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LivingSocial Offers a Cautionary Tale to Today’s Unicorns

69 points by mikek 11y ago

deleted 11y ago
[deleted]
GVIrish 11y ago
It's been interesting to watch the rise, peak, and fall of this irrational frenzy behind companies that have a terrible business model or no business model at all. It seems like the investment community is finally learning that yes you can get millions of people excited about something that is free or heavily discounted to the point of losing money but actually making money that way is extremely difficult. How many billions in financial and years of human capital have been burned learning this lesson? The rise and fall of Groupon, LivingSocial and others just makes me wonder how much damage was done to small businesses in the process.
- ffn 11y ago
  If by small business you mean get-rich-quick schemes to con greedy / desperate investors, then tremendous damage has been done. If by small business, you mean a small group of individuals (or just one person) who have an idea and several free weekends / week-nights to implement that idea into a product then put it in front of potential users via sites like HN (if some sort of developer-centric product) or on a market-place like amazon or Taobao (if some sort of real product), then none at all. The monetary cost of delivering most new products to users is pretty much at most $100 (the time cost hasn't changed though; it still takes forever to get really good at doing something). Which means, for the majority of small businesses, millions of investors dollars is next to useless to the expert owner when he or she can bootstrap him/herself to profitability without them. Sure, it might take 2 or 3 years longer, but the small business owner is also under no sleep-depriving pressure to go fast, and when one's runway is effectively infinite, one doesn't run out of it. So to the DIY owner with plenty of professional skill, discipline, and patience, investor money (and the associated risk and burnout) just isn't attractive. Which leaves the venture investment field largely populated by impatient hot-shots peddling get-rich-quick schemes. And, having been burned time and time again, perhaps these investors would have learned by now.
  - mlucero 11y ago
    I think he was referring to the small businesses that actually used services like Groupon and LivingSocial to sell their products.
  - barkingcat 11y ago
    Small businesses as in the small restaurants and vendors who sold coupons through things like groupon or livingsocial. It seems that these heavy discounts weren't really profitable and didn't bring back repeat customers, and many places sold multiple lifetimes of services (like at nail salons, etc) at a loss.
WildUtah 11y ago
Everybody in the startup community could explain why LivingSocial was doomed from the start five years ago. It's only the East Coast naifs investing great wealth of other people's money that are in any way astonished. I wouldn't consider that a cautionary tale for anyone but easily conned New York investors.
- brainflake 11y ago
  I sense some bias in your comment, I just can't put my finger on it...
  - kasey_junk 11y ago
    I love the idea that it is the New Yorkers who are financially naive. Like what kind of upside down narrative is that? "Ha Ha let's go fleece some of those hayseeds from NYC. Rubes & their money are soon parted when they start playing with the big boys!"
    - rajacombinator 11y ago
      Yes but in startup investing it really is true - east coast people just don't get it.
      - kasey_junk 11y ago
        Hmm, what about the living social story implies that? I for one came out of the square IPO thinking "why do those bay area companies keep getting fleeced by I banks?"
mistralx01 11y ago
The founders and early execs of Living Social did very well! All of them walked away with millions.
- ChuckMcM 11y ago
  Curious if you know that or just think that? They did 10 rounds of funding according to CrunchBase and at first glance I did not see any where the founders took money off the table for themselves.
  - mistralx01 11y ago
    Look through AngeLlist and few other places on the interwebs. Do some sleuthing....
    - jacquesm 11y ago
      You're the person making the claim, that means you already know where the evidence is, and assuming that is true a polite request for sharing that evidence should not be answered with 'do your own homework' on the off-chance that you don't actually have such evidence. So, if you have any evidence it would be much appreciated if you produced it. As a rule, especially with deals like these the founders do not get to take money off the table until the company has achieved certain benchmarks so I'm as curious as the GGP is.
      - ChuckMcM 11y ago
