Last week I celebrated my first full year at Half Off Depot. It has been a pretty amazing first year. Some of the stuff we have accomplished, purposely partially masked through statistics.
We raised $7 million via venture capital and $1.5 via venture debt.
Subscribers have grown by 450%. Over 200% in 2011 and over 150% YTD in 2012.
We expanded from two MSAs in which we are actively marketing local deals to nine today. We also extended into national product deals.
Revenues doubled in 2011 from 2010 and are a pretty solid growth path for 2012.
Employees went from 21 then to forty something. The employee growth was not smooth. I fired a founder, an interesting experience. Our VP of Marketng and CTO left the team and I had to step in to lead those groups directly. Truth be told I terminated more people in the last year than in the previous ten. Startups are not all fun.
Half Off Depot turned cash flow positive. A heroic feat if you saw our financials in the fall of 2011.
Began a pretty large scale technology transition.
Made two asset acquisitions. One for a company called Dealster and one that has yet to be announced. There is a good path here for a well funded cash flow positive company.
So money in the bank, a rapidly growing member base, which brings about big revenue increases, employee growth, and a healthy bottom line in a mode to play consolidator.
"Dealster marks the first acquisition for Half Off Depot. In addition to its membership base, Dealster’s value to Half Off Depot lies in its proprietary platform, which includes social elements for customers and merchants as well as other features currently on the Half Off Depot product roadmap."
The key word being first.
One of the big outcomes of Groupon mishandling its IPO process was that the financial community lost interest in the entire online deal space. As I wrote at the time, "(the) Groupon IPO is good for Half Off Depot as it will make it harder for smaller underfunded companies to remain viable and they validated the market in which we participate."
At Half Off Depot we decided we needed to do two things.
The first was to get cash flow positive. We did this back in March and can continue to operate the business with a healthy bottom line while still growing at a nice pace.
The second was to go out and find smaller companies whose access to capital has been cut off but need more money to survive. Dealster was one of these companies. There are lots of companies like Dealster and I am spending lots of time talking to them. I believe that Half Off Depot will be able to efficiently grow its member base, and in turn revenues via acquisitions. We are going down that path. It will be interesting to see where it leads.
The other day I wrote about the partnership that Half Off Depot and Google had entered. It's a big deal, but perhaps even more important then the deal itself was what it signified. Half Off Depot has grown to the point where it can do some partnership marketing.
As a company grows and starts to gain a little traction in the marketplace a wealth of partnership marketing opportunities can be pursued. These are business development channel type deals that can get a small but growing company much broader distribution and market credibility by associating with larger brand names if the right partners are chosen.
The key point being the last sentence. Once you reach a certain scale a small technology company needs to focus on continuing to grow by pursuing deals with larger companies that can give them more credibility and reach.
This week was pretty exciting at Half Off Depot. Google announced that they were expanding their Offers program to include more cities and more deal partners. Half Off became one of 30 Google Offer partners. We have long considered ourselves to be a top ten participant in the online deal market so this in some way validates our position. And given the number of deal companies out there that puts us in pretty elite company.
But the same response from almost everyone that I talk to about the deal is this. "Google Offers is a competitor, why do you want to work with them? Aren't you worried about Google stealing your customers or merchants?"
The answer to the latter is not really. The Google folks seem ernest and well intentioned. They are very professional and responsive. They care more about the customer experience then about money.
The answer to the former is that it seems to be a really good fit. Half Off Depot has a sales team that is second to none backed by a behind the scenes service offering that is really interesting to merchants and a unique approach to the space. This enables us to secure great local deals. Google is Google. They have unsurpassed reach on the Internet. A vast audience. When you combine our great local deals with Google's vast reach I think there is a way there is a way for us to work together to help both of our causes.
So we did the deal. It has great promise. Sometimes doing a deal with a competitor is the right thing to do.
Beyond the potential of the Google partnership itself the deal signals something even greater. Half Off Depot has grown to the point where there are a number of logical partnership opportunities. Time to pursue them.
I get the question every week, perhaps at least once a day. "What do you think of the Groupon IPO? That's good for you guys, right?"
To which I reply a hearty "maybe."
For those of you that have no idea what I am talking about Groupon, the biggest competitor to Half Off Depot where I currently work, went public on November 4. Groupon raised $700 million at a $12 billion valuation. That sandwiches it right between Google and Webvan as the largest IPOs in term of valuation. Interesting company to keep. I considered the Groupon IPO pricing to be a little expensive. Unlike Amazon, a much lower initial value company where I made a nice penny, I wouldn't touch it.
What do I know. The stock was priced at $20, and rose 31% on it's first day. Since then it's been in a slow drift downward. I expect that trend to continue for some time until it gets below the offer price. None of that will stop a bunch of 20 somethings celebrating the end of the lockup period at Kincade's, Sheffield's or wherever 20 somethings go to party in Chicago these days.
But back to the question is it good for Half Off Depot.
