The idea behind Groupon is a simple one -- send out one coupon a day, every day, to people who sign up. Subscribers get great deals at local restaurants, retailers, spas and more, assuming a minimum number of people go for the deal, and those businesses stand to make a killing when they are featured, with access to countless new potential customers. For its part, Groupon takes a cut of the deal. Founder Andrew Mason started in Chicago in 2008, and today, his company reaches subscribers in 150 cities across 19 countries.
With that win-win model, Groupon has become an Internet phenomenon, making a reported $350 million annually, and inspiring copycat sites like BuyWithMe.
Turns out this groundbreaking idea has been successful because of good old fashioned business fundamentals. "Groupon is different than most startups," says business consultant Martin VanDerSchouw, author of Flavor of the Month. "First, they had a real business model that showed early profit, in only six months. The model really works because it makes sense on both sides of the financial equation. For investors, it provides a sound investment that's not vapor. For the companies that use Groupon to market, it provides probably the most cost-effective buy available anywhere. It's still about access to real buyers, and Groupon provides a lot of them."
So how did Mason, 29, create this Web 2.0 wonder? Looking back on Groupon's rise from virtual unknown to household name, even he seems a bit surprised.
"It was such a weird, evolutionary process. I never thought of myself as an entrepreneur, but both my parents were entrepreneurs. My dad, Robert, has a diamond-seller business, and my mom had her own photography business. When I was 15, I started a company delivering bagels to houses, and I had a computer-repair company when I was 16 or 17. These were little things, just me trying to find my own way to make a living.
"When I was in grad school in 2007, I made a social-action platform called The Point. The idea was that people would use the site to come together to do fundraising. They would agree to donate money, but their credit or debit card would only be charged if enough people came together to work on a cause. That way, you could be reassured that your money wasn't disappearing into a vacuum, that it was working in tandem with other dollars to actually make a difference.
"That led to the inspiration for Groupon. We quickly realized we were onto something. This whole thing largely happened just through meeting Eric Lefkofsky, who is the co-founder and original investor. He worked for another company at the time and said, 'Why don't you drop out of school, and we can fund this, and we'll turn this into a business?' He has been the one who really taught me about creating a business. I've learned a lot from him and how to be an entrepreneur.
"Every day for us, it's like a playground, a new opportunity to experiment. When we started Groupon, I didn't know, for instance, the difference between a spa and a salon. I was originally thinking in the context of, say, a Chicago riverboat tour and things I'd do with my dad during a weekend -- experiences that you write off as touristy activities but are actually a lot of fun. And I thought Groupon would be a great way to expose people to activities like that, as well as restaurant deals. Really, a lot of our success has come through experimentation, just responding to what customers seem to want.
"There are things you won't see Groupon feature. We won't do shooting ranges, abortion clinics -- we wouldn't do strip clubs or liposuction, things like that. But we did do a side deal for Lasik eye surgery. We only sold 10, but for those 10 people, that's a life-changing thing, so we're not afraid to give our precious inventory to something extremely targeted. And a lot of people say to us, 'Why don't you do more than one deal a day?' But our take is that that's been done. There are tons of sites that throw out a lot of deals, kind of that flea market experience, but for us what makes Groupon special is that it's a highly curated service where we're putting the spotlight on special business every day. That focus has had a big impact on our success.
"And it's worked out very well. Ninety-seven percent of the businesses featured on Groupon want to be featured again, and we don't have too tough a time signing up businesses. In fact, I looked at our number this week -- we have nearly 7,000 businesses, spread out over 150 cities, lined up to be featured in the queue.
"The biggest thing, attractive to businesses -- well, obviously, it's the results. In Boston, this guy had been in business since 1985, and after being on Groupon, he sold 2,600 units. Before he was on Groupon, he had sold 5,000. So in one day, he sold half of what he had done in 25 years.
"But even more meaningful might be the response we get from the people who use Groupon. Part of the fun of this business is sending a deal that is for something you normally don't do, like getting a deal to go to an indoor rock-climbing facility or experience a sensory-deprivation tank, and suddenly that person is saying, 'Well, if I'm ever going to do this now, this is the time,' and then maybe that person becomes an avid rock climber as a result.
"You wouldn't believe some of the letters we've had from customers. Customers write in that their marriage was on the rocks, and then they started using Groupon, and it saved their marriage. I know that sounds like made-up marketing stuff because it's so perfect, but I'm serious -- and it's pretty awesome. When we get e-mails like that, it really touches us, and puts what we're doing in context. In fact, we think we're doing more good with Groupon than we could have done with just The Point, in that we're helping people experience life. It's a big trick, really. We're tricking people into getting off their computer and going out and living life.
"It's been an interesting couple of years, adjusting to how Groupon has taken off. There are moments where it's like, 'Oh, my God, what's going on?' Like when somebody takes a picture of me in the bathroom. But for the most part, I'm able to behave with the same focus and urgency as I had when we had nothing. We're a very humble group, and we don't take anything for granted. We just try to remain focused on making a better product for our customers and not let any success we've had get to our heads. I think we're pretty good at that."
The original version of this article appeared on AOL Small Business on 8/9/10.