Loyalty's a hot niche to hone in on at the moment. Seth Priebatsch, the founder of Scvngr, a company based in Boston that uses location aware applications to link customers with local merchants, this year launched LevelUp, a loyalty-encouraging daily deal system. He says because "Groupon and LivingSocial aren't going to touch loyalty with a 10-foot pole, it's been an untapped part of the market.
"The only way to enter the space really is to be different—either get really good at a niche segmentation, say, people who like hiking, or get into a space that's untapped. The biggest untapped area of this space is loyalty," Priebatsch says. He's pairing the strategy with deals at a hyper-local level, for things people can do with their friends, such as entertainment, cafes, and tours. He says it's working: his company made $1 million in the first six weeks of 2011.
For Amato, the market saturation isn't the only challenge to tackle in his new business-to-business deal offerings.
"Some of our problems are getting involved when someone has already had an experience with one of those companies," he says. "There's a perception that daily deals sites aren't yielding the return on investment that was intended for the retailers. The verticals are running out. We're lucky to be in the space and coming to market now."
Dig Deeper: How to Narrow Your Target Market
Breaking Into the Daily Deals Space: Understand the Challenges of Scaling
The common wisdom of the daily deals space at the moment is that it's extremely easy to break into, but equally difficult to scale a new venture. Amato's no stranger to scaling a business: he built his New York City-based outdoor-advertising company, Show Media, from zero to $15 million. "Online deals have become very expensive businesses to run. This is not a bootstrapping business," he says. "I've had to get a monster team of very smart people in place to run this. None of those people are free—and advertising this out to the public is expensive, too."
Amato's MarketSharing is starting out with more than $1 million in investor funding. Leff, on the contrary, focused acutely on minimizing the costs of launching Suburban Momma from the start. Her main cost would be creating a functional website. Instead of hiring developers from the start, she purchased an inexpensive system from an Indian software company.
"It took us three months to be able to hire our own development team and rebuild the site from the ground-up," she says. "But it was important for us to own our own system from the start, even though it was challenging working with something built by an outside company."
Leff continued hiring as her site—and her profits—grew. But finding talent has been tricky, as Suburban Momma has grown to having five employees, Leff is just hiring her first sales representative who has experience working at a major daily deals site.
"The biggest challenge in this new space is that there's not an existing talent pool to pull from. There aren't case studies on how to start a daily deals site—you're basically figuring it out yourself," she says.
For that reason, when hiring sales representatives, she looked for talent and good personality traits rather than a relevant resume from candidates.
Wall at Signpost says his biggest hiring challenge is engineers. That's because Signpost doesn't have a big internal sales team; rather, it uses an external team of "deal scouts." They're basically customers who go out and source deals, and who can share the profit in the deal if it sells well. "It's our system that works, because in the crowded daily deals space, the number of calls a rep has to make is getting higher per deal made," Wall says.
Dig Deeper: Daily Deals Expanding Globally
Breaking Into the Daily Deals Space: Getting the Right Deals
"I wanted to create a company that people wanted to be associated with, whether as a customer, business partner, or an employee," Leff says. "I never ever wanted to send a customer of ours to an establishment and for them to feel underwhelmed."
Part of Suburban Momma's salespeople's jobs is to find hidden gems in the community, and create deals that work to draw more foot traffic in to the business, bring it a little bit of profit, drive profit to Suburban Momma, and give the customer a good deal.
Only, at this point, too many daily deals sites haven't been able to replicate the win-win-win—even Groupon and LivingSocial have been criticized for creating deals that overwhelm small businesses, cutting so far into their profit margin it puts them in the red.
Plenty of strategies exist to create deals that are favorable to merchants, customers, and the provider alike. Consider Signpost and Tenka, which each limit the number of deals that can be redeemed.
Signpost also allows business-owners to set very particular parameters for when and how customers can redeem their coupons. For instance, Village Cuts in New York's East Village might have a pretty booked-up appointment calendar, but it might find itself empty on Mondays. It can offer a deal that allows 20 people to buy, and only come in on a Monday. Voila: the appointment slots are filled.
"I think we're just starting to see innovations that address pain points for businesses that Groupon and LivingSocial don't address," Wall says. "My advice is to look at it in a new way, so that small businesses don't have to learn all over again that deals aren't always good for them. They can be."
Dig Deeper: How Group-Buying Works for Small Business
