LivingSocial, knowing your business, and gloating

Yes, LivingSocial is imploding. Yes, we saw it coming. Yes, we knew that the multi-billion-dollar valuation was silly and to be short-lived.

It’s easy to be snarky. And fun! I get a laugh from my friends, I get to show how smart I am for having “seen it a mile away”, all from the comfort of my armchair, having taken no risk.

But when I participate in such snark, I also feel a bit hollow inside. Because I know people, human beings, work there. Hell, I know people who work there. And sarcasm and snark only pile on insult for these (typically) innocent people.

And an additional danger: flippant, snarky responses are rooted in an “I was right” mindset, preventing us from learning anything more. But there is always more to learn.

My daily deal near-miss

A few years ago, I helped create a startup with some pretty audacious (and ultimately insane) goals. Things weren’t panning out with the original, mathematically-impossible business model, and we discussed “pivoting” into the daily deals space.

It was around then that my pre-arranged 3-month contract came up, and although I received some pressure to stay, I made the decision to leave, while my friends stayed behind. And their daily deal business started to catch fire.

I watched their office jump from 3 to 5 to 10 to 50-plus employees. I still held a significant stake in the company and wanted to see them succeed, but something about this rate of expansion concerned me. In fact, a friend of mine worked there for exactly one day before the environment creeped him out to the core and he quit.

My friends told me that the company had to expand quickly, that everyone in the daily deals space was growing more quickly than was sustainable, because only the largest survive, while the smaller firms would wither and die. (Interestingly, the opposite seems to have happened.)

Their work environment disintegrated as the pressure ratcheted up, paychecks started bouncing, and the entire thing became a news-worthy fiasco. I was comfortably off in another position elsewhere, but it still broke my heart to see my friends suffer (and to toss yet another worthless stock grant into the shredder).

Don’t let bad business models catch you by surprise

One lesson in this is simple: Take the time to analyze the business model of the companies you choose to work with. Do they make money? From whom? Who benefits? Look at the founders. Are there happy customers in their wake, or a string of disappointed people?

Do a gut check. Does it feel right, or does it feel like you’re selling out a little? You know, that feeling when you put that thing you want, but don’t need, on a credit card? The trading of the long-term consequences for an immediate thrill?

If you get that second feeling, stop. Weigh it more carefully. You may not change the decision, but your reasons need to be much more clear, or you’re creating a recipe for regret.

Being right is not a license to gloat

The other lesson is for us spectators: Maybe let’s stow the sarcasm on this one. For a lot of people, LivingSocial’s (likely) collapse is going to be very personal and very painful, so please take a moment to remember that before dancing on its grave at the expense of human beings who are hurting.

  • Anonymous

    It’s hard for people who have never been involved with something like this to understand the pull. Obviously I’m not talking about you, Brandon, because I know you have experience, but about people who look at a situation like this and say “Gosh, I wouldn’t have been drawn in!” without ever having really had the opportunity.

    As tech people, it’s hard for us to do the “gut check” with a good amount of reliability without having real-world experience under out belt first. We’re programmers, we believe with complete certainty that we can overcome any technical obstacle. We may even be right.

    Without experience, what we often fail to note is what kills startups is almost never a technical failure. It’s usually something you never saw coming or, more likely, something that technical side saw but felt it wasn’t their concern.

    I had that “bad feeling” about my last startup job, but I shrugged it off by saying that my concerns were about the business model and since I’m not a business person I was obviously wrong in my concerns. What I’ve learned since then is that you can’t completely trust your gut to make a unilateral decision, you can use that as a starting point to a rational and reasoned examination of the situation: assume you were being hired, not in a technical capacity, but it any other position; would that change your perception?

    So to anyone who has never joined a startup and wants to, all I can say is this: if you have the means and the opportunity to join a startup that you can believe in, do it. BUT, you must do it with the full knowledge that the odds are overwhelmingly against your success. That way, if you succeed, you will understand that you were lucky as well as smart. And if it fails, you’ll have a better idea of what to do next time. And maybe, next time you read about another startup tanking after riding high, you’ll understand what it’s like and not judge so harshly.

    • Brandon Hays

      Great thoughts. It’s also important, up front, to play out the situation where things outside your control *don’t* go the way you planned, and be okay with the consolation prize.

      It is sad but true that it takes a few hard experiences for people to develop gut instincts for clueless businesses. I just hope others don’t have to spend upwards of a decade of their lives before learning to develop and trust them.

      I remember my first conversation with the startup you referenced, just as I was coming off of mine, and they raised every internal red flag and alarm. But I nearly suppressed them because I wanted to get into programming so badly. Luckily, I realized I was under-qualified at the time and was able to speak my mind freely and ultimately go do something else.