"therefore, starting now, waffles are now $450.00 each"
backalleywaffles.com
backalleywaffles.com
Groupon knows this. Your cash flow problem is their business. Hope this helps clarify the issue somewhat.
Before you object, consider the reaction of the waffle shop owner if he had been told that it would take 3 months to pay for his services, but he still had to outlay capital to provide that service. Does it seem likely he would have gone ahead with the Groupon campaign? One cannot say with absolutely certainty, but I think it likely he would not have proceeded!
Also, the waffle guy could have easily searched Google to learn what this means for him. But we already know that he wasn't nearly conscientious enough to do that.
If something is truly important to a person, they'll study it. For business people, this means studying business contracts before they agree to them. For scientists, this means paying attention to their experiments, keeping their eyes on their instruments, and keeping up with theoretical advances.
To be successful at anything, you have to sweat the details.
Groupon actually has substantially changed their payout terms, from their 10-Q http://investor.groupon.com/financials.cfm
> Our current merchant partner arrangements are structured as either a redemption payment model or a fixed payment model defined as follows:
> Redemption payment model - Under our redemption merchant partner payment model, we collect payments at the time our customers purchase Groupons and make payments to most of our merchant partners at a subsequent date. We utilize this model in most of our international operations as it conforms with the local market practice. Using this payment model, merchant partners are not paid until the customer redeems the Groupon that has been purchased. If a customer does not redeem the Groupon under this payment model, we retain all of the gross billings for the Groupon purchase. The redemption model generally improves our overall cash flow because we do not pay our merchant partners until the customer redeems the Groupon.
> Fixed payment model - Under our fixed merchant partner payment model, we pay our merchant partners in installments over a period of generally sixty days
I know it often "seems too good to be true" if a business tells you that it just needs a little working capital - but in this case they even have the collateral of the groupon money that will be coming in, which they can send proof of.
cash flow problems are situations where potentially an annual 200% interest rate is something a business would jump on: in two months that's only 33% interest rate with the alternative of losing everything due to their "great" campaign, and in this case they already have the money in accounts receivable from groupon.
a good article push with "how to survive a successful groupon campaign" that promotes the service ought to get some traffic.
on 'our' side, I need to point out that the high interest rate is not fleecing - really - as there is incredibly high immediate risk here, which is why the businesses can't simply get a bank loan. The point is that these are all-or-nothing situations that depend on cash-flow, and businesses have demonstrably nothing they can do. This market is not being served - there are no 200% interest rate loans for businesses that desperately need working capital at pretty much any cost.
so, the niche here is that a bank wouldn't look at the collateral of imminent groupon checks, but we can, since we understand the extent of the problem.
why not? is this a real market? doable? thoughts?
(In my original comment, I considered including that the biggest risk to the business plan is Groupon, and that therefore the business plan should include hedging or insuring against non-payment for groupon reasons. But thought that was too mean-spirited and negative; I hope groupon does well sustainably and indefinitely - by helping small businesses, not at their expense.)
But yeah, that's the thing. when you are a nobody dealing with a big company? net-30 means they start thinking about paying you in 30 days. This is not at all clear to someone without that experience... and if that one big company is how you pay the rent? well, you have trouble. (that's another thing I love about having a lot of small customers rather than one big one. I can be easy about people being late. When I was a contractor, after the 30 days in the 'net 30' were up, I'd just stay home until they fedex'd me a check. I felt all weird, because the customer was paying the middleman, it was the middleman that was sitting on the money for 45 days.)
Note, I don't think this is because they are trying to save pennies in interest. They sit on the payments because as long as they owe me money, they have vast power in any sort of dispute.
Really, both small companies and big companies need to realize this; Groupon needs to understand that they are dealing with people that haven't had to wait on corporate payment schedules before, people that often don't have access to short-term credit. Groupon needs to understand that these people are used to the situation where 'net 30' means 'you will get your money, at the very latest, in 30 days' - and Groupon needs to act accordingly, if they want to play in that market.
Of course, business owners also need to learn that when you deal with a large corporation, the contracts they write are worth nothing; if standard procedure is to mail 'net 30' checks 45 days after getting the invoice, they are going to mail 'net 30' checks 45 days after getting the invoice, and there is nothing you can do about it. If you deal with large companies, you need to keep more operating expenses as available cash/credit than when you are dealing with small companies, and really, you need to have a lot of patience and toleration.
