Monday, June 6, 2011/
Based in Melbourne, Deals.com.au was founded in 2010 by former M&A lawyer Adam Schwab and his business partner Jeremy Same, who saw a gap in an increasingly crowded market.
“While there are many sites which provide daily deals for electronics type products, there were no websites which provided discounted stuff that people actually want – massages, meals or individual products,” the founders say.
Schwab talks to StartupSmart about Groupon, growth strategies and standing out from the pack.
What prompted you to enter into the group buying domain?
Quite early on, we noticed the Groupon business model working very well in the US. It would’ve been January 2010.
Group buying obviously hadn’t come to Australia and was focusing on the US at the time, so we saw a possibility to try and utilise the model in Australia.
We weren’t sure how it would be received here and as it turns out, the Australian market has lapped up the deals space.
What attracted us to it was the ability to advertise all sorts of businesses – small, medium, large – and there are no risks for the business owner.
It was a really good way for certain businesses, who never would have advertised, to advertise. And from the consumer side, they’re obviously getting great offers and great deals. We saw it as a win/win.
What’s your background?
I was originally an M&A solicitor at a top tier firm. Myself and Jeremy started a corporate accommodation business in about 2004 and we still run that business. That’s called Living Corporate.
We launched Deals in July 2010 because it took awhile to get everything in order – to get the back-end in order, to get deals on board.
That was by far the hardest [aspect] because at the time you’ve got no credibility, no brand name, etc. Once you’ve been live and you’ve got 600,000 members, people come to you.
Before then, you’re approaching businesses and every [new] deals company would be the same.
How did you go about getting customers and clients on board?
That was certainly a challenge. Going back before we launched, even though we had no live presence, the concept is one of no risk.
If worse comes to worse, if we advertise deals and sell zero, there’s no loss to the business. They just go on their way – they don’t pay anything.
How long did it take to build a client base?
The business side was almost a piecemeal approach. We approached them business by business basically.
Not so much knocking on doors but using contacts, using networks. We got a lot of business from referrals because we do go out of our way to really please the businesses.
Referrals have been a big source of our clients. In fact, the majority probably.
How did you fund the business?
It’s all internally funded. It was more than $1 million.
What are your revenue projections for 2011?
It’s a constantly evolving space; the space is growing all the time. We’d be hoping for upward of $25 million in the next 12 months, which puts us at probably the fifth or sixth player in the market.
How many staff do you have?
I think about 31 at last count. We’re based in Melbourne with staff in pretty much all other capital cities.
Do you think your niche is strong enough to survive in the market?
It depends how you look at it. We’re not backed by investors who demand a return. We don’t have debts and we don’t have fixed interest bills to pay.
In that regard, we’ll achieve what we can achieve and do the best we can for our clients and for our staff.
But ultimately, we don’t have metrics that we have to abide by so we’ll keep growing organically and look for opportunities as they come up but we haven’t shot the business like some of our competitors did.
We’ve purposely targeted long-term growth – that’s why we’ve done deals that make sense for the business but don’t give us a short-term cash tick and leave any subsequent owner holding a bomb waiting to go off.
We run the business as if we’re going to be owning it for 20 years. If we do, that’s great and if we don’t, we’ll take that as it comes.
We’re not going to be as big as Cudo was when they started, with a $10-15 million advertising budget and constantly advertising on primetime broadcast TV. It’s never going to be the same.
Would you consider being acquired by a larger company, in the same way Crowdmass was acquired by Groupon?
Crowdmass was a little bit different because Crowdmass was three young guys who did a great job of building a little business up.
The difference between us and those guys is that they built the business to sell it, whereas we’ve built it to run it.
If somebody wants to buy it, we’ll have a talk to them. We’ve spoken to some people in the past and haven’t pursued it because we haven’t been interested, but obviously we look at all options that come our way and down the track we may consider it.
But at this stage, we’re certainly doing business for the long-term, not a quick sale.
How do you think Groupon’s IPO will impact the local market?
Groupon in the US is very different to Groupon Star Deals in Australia. Groupon in the US is a magnificent business – it’s the fastest-growing business of all time I think.
The difference in Australia is Star Deals a) doesn’t have the Groupon name because of legal action from Scoopon and b) came to the market very late and it’s a very competitive market here.
Groupon has this amazing, powerful brand name in the States that they simply don’t have in Australia.
There isn’t a network effect in group-buying sites. There’s a little bit of a branding effect – as seen by Groupon in the States – but it’s not like Facebook or a network site where you’ve got to be on one network.
With group buying sites, you can be on 10 group-buying sites because you’re looking for a good deal.
If we’ve got someone on our mailing list, they’re going to buy from us because they trust us and they know we’ve got good deals.
Just because Cudo’s bigger doesn’t mean they’re going to get more customers and have a network effect like Facebook does.
What are some of the risks you face?
It’s a very young industry so there are certainly plenty of risks that everyone faces.
One of the problems we’ve come across is some of our competitors don’t always treat businesses how they should and that can adversely affect the whole industry.
There is some consumer churn. Someone might buy one or two deals and forget about the site or move overseas.
As the market becomes more crowded, how you will differentiate yourself?
I think you differentiate yourself primarily by the deals you offer.
Secondly, the way that we really do try and differentiate is by providing great customer service. We’re the only [group-buying] website with our customer service phone number on the site. We’ve invested a lot in customer service.
Like any reasonably young business, a lot of our staff have come from networks and connections and friends.
It’s a focus for us. We know we’re in a competitive marketplace and the one area we can differentiate ourselves is customer service.
In terms of deals, a few categories of deals always do better – beauty, food, accommodation and tickets are the pillars of the industry.
We know that our database and our members are looking for pampering and indulgences, and it’s very much an impulse buy.
You get an email each day and we need to make sure that our users want to click through. We’ve got a creative advertising team that makes sure all the advertisements really put the businesses and the brand in the best possible light.