LivingSocial Is Laying Off More Than 50 Percent of Its Staff

http://recode.net/2016/03/16/livingsocial-is-laying-off-more-than-50-percent-of-its-staff/

by danso • 10 years ago

230 161 10 years ago

recode.net

protomyth2• 10 years ago

"though around 120 of those jobs in customer service will be replaced through outsourcing."

Hiring a cheap call center in some other country I suppose.

product50• 10 years ago

So what? Would you rather have the company scale and have a chance to do well or let it fail given their current cost structure. Think long term. If the company does well, they will hire more Americans workers in roles which do require more application and intellect.

tomjen3• 10 years ago

I actually think customer service require more skills than it may appear straight away - you have to learn to make angry people like you, or at least think they have been treated fairly.

And I have never seen a successful startup that didn't listen to its users - which you can't do if the people who are supposed to talk with them are in a different continent and don't understand the language really well.

protomyth2• 10 years ago

I think its a bit disingenuous to phrase that part like they are just "replacing" those jobs locally. They are lost to the local community, and will never come back. Plus, I wouldn't expect the same level of service (change in stake and incentive), and there is now another possible data breach target.

marvel_boy• 10 years ago

require more application and intellect

What? Customer service requires intellect, a lot .

betenoire• 10 years ago

Would you rather have the company scale and have a chance to do well or let it fail given their current cost structure.

I bet there are other options too.

emodendroket• 10 years ago

Tech startups are a pretty lousy plan for general job growth considering they tend to employ far fewer people, relative to their revenue, than most businesses.

untog• 10 years ago

Unfortunately, this is the perception that ensures customer service experiences stay horrible. It actually takes a lot of skill (including and especially personal skills) to satisfy an angry customer. If you can do it you'll win a loyal customer. But most people don't bother.

pavel_lishin• 10 years ago

If the company does well, they will hire more Americans workers in roles which do require more application and intellect.

Leaving aside the implication that customer service doesn't require either application or intellect, why would they do this if their experience teaches them that outsourcing gets the job done at a fraction of the cost?

STRiDEX• 10 years ago

I hope the jobs stay here. I worked in an IT call center during my time in college in Northern California. I was hourly, but everyone earned around 45-55k which is way cheaper than what they were paying for the same employee in the Bay Area. We were able to drive down for on site training and we all speak English without accents. Really made me believe more companies need to try outsourcing to college towns and rural cities.

flatline• 10 years ago

You realize that you can cut those salaries by 75% by outsourcing them, right? It's really a simple equation of how much you stand to lose from customers having to deal with foreign call center employees vs how much you save. How many people ever have to deal with LS support in the first place, and then, over an issue that is not relatively easy to handle? I bet this was a very easy decision to make.

djloche2• 10 years ago

Agree - I worked in a call center for several years and it paid the bills, and improved 'soft skills' while letting me develop more technical knowledge on the side. Since I wasn't standing on my feet all day making sandwiches or waiting tables, I could come home after solving problems for angry people all day (thankfully I worked for a place that gave their support people the ability to actually resolve the problems), I would still have the energy and mindspace to be able to work on side projects and learn on my own time.

As much as companies try to automate things, I really hope that localized support makes a comeback.

rb8082• 10 years ago

I agree, but do you realize you were being paid 15x the salary of call center workers in India.

sinatra3• 10 years ago

If you had your savings in this company as a shareholder, and if you knew that the company could survive and maybe prosper (unlikely in case of LS) by reducing its cost of customer service by outsourcing it, then would you not support this move?

This is not very different from when you decided to buy a decent quality product made in China when you could have bought a slightly better quality product made in USA for 2X or 3X the price. I'm obviously guessing here to be more dramatic, but the point is true in general.

Cost has always been a major factor in many decisions we make as individuals or organizations. And for a company (which has fiduciary duty to its shareholders), cost is definitely a more important factor than being able to hire Americans.

JonFish852• 10 years ago

If you have savings in this company as a shareholder, you're going to lose your savings. The only people who will make money at this point are the VCs, who by law can't have their "savings" invested in the company. If you're not a VC holding shares at the company you're going to be wiped out via dilution or multipliers in the event of an exit, and god forbid they raise MORE money, because the terms on that deal are going to be pretty rough.