One of the things about running through the IPO process is that it generates a lot of general mass media attention. Most of the attention about Groupon was negative. Merchants don't like deals, there is no way Groupon makes money, management is blundering the IPO process. This created a generally negative sentiment around the deal space, one that is going to take a little time to overcome. We have time. And money. A lot of companies do not. They are going to go away soon. Less competition is good for Half Off Depot.
The Groupon IPO also demonstrated that investors see value in the deal space. The mishandling of the IPO process is a little problematic. Groupon got through it, they got out. But along the way questions were asked by investors that have yet to be answered. Until those questions are answered it is going to be difficult for other companies in the space to raise additional capital. Those that do are going to have to be able to clearly articulate why they are different and have a demonstrable money making model with some leverage. If Half Off Depot can do the former and show the latter, and I think we can, the Groupon IPO validated a market where we can play. Having a validated market to participate is good for Half Off Depot.
So the short answer is the Groupon IPO is good for Half Off Depot as it will make it harder for smaller underfunded companies to remain viable and they validated the market in which we participate.
All we have to do is execute on that different money making part. That will keep us busy for awhile.
When I joined Half Off Depot back in May I started looking around for a competitive target. Not the 800 pound gorilla Groupon LivingSocial type of competitive target. A smaller yet significant company that we could set our sights on. That company was BuyWithMe.
As best as I could tell BuyWithMe was the number three player at the time. Founded in Boston, based out of NYC, BuyWithMe was actviely operating in a dozen or so major markets. They had raised $21.5 million from Matrix Capital and Bain Capital. The kind of number that makes our $7 million seem small.
And BuyWithMe was on a tear. The online deal market is going to consolidate and BuyWithMe was playing the role of consolidator, something that I would like to do. In 2011 they acquired six competitors, the most recent being in September. Then the wheels fell off.
Just six weeks after its last acquistion BuyWithMe choked on them. BuyWithMe laid off half its workforce after reportedly failing to close a new round at a $500 million valuation. It was reported to be looking for a buyer.
That buyer was Gilt Groupe, who purchased the assets of BuyWithMe. Asset purchases are rarely good for the selling entity. Gilt did not hire many of the BuyWithMe staff. The purchase price was about $5 million in cash and stock. Somebody pulled the plug.
So October turned out to be another record month for Half Off Depot. Our more established markets showed some nice growth and our expansion markets came up to speed nicely, most of them exceeding rather aggressive growth plans.
But this week I had to let two people go. That's always tough to do. Hard saddening decisions. Every time a team member fails to perform to expectation disappointment abounds. While I am sure the folks departing will rebound nicely it is a major life occurrence. Something that they will always remember. It is something that I will always remember as well. Because regardless of the reason when somebody does not perform to expectation it is always a bit the fault of leadership. You hired the wrong person, did not manage them well, or did not provide them with the attention and support they needed to succeed. It hurts.
But in a startup people really do need to make their own way. They have to figure it out. There is not a lot of time for counseling or nurturing.
As a leader you have to do what is best for the company. Startups are leaving breathing things. For a startup the size of Half Off letting go two people is akin to cutting off 4% of your body. It's like losing the use of a hand or a foot. But it will heal. The scars will go away. We will be stronger for the challenge.
We have been looking for a community manager to join Half Off Depot for sometime. The basic plan was to have introductory meetings and then move forward with second interviews where the candidates would provide an overview of what they would do if given the job. Best plan gets to execute kind of thing.
I had a good first meeting with a woman who I will call Brigette, mainly because that is her real name. We setup the follow up meeting on the spot. I was a little worried about the timing of it and mentioned this to her. More than once. She said she was in. And then she cancelled. She had a reason. It did not matter. I blew her up. She was no longer a candidate. A commitment with care thing. This was back in June.
Mid July Brigette sent me this note.
Hi Lance,
I attended a social media meeting recently, which underlined two key qualities of a good community manager: being brave and being persistent. I figured it was the universe's way of telling me to send you the deck I created for the Half Off Depot Community Manager position.
If you haven't hired anyone yet, I'm still interested and enthusiastic ... and to prove it, here's the first Half of my deck. The rest, I'd like to show you in person.
Here's the deck. To add a little context to the title slide Mr. Livewell is our mascot.
I wanted the full story. She earned herself another shot. Brigette starts at Half Off this week. I think she is going to be a great.
This brings us to the critical success factor for all these daily deal companies. Getting repeat customers from the 5 million strong e-mail list is easy. Making your real customers, the merchants, successful with the product is the challenge....
We think a winning formula is sitting in front of anyone who has strong relationships with these local merchants — especially a firm that has a history of helping them with Web marketing and promotions. Whoever teaches the merchants to use these new techniques will own this market.
Jim and I think alike (except getting a 5 million strong email list may be a bit more challenging than he makes it out to be). I am not a pundit, I am an operator. An operator that is seeing double digit traffic and revenue growth. The deals market is a large opportunity that is not going away anytime soon. The key to success is helping merchants use online promotions to get and keep new customers while offering great deals of value to consumers.
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The opinions expressed here are mine and mine alone (with the exception of comments by others of course). They do not represent the opinion or position of any other person or entity. All postings adhere to my personal values.
