andrew

Here's a quick history of the evolution of the Groupon model.

Groupon started out as one deal a day. We had a massive waiting list from merchants - 9 months, at one point.

With so much merchant demand and Groupon only running one deal a day, clones started to appear. Instead of waiting to be featured on Groupon, merchants ran with the clones.

Most customers didn't really care whether they bought from Groupon or its clones. So we realized what in effect was happening was that the model was moving to a marketplace... just one that was distributed across multiple sites.

We decided if the inventory was going to exist, it would be better on Groupon than spread across a zillion clones, so we moved to a marketplace model.

In other words it was mostly competition in a fairly commoditized space, and not scalability issues, that drove us to the marketplace.

That's not to say that scalability wouldn't have been a challenge with a daily deal model, but there are things you can do. A lot of the needs in the space actually balance out nicely. Some merchants want 20k customers, others want 20. Most merchants prefer new customers, some are indifferent. Both customers and merchants want category diversity so Groupon remains interesting and non-cannibalistic. In theory you can get all those things with smart segmentation and personalization. We experimented with that in the transition to marketplace but ultimately went ahead with moving to the "many deals" (which in the short term, is exactly what customers want) to stay ahead in the brutal competition for marketshare. Hard to say whether I'd do that part differently today... if we'd been less focused on maintaining marketshare NYTimes might have just written the obituary for Groupon instead of Livingsocial.

IMO that just seems like an elaboration upon / the reasoning behind "groupon customers are bargain hunters and won't come back", yes?

Hi guys, Andrew here (author of the medium post). Thanks for the feedback. I'm just going to try to summarize the questions/criticisms that have been raised in the comments - it seems like they're all mostly hitting on the same few things. I think it would be great for Groupon to answer them.

Here it goes:

* Groupon attracts bargain hunters that never come back. It can't be compared to other forms of advertising because the customer you get as a result of a Groupon is less valuable than customers you get from other forms of advertising.

* Groupon cannibalizes sales from customers that would have otherwise paid full price.

* In summary, why should I believe that Groupon is a good form of advertising for small businesses when compared to the other options?

* Whatever the answer, why should I take the word of this corporation over the many small business owners who have reported poor experiences?

Let me know if I missed anything and I'll add it.

Andrew

In principle, I love the idea of weighting the distribution of an employee equity pool away from up-front grants and toward follow-on grants. It solves what I think is an even bigger challenge of equity grants, which is that someone's financial outcome is largely dependent on a guess you make about their impact before they've even worked a day.

In practice though, I think it's hard for a lot of companies, because unless you're planning on having a larger % of the company in the employee equity pool in the long-term, you're basically robbing from the size of the up-front grants to feed the follow-on grants. So when you give your employee his or her offer letter, you'll say, "I know this is less than what you're getting at other companies, but if you perform better than 50% of the employees here, you'll end up getting more than what you'd get from other companies." A lot of employees are just going to go for the sure thing, making recruiting harder.

At Detour we do give big follow-on grants, but we can do that because our employee option pool is like 45% or something, which we can only do because I'm funding the company, so it's not really a replicable model (while progressive equity is, I think).

The benefit to founders of progressive equity is that at a smaller exit they still get a big return. It's only when the numbers get huge, as they often seem to be doing these days, that progressive equity kick in. Like a progressive tax system.

That's a great question. I'll ask my lawyer and report back.

I recommend setting the financial independence threshold high enough that normal people will feel like anything beyond it is useless anyway. So there's no real downside unless you have your heart set on spawning a couple of Foxcatchers. And there's tons of upside.

- How is the kicker pool redistributed? Equally or along the lines of people's current distributions of equity?

Along the lines of current (fully vested) distribution. So if there are three employees - Lisa, Erin, and Aaron, and Lisa has 5%, Erin has 2% and Aaron has 3%, then Lisa would get 50% of the kicker pool.

Curious if you have opinion on where the threshold should be set?

I do have an opinion, if the 18 year old version of myself heard it, he'd want to punch the 34 year old version of me in the face, so I'm going to let you guys figure out your own number and not put myself in a position of defending a position that I'm semi ashamed of anyway.

And if it eventually makes sense to do tiers of thresholds? Or if you think the simplicity makes it make sense not to.

We decided to keep things simple treat financial independence as a binary state, but you could definitely do tiers if you wanted to.

If anyone has questions about how this works, let me know!

No, there will be an offline mode for our open launch.

Hi - if you go to www.detour.com you should be able to add your name to the notification (early access) email list.

Hi folks,

Good to be here!

To the Chicago-based commenters: if there's anything I can do to be helpful before I leave, email me at andrew@ycombinator.com. I'm happy to hang out and give "advice" if you'll make the haul up to Evanston and help me assemble a ping pong table or cat habitrail or whatever my loser project of the week is.

Whoever said Chicago's challenge is one of talent network effects, I agree (although it depends on the nature of your company - Chicago is great for Groupon). I'd love to help solve it, but not enough to endure the handicap. Building a company is hard enough as is. And if you're really intent on self-inflicted pain for your startup, there are far more interesting ways to do it.

The album is real. Looking forward to more 50% off jokes! Can't wait!

Andrew