Group Buying is the latest online trend in 2010 and the US-based site Groupon.com, launched in 2008, is estimated to earn around 350 million USD in 2010 – in its second year of its business! Based on this massive success, many similar websites have emerged. These “Groupon clones” target other markets and of course Switzerland has its own group buying website called deindeal.ch (“Your Deal”).

Deindeal.ch is the latest startup from Swiss serial-entrepreneur Adrian Locher (also a graduate of the University of St. Gallen) and his business partners Amir Suissa, Dario Fazlic, Flavio Rump and Lucas Vogelsang. In the weeks before this interview, the founders experienced their best-selling group buying offer which sold more than 1000 times in the course of a few days. That was the reason when I contacted Adrian to talk about the lessons he has learned from launching a Groupon clone in Switzerland. And it was an interesting conversation.

Ideas are important but Timing and Execution are essential for success

Adrian believes that the key ingredients for a successful new business are ideas, timing and execution. While many people focus solely on the first idea, ideas only define 10-20% of your potential success. More important are the right timing of your new venture (20-30% relevance) and the focused execution (60% relevance) to launch and scale your idea into a profitable business. Of course an unrealistic or simply stupid idea will not turn into a successful business through timing and execution. The point is that even a brilliant idea is worth little if timing and execution are not excellent.

“deinDeal.ch” builds on the same idea as the US site groupon.com so the idea part was easy in this venture. Even though the team already identified several areas that needed to be adapted to the local market and circumstances the main question was: Is Switzerland ready for internet-based group buying using coupons?

Finding the right timing – is your target market ready?

The biggest obstacle for a startup is that a target market is not ready for an idea – that’s why timing is everything. Based on the experience that Adrian made with his earlier startup smaboo, an ambassador marketing agency, he argues that a startup should never try to establish a completely new market. While the company is in its successful 3^rd year today, it took longer than expected to convince clients of the benefits of ambassador marketing and only after clients such as Facebook, Microsoft and Research in Motion/BlackBerry have signed up with smaboo, have other companies been willing to engage in this new marketing concept.

Educating customers about a product or service is expensive and takes a long time and is the reason many of the first-generation group buying websites are long gone. One of the most well-known “too much, too early” examples is the website letsbuyit.com, the group buying platform launched during the 2000 dot-com bubble which was quickly gone because the market and consumer were not ready. Ten years later the second wave of startups can now build on the triggers initiated in 1999/2000 that have changed consumer behavior and attitude towards e-commerce.

The success of the original Groupon concept in the United States showed that consumers are accepting this online group buying concept in 2010, nevertheless this still didn’t guarantee the success for a Swiss version of the website. Contrary to the US market, coupons are not very popular in Switzerland and the biggest bet was on the willingness of Swiss consumers to use coupons for special offers.

Focused execution with no time for decorations

While ideas and timing are still the easy parts in running a startup, the main capability for a successful startupshould be on agility and execution. This was especially important in the case of deindeal.ch since it was well-known that the US site is planning an international expansion. Based on the initial idea the decision was madeend of January 2010 to launch a Swiss version of a group buying site. Three weeks later a team of designers and programmers started the development of the site and the first version of the site was launched around five weeks later on March 24^th. Such a short timeline – in total less than 8 weeks – is impressive and is the results of more than just putting in long hours.

The key for such a short development cycle is to focus on the essential things that are relevant for your startup today. Don’t aim to build an application that includes features that you might need in a few months down the road – focus on today and cut out all the unnecessary noise and decorations of what you think might be useful someday.

Another important aspect is to push your application into production mode as early as possible and improve the application every day instead of delaying your launch until everything is perfect. One example how the team at deindeal.ch approached this is the management of a user’s purchase history. While this might require asophisticated interface with sorting, filtering and pagination, it is not necessary to have this feature as long as a user has not bought 20 or more coupons. And this will not be the case at launch but only after several months so there is no need to implement this in the first version. And this was just one feature that has not been implemented yet but will be once there is a need in everyday use.