Even if the company manages to turn itself around, older existing shares will probably be wiped out just due to dilution in retaining its executives and share-backed loans, or, again, if it has to raise more money, terms on new money.

acdha5• 10 years ago

There's no legal concept of that oft-asserted “fiduciary duty to maximize shareholder profits” and for a very good reason: it's almost never clear what the correct decision is until afterwards.

In this case, what are the odds that an overseas call center would cost more than anticipated (often the case), lower the quality of service and thus the company's reputation, or actually be enough to stop the downwards spiral rather than just signaling that you're in a low value-add commodity business?

jedberg4• 10 years ago

"The company has raised more than $900 million to date from Amazon, J.P. Morgan and Lightspeed Venture Partners."

That's the biggest red flag for me. General rule of thumb is that your VCs won't approve an exit unless it's for at least 10x the funding you've taken, which means they need a minimum exit of about 10 billion.

That's a tough spot to be in, and really changes your thinking. I know of at least one company that had an exit opportunity but it was only 2x funding, so the investors wouldn't allow it. They then slogged along for 8 more years until they finally had an exit that was 0.2x and it all went to the series A investors with their preference. Founders got nothing, angels got nothing, employees got nothing, and series B and beyond (the ones who blocked the 2x exit) got nothing.

Edit to clarify: I'm not saying the VCs are doing anything wrong here or being irrational or anything like that. I'm saying as a founder you need to watch out for this because the VC has a diversified portfolio and the founder doesn't.

pc863• 10 years ago

A bird in the hand and all that.

Surely the VCs have the data on how often they get burned by blocking a profitable exit. How often do they block a 2x return and later get 10x? Is it really enough the compensate for the (sure more common) result of getting 0.2x or 0?

jedberg4• 10 years ago

There may not have been enough situations to give good data, but even if there were, my point was that it changes the thinking of the company leaders, who are now forced to "swing for the fences", which is great for the VCs with their diversified portfolios, but not so great for the founders who have all their eggs in one basket (who admittedly put themselves in this situation).

To be clear, I'm not talking badly about the VCs, I think they are making the right decision for their situation.

I'm saying it's a bad place for the founders to be.

jmount• 10 years ago

Don't know the details of LivingSocial, but in general liquidation preferences can complicate it. Instead of 1x or 2x return for all investors it is often 5x for the last investor and 0x for the rest. So it not all investors have a reason vote "yes" at a given total.

acdha5• 10 years ago

It's important for founders and employees to appreciate how often that happens – a VC might have a dozen bets going but everyone else is committing their future to just one. A great deal of casual conversation treats investment as unambiguously good rather than a real risk to be balanced.

sawthat3• 10 years ago

I worked at a .com era startup that went through something similar. Biggish acquisition offers came in circa 2001, but much smaller than the theoretical enterprise value if the product worked out.

Company finally sold in 2005, preferred shareholders got everything but still lost money. Founders got nothing, employees got nothing. But everyone got to keep their jobs which was better than just going out of business.

This seems to happen pretty often. Also common is founders turning down acquisitions because they are sure they can make more if they keep at it. You wouldn't start a company if you didn't believe it.

georgeecollins• 10 years ago

You are assuming this is just a profit maximization problem for the VC firm. There is also a reputation problem for the people that are involved in a suboptimal exit. They may be motivated to kick the can down the road to avoid acknowledging an underperforming investment.

rdl4• 10 years ago

The main reason not to block deals is that 1) this should not be a single-round game for VCs 2) people talk.

If you block an exit in a way which angers founders/employees, even if you have a higher expected return on that particular deal in doing that, you're now going to be "that fucking asshole VC who blocked our sale" every day until the company gets a 100x return above what the deal would have been (which is probably...never).

Not only will the founders hate you forever (both your firm and you personally, the partner); employees of that firm will hate you, and anyone those founders/employees talk to. Also earlier-stage investors/angels in the deal will also likely hate you for being "that asshole late stage investor who tanked our deal."