        I don't think they really know. The list of all LivingSocial filings is here: http://www.sec.gov/cgi-bin/browse-edgar?company=LivingSocial&owner=exclude&action=getcompany http://www.sec.gov/cgi-bin/browse-edgar?company=LivingSocial... and the $400M raise filing is here: http://www.sec.gov/Archives/edgar/data/1439606/000143960611000002/xslFormDX01/primary_doc.xml http://www.sec.gov/Archives/edgar/data/1439606/0001439606110... which includes a note that $200M went to "others". But nobody seems to know definitively if those "others" included the founders or if it was just earlier investors cashing out. Given that the egregious cash out by GroupOn's founders had recently occurred I would be surprised if LivingSocial's investors would agree to paying off the founders but stranger things could happen.
dcpdx 11y ago
> “We literally bet the company and went through 12 months of runway in a couple of months because we thought that the time to own the market was right.” This makes no sense. The switching costs for both consumers and businesses is basically zero, and there are aren't really any network effects like there are with Facebook, Twitter, etc. What did they expect to happen at the end of those 2 months? That consumers would ignore the hundreds of other deal players in the market and only buy from LivingSocial?
freshyill 11y ago
I ran into a former coworker from LivingSocial last week. We talked about how they had quite an impressive stable of Ruby developers a few years ago. Many have left, but there's still several who have been there for four or five years. I can't see why so many great developers are still there. Comfort in the knowledge that they could get get another job in a heartbeat if they needed to?
- taf2 11y ago
  Because they pay really well and the job is fun. I remember loving my job at living social. Work does not always need to be about some greater mission. Only reason I left is my startup - is doing rather well
  - freshyill 11y ago
    No doubt the work is challenging and the environment is fun. I'm just surprised the company's financial situation doesn't cause them to leave.
    - potatolicious 11y ago
      People's motivations for staying at a company are pretty varied. That said, without attempting to ascribe anything to the people at LivingSocial, one thing I have noticed is that a large number - if not most - talented devs are also really shit at interviewing and negotiation. Myself and some others I know enjoy interviewing and are at least half-okay at negotiation, so we're very confident on the job market. I have met many developers who can code circles around me for whom interviewing carries a lot of dread, and they won't do it unless they feel they really need to.
- toephu2 11y ago
  never seen developers referred to as horses before
  - freshyill 11y ago
    Stable: a group of people (as athletes, writers, or performers) under one management [0] [0]: http://www.merriam-webster.com/dictionary/stable http://www.merriam-webster.com/dictionary/stable
hitekker 11y ago
> Today, LivingSocial is more unicorpse than unicorn. I like the ring of "unicorpse", hopefully it becomes out go-to word to describe the upcoming batch of startup failures.
- jacquesm 11y ago
  Why do you like it? Do you enjoy the misery of others? Start-ups fail, they did so in the past, they will do so in the future and giving those failures cutesy names to make fun of them is a pretty nasty thing to do. Behind every start-up that fails (ok, almost every) are people working their asses off to try to make a success and in some (again, not all) cases to make a difference. The number of things they have to get right is pretty vast and all it takes is for one of those 'and' gates not to fire or to fire at the wrong moment and all that work was for nothing. Most start-ups are pretty realistic about their chances of success and to exhibit glee at the prospect of failure of others is a negative trait. Suggestion: instead of standing by the wayside and making fun of those that try, try it yourself, give your best idea your best shot and see how that works out. And if you fail, I'll give you props for trying anyway.
  - striking 11y ago
    > Do you enjoy the misery of others? That seems like a pretty loaded question. You have attributed malice to something that may have been an understanding. Liking how a potential buzzword sounds shouldn't (in my opinion) be equated to enjoying the misery of others. "Unicorpse" is a fun word (in my opinion). Although it might be offensive, it is also fun to say. I don't think the user was showing "glee at the prospect of failure of others" as much as he or she was commenting on how fun it is to say.
    - hitekker 11y ago
      > "Unicorpse" is a fun word (in my opinion). Although it might be offensive, it is also fun to say. I don't think the user was showing "glee at the prospect of failure of others" as much as he or she was commenting on how fun it is to say. Correct.
rajacombinator 11y ago
Didn't read, nothing to caution. LivingSocial (puke) was always a straight up cash grab, I'm sure the founders did very well.

