot of the job of the CEO, is to look at all the different variables that exist and then put forward the plan that he/she thinks makes the most sense. That’s essentially what we did. It wasn’t all me, it was the rest of the team and the board and everything.
Andrew: But does it come easier to you because you’re Stat Man? I don’t want to say that this was something that happened in the past, and I keep bringing it up, but I read too that you took a Segway to work every day because you did some calculation that let you know it was going to be cheaper to use a Segway than other modes of transportation. There’s a certain personality that I’m trying to get at. Is that the personality that got you to make the switch so quickly?
Tim: I don’t know. I’m probably sick in the head to some degree. With the whole Segway thing, I totally get that it’s ridiculous. I knew that if I did that I would have to be okay with a certain amount of ridicule every day.
Andrew: Ridicule? Not here, my friend. This is the kind of stuff that I praise and I admire. I love that and I want to understand it, that’s all.
Tim: Sure. If we follow that model, the driving model is that I live 1.4 miles away from the office. If I walk it takes thirty or thirty five minutes. If I walk to the metro, metro down, then walk from the metro station to my office, it takes around thirty minutes. If I catch everything right, it maybe shaves a couple minutes off. If I drive, it ends up taking about ten minutes or so because of city traffic. But then I have to go to a parking ramp, and it takes another five minutes to walk from there and I have to pay $20. I live a mile and a half from work and they all seemed incredibly ridiculous things to actually do. Should you be spending an hour and a half commuting if you live a mile and a half from work? No. So I thought about different modes of transportation. I biked for a little while. After my third near-death experience, I decided that wasn’t for me. So I thought about the different modes of transportation. It was really a matter of, “Okay. If I Segway, I can get door to door in 11 minutes.” That saved me 45 minutes a day, roughly, and how much is 45 minutes a day worth to you? That was really the question: What is that worth? To me, 45 minutes a day is a really substantive thing. It just made sense.
Andrew: Right now there are people listening to us on their iPhones who are smiling big and saying, “This guy is speaking to me. There aren’t a lot of people in the world who see the world this way. I see it this way and I see that Tim does too.” I think you guys are kindred spirits. I feel it too. I admire that. How much were you influenced by Groupon and the other coupon sites that were going on when you bought Buy Your Friend a Drink and getting into the coupon space?
Tim: When we bought them, there were obviously people trying to do things around local, but the space didn’t really exist at that point in time. We thought that this online to offline thing could work and have legs. So this was a model to go and try. They had been around as an independent company for about a year prior, trying to work on that sort of thing. We didn’t really know what else was going on in the industry other than there were people trying to play around. Over time, obviously, you see the competitive landscape come to fruition. It was kind of a good and a bad thing, because we thought this online to offline thing had legs. But it’s kind of a double-edged sword because you saw that there were people playing in the same sandbox, as we went along with things. It was validating because we thought this thing had legs and other people were trying to do online to offline. But it was also a little scary because there were other people doing things that were having different degrees of success. It might be a lot, it might be a little, but we realized we had to step up our game here and amp things up as much as possible.
Andrew: The first users of the discounts that you offered were part of the Facebook community that you built? Is that how you got your start?
Tim: Yeah. We said, “Hey, we have this new product that we would like to offer you,” and they would sign up for it.
Andrew: What was the next piece after that new product? The product is the one that you described with drinks and you go in and get your free drinks and Living Social gets paid every time you do. What was the next piece to the puzzle?
Tim: Then we switched to more of the daily deal type of model. We said, “Okay. We’ve got salespeople that are walking to bars and restaurants. As they walk from one restaurant to another one, they are passing all these different types of local merchants. Is there a way we can start to work and interact with them?” We had a couple different models that we wanted to try and test out. The daily deal model was the one that resonated the most and stuck. We had that asset base and we put the pedal down.
Andrew: What made you decide to buy Urban Escapes in 2010 and offer discounts on adventure travel, or on travel?
Tim: Well, we have a giant megaphone in every city that we’re in. People are looking to us to give them something interesting to do. We thought that the Urban Escapes team was fantastic at putting together interesting things to do, so we could really go and be that marketing channel for them. That’s turned out to be true. They were live in about four cities when we acquired them and we’ve been able to help them scale. Now they’re called Living Social Adventures and they’re in about 30 markets. We’ve been able to help them grow what their dream and vision was. They’ve provided unique experiences that you really can’t get anywhere else out there. So it’s been successful for us.