As a professional investor managing a large pool of other people's money, you probably have the greatest risk tolerance and most diversification of anyone involved in the deal. For employees, founders, and even angel investors, even a 2-5x exit, if it's the best/most likely thing, is probably going to be life-changing in a positive way.

ams61102• 10 years ago

I don't see it ever happening. I would not even call LivingSocial a "startup" at this point, they've been around a few years at least. Their new strategy (discounts linked to credit card) seems uninteresting, hard to scale, and something that dozens of others have been doing for a while now (none of whom I can name, because who cares?)

mattmanser• 10 years ago

9 years.

https://www.crunchbase.com/organization/livingsocial#/entity

wpietri• 10 years ago

Yes. For me, a startup is a new business formed to discover a new product or business model. Then once they've found that, they enter a phase of very rapid scaling. I'm ok with calling those startups as well, as they're still very learning-focused. But once they have a reasonably stable product and revenue stream, I think it's a mistake to call them startups any more. Their values and behaviors become much more like typical companies.

ericabiz• 10 years ago

Southwest Airlines has one that gets you Rapid Rewards points for registering a credit card and eating at certain places: https://www.rapidrewardsdining.com/

I registered, because why not, but most of the restaurants in it are pretty crap.

jsprogrammer3• 10 years ago

Why would investors have veto power? Did the founders and employees give up complete control over the company?

In such a situation, might it make sense for all workers to drop those investors and recreate a similar company without them?

BinaryIdiot• 10 years ago

Why would investors have veto power? Did the founders and employees give up complete control over the company?

Likely. Sometimes you'll do anything for the investment to keep your company afloat. I know of companies who gave up board control in their seed round.

jedberg4• 10 years ago

Why would investors have veto power?

They often sit on the board, and also often control enough shares to outvote the founders.

In such a situation, might it make sense for all workers to drop those investors and recreate a similar company without them?

I'm not certain but that would probably be illegal? At least immoral.

maxxxxx• 10 years ago

I have never heard of employees having any kind of control over the company.

rdl4• 10 years ago

That rule is relaxed in later stage financings.

speeder2• 10 years ago

This made me remember what happened to Maxis.

The company was founded with VC money right off the bat (Will Wright, although a central figure, wasn't the "real" founder, the investors that found him and convinced him to start the company, not the other way around).

When they release SimCity 2000, they were right on track as VC expect... the problem is that game cycle is long, they expected to release SimCity 3000 or TheSims in at least 2 years, meaning 1 year without a big release, VCs weren't happy with this, they wanted exponential growth every year, not a "staircase" growth, so the VCs kept bugging them and the result was a premature exit (where they were sold to EA for a amount of money that I think undervalued them).

Now they are mostly dead :/ (after the massive failure that was SimCity 5, almost everyone was fired, including EA CEO).

noer• 10 years ago

Oh is that why they released SimFarm, SimCopter and Streets of SimCity? edit: SimFarm was between SimCity and SimCity2k

simarchive• 10 years ago

Now they are mostly dead

but a version of the original SimCity lives on at the Internet Archive - https://archive.org/details/msdos_SimCity_1989

afoxtron• 10 years ago

Maxis has been out of business for years now

mathattack2• 10 years ago

I've seen it more like they're aiming for 10X the last round. (Though in most cases the last round is by far the largest) I think the reasoning is that 2X vs 0.2X barely registers a difference for the VC. The home runs are what moves the needle on their returns. Founders need to be aware of this when they ask for the check. I think we'll see a lot of situations like the one you've observed.

In this case I think "The CEO told Re/code that the cuts are not an attempt to dress the company up for a sale, but said he “might be open” to those conversations if they arose during the process of trying to secure new investments" means "We'll sell out at the first opportunity, rather than go through a painful down round"

Doing the math, it sounds like they're down to 200 and change employees from a high of over 1000.

acjohnson55• 10 years ago

I think the reasoning is that 2X vs 0.2X barely registers a difference for the VC.

I thought this was worth calling out. This is more believable than the reputation/pride argument for holding out. The business model is built around homeruns and busts. Middling exits are essentially busts.

sakers2• 10 years ago

In 2012 LivingSocial had 5000 employees.

frozenport• 10 years ago

Employees got paid

maerF0x0• 10 years ago

Its a very common pattern to underpay market rates in exchange for equity lottery tickets. Thats what he means "employees got nothing" .

draw_down• 10 years ago

Having had friends on the inside, it also just seemed like a terrible place to work. Grew quickly and they never paid down the organizational and technical debt. I think there were a lot of troubling signs for this business from the start, including the business model.

swanson• 10 years ago

NEW DEAL: 50% off your burn rate!