69 points by mikek 11y ago

deleted 11y ago

[deleted]

It's been interesting to watch the rise, peak, and fall of this irrational frenzy behind companies that have a terrible business model or no business model at all. It seems like the investment community is finally learning that yes you can get millions of people excited about something that is free or heavily discounted to the point of losing money but actually making money that way is extremely difficult. How many billions in financial and years of human capital have been burned learning this lesson? The rise and fall of Groupon, LivingSocial and others just makes me wonder how much damage was done to small businesses in the process.

ffn 11y ago
If by small business you mean get-rich-quick schemes to con greedy / desperate investors, then tremendous damage has been done. If by small business, you mean a small group of individuals (or just one person) who have an idea and several free weekends / week-nights to implement that idea into a product then put it in front of potential users via sites like HN (if some sort of developer-centric product) or on a market-place like amazon or Taobao (if some sort of real product), then none at all. The monetary cost of delivering most new products to users is pretty much at most $100 (the time cost hasn't changed though; it still takes forever to get really good at doing something). Which means, for the majority of small businesses, millions of investors dollars is next to useless to the expert owner when he or she can bootstrap him/herself to profitability without them. Sure, it might take 2 or 3 years longer, but the small business owner is also under no sleep-depriving pressure to go fast, and when one's runway is effectively infinite, one doesn't run out of it. So to the DIY owner with plenty of professional skill, discipline, and patience, investor money (and the associated risk and burnout) just isn't attractive. Which leaves the venture investment field largely populated by impatient hot-shots peddling get-rich-quick schemes. And, having been burned time and time again, perhaps these investors would have learned by now.
- mlucero 11y ago
  I think he was referring to the small businesses that actually used services like Groupon and LivingSocial to sell their products.
- barkingcat 11y ago
  Small businesses as in the small restaurants and vendors who sold coupons through things like groupon or livingsocial. It seems that these heavy discounts weren't really profitable and didn't bring back repeat customers, and many places sold multiple lifetimes of services (like at nail salons, etc) at a loss.

WildUtah 11y ago

Everybody in the startup community could explain why LivingSocial was doomed from the start five years ago. It's only the East Coast naifs investing great wealth of other people's money that are in any way astonished. I wouldn't consider that a cautionary tale for anyone but easily conned New York investors.

brainflake 11y ago
I sense some bias in your comment, I just can't put my finger on it...
- kasey_junk 11y ago
  I love the idea that it is the New Yorkers who are financially naive. Like what kind of upside down narrative is that? "Ha Ha let's go fleece some of those hayseeds from NYC. Rubes & their money are soon parted when they start playing with the big boys!"
  - rajacombinator 11y ago
    Yes but in startup investing it really is true - east coast people just don't get it.
    - kasey_junk 11y ago
      Hmm, what about the living social story implies that? I for one came out of the square IPO thinking "why do those bay area companies keep getting fleeced by I banks?"

mistralx01 11y ago

The founders and early execs of Living Social did very well! All of them walked away with millions.

ChuckMcM 11y ago
Curious if you know that or just think that? They did 10 rounds of funding according to CrunchBase and at first glance I did not see any where the founders took money off the table for themselves.
- mistralx01 11y ago
  Look through AngeLlist and few other places on the interwebs. Do some sleuthing....
  - jacquesm 11y ago
    You're the person making the claim, that means you already know where the evidence is, and assuming that is true a polite request for sharing that evidence should not be answered with 'do your own homework' on the off-chance that you don't actually have such evidence. So, if you have any evidence it would be much appreciated if you produced it. As a rule, especially with deals like these the founders do not get to take money off the table until the company has achieved certain benchmarks so I'm as curious as the GGP is.
    - ChuckMcM 11y ago
      I don't think they really know. The list of all LivingSocial filings is here: http://www.sec.gov/cgi-bin/browse-edgar?company=LivingSocial&owner=exclude&action=getcompany http://www.sec.gov/cgi-bin/browse-edgar?company=LivingSocial... and the $400M raise filing is here: http://www.sec.gov/Archives/edgar/data/1439606/000143960611000002/xslFormDX01/primary_doc.xml http://www.sec.gov/Archives/edgar/data/1439606/0001439606110... which includes a note that $200M went to "others". But nobody seems to know definitively if those "others" included the founders or if it was just earlier investors cashing out. Given that the egregious cash out by GroupOn's founders had recently occurred I would be surprised if LivingSocial's investors would agree to paying off the founders but stranger things could happen.