Andrew: From a business point of view, with so many couponing sites all trying to build new members, you were able to when they couldn’t. Why? What did you do, from a business point of view, right?
Tim: I think a little bit of it was just understanding our model and our data, realizing what a payback period was on a user. If we put $1 into this ecosystem, we’re going to get $2 back. As soon as we understood that with a high degree of confidence, it moved to okay how can we shove as many dollars through this pipe as possible? People get nervous about spending large sums of money, not wrongfully so. But sometimes you just need to trust the data. A lot of times, people are more comfortable spending $100 thousand on something that they feel 10% confident in that they spending $1 million on something that feels 90% confident. And that’s just screwy to me. If there’s something with a 90% confidence level and you can spend a lot of money on it, that’s where the real opportunity is. I think we realized that and that’s how we thought, whereas some other people in the space were a little bit less aggressive from that perspective.
Andrew: All right. We have only four and half minutes left here. You raised $400 million recently and, according to TechCrunch, and I guess the filings after that, you took some money off the table. Why?
Tim: It’s not really something we discuss from how rounds are structured. Other than that the primary purpose for that round was to really kind of grow and keep growing the company. There are obviously nuances that go into this kind of stuff, but that was really the primary purpose of the round.
Andrew: A lot of what’s going on today is similar, at least when I was reading the early articles about the discount space that you were in. People are comparing you to Mercata, the company that Paul Allen invested $90 million in, where he was going to group a bunch of people together and buy televisions and other equipment at cheaper prices. Why is this different?
Tim: I think it’s local commerce. Televisions are not inherently local. Going to your restaurant down the street is.
Andrew: Why is local better for these deals than national?
Tim: Well, you could buy a TV online through other places. You can’t go buy something from the restaurant or the spa down the street online. A lot of the innovation and the evolution in the space is actually letting you buy from your own local business in an online environment. The model itself is something that is a very helpful way to do that. The innovation was really: I can go buy from Joe’s Bar & Grill when I’m sitting here on my laptop, or from my phone, and I didn’t use to be able to do that. I think with the TV, you could go buy a TV somewhere else online. The innovation that they were trying to do was solely in that model. I think that this was pretty different because you’re talking about local businesses that have never had an effective way to market their products and services in an efficient, manageable, trackable way. That now exists and consumers can interact with that really easily.
Andrew: So going local depends on having an international sales force. People who talk individually, and from what I’ve read of accounts from store owners who have talked to your salespeople, sometimes your salespeople will walk into the store. I guess often they will walk into the store, they’ll talk to the founder and they’ll set up the deal.
Andrew: How do you create such a big sales force so quickly and have it running so well that each one of these guys represents you well? How do you do that so quickly?
Tim: It’s a challenge. How to bring so many people in and make sure that they understand the company cultures and values is really hard. A lot of it is going the extra mile as much as you possibly can. We do company all-hands usually a couple times a month, just to make sure that everybody knows what’s going on and why things are happening. We broadcast them out. We try and really do those things. Fundamentally, we think that we need to be partners, and long-term partners, with the businesses that we work with. So we’ll interact with them in whatever way they want to interact with us, whether it’s email, over the phone, or in person where we shake hands and look eye-to-eye.
Andrew: How structured is that relationship that a salesperson has with a local merchant, to make sure that the presentation is consistent?
Tim: We’ll give them the tools that they need to be the best that they can. We’ll give them guidelines on things to follow. Obviously you don’t want a thousand different people doing things in a thousand different ways, so there’s that core structure that’s there. But we rely on local knowledge and their experiences to be able to understand what the very specific needs are for that merchant.
Andrew: Finally, what’s the most recent Living Social deal that you took advantage of?
Tim: I literally bought the one in D.C. this morning, which is a Mexican restaurant about five blocks from where I live. That’s what I most recently bought and I used one for dinner last night as well.
Andrew: Right on. Tim, thanks for doing the interview. The website is LivingSocial.com. Thank you.
Tim: Awesome. Thanks, Andrew, bye-bye.