Hurry! This deal expires Q1 2016.

striking• 10 years ago

That was a burn in and of itself.

goldenkey• 10 years ago

At half off. Don't forget!

dude_abides• 10 years ago

Funny, typing "livingsocial layoffs" in google gives me these suggestions "livingsocial layoffs 2015", "livingsocial layoffs 2014", "livingsocial layoffs 2013"

freshyill3• 10 years ago

Don't forget 2012—that's when I got it.

txdv• 10 years ago

I see, an early adopter!

wangarific• 10 years ago

When you saw the subsequent layoffs, what was your reaction?

ahallock• 10 years ago

I'm surprised these sites are still around. To me, offering your services at 50% off screams desperation or that your business is going under. I bought a deal once from Groupon and couldn't even bring myself to use it at the restaurant. It was a high-end establishment and the thought of pulling out the crumpled paper voucher, which I printed when the ink cartridge levels were low, cheapened the whole experience.

mrestko• 10 years ago

I don't think your Groupon experience is representative.

deadlycrayon• 10 years ago

But it's still an experience. Enough of one that he/she is willing to post about it publicly, perpetuating how the service feels - cheap.

dguaraglia• 10 years ago

It is not, but it's still relevant. It created a lot of FUD for business owners. I was working on a startup in that industry at the time; I can't tell how many times we got the question from prospective customers: "how are you different from Groupon/LivingSocial, because I have friends who got screwed by them."

In the end I decided it wasn't worth the effort trying to build a startup that required hours of our time to convince/train each customer for a meager (<$100 monthly) amount. Way too much overhead.

zeveb• 10 years ago

It was mine, too. Any time I was eating with someone who pulled out a Groupon, I wanted to pick up the tab just so as not to be so gauche as to use a coupon to pay for food. It was just a terrible user experience.

swalsh• 10 years ago

The major problem with the flash sales sites is they provided very little upside to the business offering the deal. Taking a small hit in a 50% off deal could be considered part of the cost of customer aquisition if the customer comes back. However a very large segment of the flash sale demographic are not desirable repeatable customers. The deal is clear, they're there for the large discount, and probably will only be back if you give it to them again.

Falcon9• 10 years ago

They work best when you have a very inexpensive product where you can still make a profit by doubling your MSRP then selling for "80% off". Doesn't do wonders for your brand though, which is part of why the company I work for which has been doing this for the better part of a decade is trying to move away from the model.

blisterpeanuts• 10 years ago

Are you including Groupon in "these sites"? What they offer are essentially promotional deals, just like sales or coupons you get in the mail or from a newspaper or, these days, from online websites. Why not? It draws in new customers who might have been on the fence about trying your product/service, puts butts in seats at restaurants, boosts the sales figures, and gets your name out there. If it didn't work, Groupon would go under.

I suspect Living Social's main problem is that it's a me-too service that doesn't offer much of an advantage over Groupon. Google ended their Offers a year or two ago; also a me-too effort, and I think Amazon Local also shut down.

nostrademons• 10 years ago

Groupon's "deal" is very different these days. The restaurant (or service provider) sets the particular offering - usually it's a specific menu item, which they can produce at low cost for all the Groupon customers. And it's not always 50% off, or often times they'll offer something like "dinner for two for the price of one". The last couple times we've used Groupons it amounted to maybe 10-15% off the total bill - enough to get us into the restaurant when we wouldn't otherwise go, but still quite profitable for the restaurant.

It's basically the same as getting coupons in the mail, but with a lower cost of distribution and a channel that people actually pay attention to.

degenerate• 10 years ago

This might be in your area only. Where I live, most of the groupon deals are still for 50% off without any additional weird restrictions.

pchristensen• 10 years ago

(ex-Groupon dev)

The businesses that Groupon works well for have a) unused capacity to service additional marginal customers, and b) good retention/ongoing business once people try them. Good examples: gyms, salons, masseuses, adventure sports, skydiving, concerts, travel packages, overstock goods, etc. Bad examples: popular, crowded restaurants. Unfortunately, people eat out a lot more than anything else, so a lot of people bought Groupons for businesses whose business model didn't match Groupon's value proposition.