dcpdx 11y ago

> “We literally bet the company and went through 12 months of runway in a couple of months because we thought that the time to own the market was right.” This makes no sense. The switching costs for both consumers and businesses is basically zero, and there are aren't really any network effects like there are with Facebook, Twitter, etc. What did they expect to happen at the end of those 2 months? That consumers would ignore the hundreds of other deal players in the market and only buy from LivingSocial?

freshyill 11y ago

I ran into a former coworker from LivingSocial last week. We talked about how they had quite an impressive stable of Ruby developers a few years ago. Many have left, but there's still several who have been there for four or five years. I can't see why so many great developers are still there. Comfort in the knowledge that they could get get another job in a heartbeat if they needed to?

taf2 11y ago
Because they pay really well and the job is fun. I remember loving my job at living social. Work does not always need to be about some greater mission. Only reason I left is my startup - is doing rather well
- freshyill 11y ago
  No doubt the work is challenging and the environment is fun. I'm just surprised the company's financial situation doesn't cause them to leave.
  - potatolicious 11y ago
    People's motivations for staying at a company are pretty varied. That said, without attempting to ascribe anything to the people at LivingSocial, one thing I have noticed is that a large number - if not most - talented devs are also really shit at interviewing and negotiation. Myself and some others I know enjoy interviewing and are at least half-okay at negotiation, so we're very confident on the job market. I have met many developers who can code circles around me for whom interviewing carries a lot of dread, and they won't do it unless they feel they really need to.
toephu2 11y ago
never seen developers referred to as horses before
- freshyill 11y ago
  Stable: a group of people (as athletes, writers, or performers) under one management [0] [0]: http://www.merriam-webster.com/dictionary/stable http://www.merriam-webster.com/dictionary/stable

hitekker 11y ago

> Today, LivingSocial is more unicorpse than unicorn. I like the ring of "unicorpse", hopefully it becomes out go-to word to describe the upcoming batch of startup failures.

jacquesm 11y ago
Why do you like it? Do you enjoy the misery of others? Start-ups fail, they did so in the past, they will do so in the future and giving those failures cutesy names to make fun of them is a pretty nasty thing to do. Behind every start-up that fails (ok, almost every) are people working their asses off to try to make a success and in some (again, not all) cases to make a difference. The number of things they have to get right is pretty vast and all it takes is for one of those 'and' gates not to fire or to fire at the wrong moment and all that work was for nothing. Most start-ups are pretty realistic about their chances of success and to exhibit glee at the prospect of failure of others is a negative trait. Suggestion: instead of standing by the wayside and making fun of those that try, try it yourself, give your best idea your best shot and see how that works out. And if you fail, I'll give you props for trying anyway.
- striking 11y ago
  > Do you enjoy the misery of others? That seems like a pretty loaded question. You have attributed malice to something that may have been an understanding. Liking how a potential buzzword sounds shouldn't (in my opinion) be equated to enjoying the misery of others. "Unicorpse" is a fun word (in my opinion). Although it might be offensive, it is also fun to say. I don't think the user was showing "glee at the prospect of failure of others" as much as he or she was commenting on how fun it is to say.
  - hitekker 11y ago
    > "Unicorpse" is a fun word (in my opinion). Although it might be offensive, it is also fun to say. I don't think the user was showing "glee at the prospect of failure of others" as much as he or she was commenting on how fun it is to say. Correct.

rajacombinator 11y ago

Didn't read, nothing to caution. LivingSocial (puke) was always a straight up cash grab, I'm sure the founders did very well.