(Of course, this is part of why you charge large companies more than you charge small companies. At the same price? it's simply not worth it to deal with the bullshit.)
Many business owners view these voucher offers as solely a publicity exercise and fully expect to make a loss, with the hope of gaining new customers in the long term (whether it actually works out like that is debatable).
Also, I'm a little confused about the economics involved. Most of the overhead in this kind of restaurant is in the facility and labor. The raw ingredients of even the most gourmet waffle should pale in comparison. And your facility and labor costs should hold about steady unless you're doing an insane amount of additional business from Groupon. And his base price was $8. $8 for a waffle. I'm no cook, but it seems like there should have been a very healthy profit margin in there.
I don't own a restaurant or know much about the economics of keeping one open, but this seems like an odd situation to me.
As an example, mimosas go great with waffles and can run up a tab quite quickly. Alcohol is usually excluded from such promotions, so this is an opportunity to reclaim immediate margin.
Edit: Yes, getting a liquor license costs time and money. So does running a successful restaurant. I was pointing out that running such a promotion requires preparation. He could also make his margin selling waffle toppings, sausage, and grits. Any way the merchant can get the average ticket well above the Groupon's cap is a way to stay in the black; liquor is just one way to do that. If a restauranteur isn't ready for scale, Groupon is not going to work.
And a medium drip at Starbucks is over $2 everywhere in Atlanta (where I live). I'd be surprised if prices are lower in higher-priced D.C.
Since when is $2 undercharging for a coffee? Even starbuck's doesn't charge that much.
The guy should have made a mistake, but arguably the Groupon model needs to work for little businesses like this if they're going to take over the world.
And he's contributing to that body of knowledge on the net so others who research the subject in the future know what to expect.
Someone has to make their complaints in public in order that "a tiny bit of research on the net will tell you what to expect".
Source: http://www.washingtonpost.com/blogs/going-out-gurus/post/bac...
It's 2012, everything is either a commodity made in China or a Veblen good. And not just any Veblen good. Everything that is not a commodity is ... sky diving!
But his customers had no idea that Groupon is slow to reimburse him. I'm surprised he doesn't show a little contrition for screwing them (and himself) by signing up for Groupon.
It's a shame he's putting the entire Blame on groupon and not taking any ownership of the issue. I wonder what he was actually expecting of the campaign.
http://news.ycombinator.com/item?id=4279118
Who would have thought... two waffle stories so close together.
"Groupon's chairman, Eric Lefkofsky has a history of financial scandal.
One time he sold a startup called Starbelly to a bricks-and-mortar company that later went bankrupt.
In a lawsuit that followed, an email from Lefkofsky surfaced. In it he wrote: "Lets start having fun... lets get funky... let's announce everything... let's be WILDLY positive in our forecasts... lets take this thing to the extreme... if we get wacked [sic] on the ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW... WE HAVE NOTHING TO LOSE..."
Years later, Lefkofsky hired a contract worker named Andrew Mason.
In Mason, he discovered a naive genius and gave him the money start what everyone thought would be a legitimate business.
But then Mason stumbled into a business with an explosively growing top-line (not bottom line or even middle line), and – so believe the conspiracy theorists – Lefkofsky saw another opportunity to be "wildly positive" for profit, even if it meant fudging accounting here and there.
So Groupon called itself profitable when it wasn't. It moved marketing expenses into capital costs. It confused net and gross revenues. And that's just what it got caught doing.
And when it was caught, Groupon's line was: oops, that was a dumb mistake. And while the rest of us rubes believed them, conspiracy theorists say Groupon's people are actually "dumb like a fox." In this view, the reason Lefkofsky insists that Mason be CEO is that Mason is young, naive, and plausibly prone to innocent mistakes.
These people believe the reason Google exec Margo Georgiadis only spent a few months at the company is that she came in, looked around, freaked out, and got out.
These suspicious folks will say: Lefkofsky and company may have believed they were bending rules in order to get Groupon to a point where it could become a legitimate business with clean accounting, but that's still fraud."
Source: http://articles.businessinsider.com/2012-04-03/tech/31279229...
Also, funny top 10 lists like: http://www.businessinsider.com/10-things-science-can-teach-u...
Not much credibility there.
Source: http://dealbook.nytimes.com/2011/10/17/the-missed-red-flags-...