Localizing a globalized idea

The answer to the main question, whether Swiss consumers are interested in coupon based group buying, could ultimately only be answered after the website was launched. The success of other web-based buying concepts such as FashionFriends.ch affirmed the founders that Switzerland is at least ready for new and innovative e-Commerce concepts. During the first coupon deals that were offered, it became clear that Swiss customers focus on high-quality, localized services and that they don’t want to save just few Swiss Francs but a significant amount of money when they buy a coupon. This lead to a selection of high-quality, high-value wellness, beauty, gastronomy and leisure offers instead of average-priced, standard offers.

Spreading the word and getting traction

Once the first version was launched, the next step was to spread the word and get the Swiss to use the platform. While many businesses today would go directly for a social media marketing campaign, deindeal.ch chose a different approach. In order to launch and promote the new service, the founders have formed partnerships with local media companies who have a sufficient leverage to promote the new concept through established channels. In Switzerland this was through the popular websites and mailing lists like local.ch, RonOrp.net and DayDeal.ch. Another critical factor for gaining new customers was the recommendation program where users earn money if they invite friends to the website. With the successful launch in Zurich, the site is now expending into other Swiss cities, the first on the list are Bern, Basel, Lucerne and St. Gallen.

Social media services like Facebook have proven to be an important tool to reach potential customers that have a high online affinity. However Twitter has had little impact in gaining customers but proved helpful to reach out to opinion leaders. The reason is that Twitter is simply not that widely used in Switzerland. So in comparison with other media channels, Facebook and Twitter are important but they cannot yet substitute traditional media channels.

In the next step deindeal.ch is in the process of rolling out an ambassador marketing program to further strengthen relationships with local companies and to integrate high-impact, localized media channels.

The key lessons learned from launching deindeal.ch in Switzerland

• The success of a startup depends on three factors which are Idea, Timing and Execution.
• Idea: 10-20% relevant for success
• Timing: 20-30% relevant for success
• Execution: 60% relevant for success
• Improve your timing by searching for indicators in the markets and with consumers that help you decide if your idea can gain traction or not.
• Focus and agility are the core during implementation, early releases with daily iterations are the key to success
• During implementation you have to review every day what is necessary today, what you have achieved and if you are on the right track.  Cut out all the noise and unnecessary things.
• Understand the core of a new business idea and then implement it locally by leveraging local partners.
• Facebook and Twitter are nice, but leveraging established media platforms still has the biggest impact.

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Recently someone showed me a flowchart that tried to explain a new business model for the telecommunications industry. The many different companies involved and the complexity of money flows required quite some time of explaining and discussing until I was finally able to understand the idea.

My opinion on business models: Figure out a way to provide value to someone then they will be willing to pay for it. It helps to keep in mind that your future customers don’t necessarily need to be the users of your product or service. But this is as complicated as it gets. The lower the number of actors the higher the probability of success.

I stumbled on a comment on the EarlyStageVC blog, which summarizes the importance of simplicity of business models (in the context of entrepreneurship and Venture Capital:

“When a VC asks “What is your business model?” He’s really asking “How are you going to make money?” That’s what a business model is.

Simplicity is important. It reveals how well an entrepreneur understands his business. If you understand it well you can explain it simply. Most often it can be simplified. If it can’t then probably the entrepreneur doesn’t yet understand how he/she is going to make money. That’s where the VC works with the entrepreneur to figure it out. So the question is a litmus test in disguise.”

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I love this quote. It is from Steve Wozniak, co-founder of Apple Inc., describing the reason why he and Steve Jobs saved up money to move into their first office. This is just one interview that can be found in the book “Founders at Work – Stories of Startups Early Days”. Actually, the interview with Steve Wozniak is available for free here.

What is the most fascinating about this interview and the story of Apple in general is that it shows what is one of the critical issues when starting a company: you need someone, who is passionate about the product or service (Steve Wozniak in the case of Apple) and you need someone, who is passionate about selling the product and making money (Steve Jobs). If these two characters are combined something great can be established.

And this is not just a one-time constellation at Apple but a general pattern, that can be found in several other interviews in the book.
Go and read it, if you want to find out more about famous Silicon Valley startups.

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