This was not well understood in 2012 (well, maybe it was to leaders of Groupon/Living Social/etc that had the numbers) and so the market size was not clear. But everyone knew that the returns would go to the biggest player, hence the intense competition for funding, advertising, customers, and merchants.

I suspect that Groupon's competitive landscape is one reason why Uber has been so aggressive in fundraising and expanding - to win at lower cost than having to battle every every market, and correctly size fundraising to the actual market.

prostoalex• 10 years ago

A new business or a business expanding their current menu always has an issue with distribution. It used to be solved with ads in the newspaper, Yellow Pages, fliers under windshield wipers.

Groupon and LivingSocial's value-add is allowing a small business to gain distribution relatively on the cheap compared to other methods.

hyperrail• 10 years ago

It's even worse than that if you include recent past job cuts too:

LivingSocial will employ around 200 to 225 people after the cuts.
[...]
The Washington, D.C.-based company has now cut nearly 900 jobs over three rounds of layoffs since Thakar took over for founder Tim O’Shaughnessy 18 months ago.

buro9• 10 years ago

With numbers like that I bet that the people that remain are barely able to maintain their existing systems and hold on to existing customers.

ViViDboarder• 10 years ago

When I left there, 3 years ago, they were >5,000...

parfe• 10 years ago

Coupon circular not worth billions?

Maybe they can hold another round of funding where investors pay $30 for "$100" in stock.

ljk• 10 years ago

only 48 hours left and over 100 people have claimed it already!

freshyill3• 10 years ago

Wow, they'll be down to ~200 employees. They were at around ~5,000 in 2011/2012, I think.

marrone12• 10 years ago

A lot of those employees were also via their international acquisitions, which I believe have all been sold for pennies on the dollar.

SilasX• 10 years ago

So anyone been keeps it a running list of the tech layoffs? We have IBM, optimizely, zenefits, and who else?

rb8082• 10 years ago

I miss f*dcompany.com so much. There really should be a 2.0 these days.

brianmcconnell• 10 years ago

I once owned the domain deadherring.com (with the idea of something like FC with more in depth analysis). I regret letting that go.

bitserf• 10 years ago

Likewise. Although I was kind of dreading seeing my company show up when I visited every morning...

amorphid• 10 years ago

I own voidcorp.com, which kind of sounds like it could has something to do with effed companies.

anon987• 10 years ago

Now is the time, Pud.

jimbo9992• 10 years ago

http://autopsy.io/

mr-ron• 10 years ago

There is this, which is similar. https://www.cbinsights.com/research-downround-tracker

Doesnt measure layoffs, but downrounds instead.

meanjollies• 10 years ago

NetApp: http://fortune.com/2016/03/01/netapp-layoffs-start/

Xerox: http://www.geekwire.com/2016/xerox-cuts-325-jobs-closes-redm...

Yahoo!: http://recode.net/2016/02/17/if-its-wednesday-its-layoffs-da...

SurveyMonkey: http://www.mercurynews.com/business/ci_29586096/surveymonkey...

tyre• 10 years ago

MixPanel: http://venturebeat.com/2016/01/08/mixpanel-starts-2016-with-... Instacart: http://www.bizjournals.com/sanjose/news/2015/12/30/instacart...

jimbo9992• 10 years ago

Not quite as schadenfreude as f--ked company but useful

http://autopsy.io/

robodale• 10 years ago

...and this, my friends, is why I am bootstrapped.

free2rhyme214• 10 years ago

2016 reminds me of Eminem's song "Lose Yourself" when he says, "Snap back to reality. Oh, there goes gravity..."

https://www.youtube.com/watch?v=vksfnZaZ0A4

programminggeek• 10 years ago

Sad, met some of the LivingSocial developers at RubyConf. Not sure how many are involved. I hope everyone lands on their feet.

p4wnc6• 10 years ago

Always negotiate severance pay.

Do not ever let an HR respresentative make you feel like it is greedy or disloyal for you to ask for fair severance pay to protect you in the event of unexpected job loss.

LivingSocial Is Laying Off More Than 50 Percent of Its Staff

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