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ABOUT ADAM: LinkedIn | Thesis | Grow.co

ABOUT ROCKETSHIP HQ: Website | LinkedIn  | Twitter | YouTube

KEY HIGHLIGHTS

🩰 The beginnings of LivingSocial

💼 How LivingSocial made products for the Facebook apps that went viral

🤜🏻 Keeping up with the Facebook ecosystem was hard and unsustainable for everyone

👰🏻 Common mistakes that developers made when leveraging Facebook at the time

🏂🏻 How did other social platforms perform when compared to Facebook?

🏄🏻‍♂️ The transition of LivingSocial into the deals space

🥐 Online businesses vs. local businesses

🥧 Adam’s responsibilities as the company was transitioning

🌯 Scaling budgets & cities

🥣 Impact of data from different countries

🧘‍♂️ When did things start slowing down?

 🎫 The red flags that Adam saw

🎳 Impact of businesses with high fixed costs

🎭 Merchant retention issues

⚓️ How downsizing affected the morale of employees

🛶 The beginning of Grow.co

KEY QUOTES

Exploiting opportunities provided by Facebook

But at the end of the day, a lot of what we were doing was exploiting opportunities that Facebook presented to us. I don’t think anyone involved with the company would be ashamed of that or think it was the greatest achievement of their career. For instance, Facebook lets you send push notifications under these circumstances to your friends. How can we get the average user to send more push notifications? Facebook lets you send invites to your friends to apps, how can we get more invites? Facebook lets you do a contact import of emails and then send out emails everybody, how do we do that? It was constantly cat and mouse.

Why depending on Facebook for growth was unsustainable

That’s why it was so unsustainable. 

But we were always trying to take advantage of these opportunities and always seeing them choked off by Facebook because they were always getting abused by somebody. It was honestly, somewhat gimmicky at times, and really speaks to the longevity being unclear. You’re predicating a lot or basing a lot of your growth on these like tricks essentially. And so you’re always at risk. So a lot of companies that were in that space either are dead today, or they pivoted out into something that they thought was more sustainable.

How LivingSocial was different from an online business

It was bizarre. The business was very human. You have a sales part, you have customer service. It’s not like you’re an e-commerce business where you make a product and you sell it, you’re selling all of these small businesses. So if any of the small businesses have problems, those problems come back to you, because you’re the merchant. The focus on human capital versus a product like tumblr with 10 employees and worth a billion dollars and have a zillion users, to build a business like Groupon or LivingSocial, you needed a ton of people, not just in sales, but in account management and operations, and even on the back end, like developers and stuff.

The many roles that Adam covered at LivingSocial

So we wanted to drive email capture. It’s a daily email model. What’s the best way to do that? Facebook ads. It’s still probably the case today. I started running them. We started spending 50 to 100k a day plus, uploading ads during class and stuff like that. It was insane. Not that many people were even at that scale at that time. Zynga is another company that was there at scale, but there weren’t that many large scale advertisers really. My big focus was primarily on Facebook and some search. And I worked on that for some time. We hired a great guy to lead that team. At some point along the way, I got pulled into other areas of the business just to help out. I helped scale our sales recruiting effort for 6 to 12 months, hiring recruiters, instituting a process through which we would screen applicants. Eventually, I came back to growth or head of user acquisition.

Why they wanted to scale quickly

You’re going after obvious markets. And our strategy was pretty uniform. In that we would buy traffic in that locality, we’d have customized landing pages, nothing fancy just, “hey, sign up for daily deals in Raleigh”, we’d get 10,000 20,000 people on a waitlist. And then we’d start the sales process going in parallel, and we would just start emailing them. So we tried to scale very, very quickly, because we were trying to catch up to Groupon.

How was the market for companies doing daily deals?

it was evident that this model could not support 10 competitors doing daily deals in Pittsburgh, that was never going to be viable. 

You had traditional players, newspapers, magazines, etc. who were trying to get in the game too. At the time, we thought maybe they’ve got leverage. Ultimately, none of those worked. But, we were trying to outlive a zillion other guys that were in the space. And we did, but to do so we got really aggressive in terms of growth and investment. Obviously, there were a lot of inefficiencies that came with that. But even though the ultimate outcome for the business wasn’t what I think everybody had hoped for, you still point to it and say, Well, but how many of those other companies even exist other than Groupon and LivingSocial, none, right? So that’s telling that at least part of the strategy wasn’t wrong.

Why too many competitors won’t work for this model/h4>

Well, fundamentally, it’s a group buying model. So you’ve got a sales team, you’re calling merchants, and at the end of the day, the point is that you’re driving customers to the merchants. So if Groupon drives 100 people and LivingSocial drives 50 people and then everybody else drives a few people, it’s not going to work.

Perception matters in a local business

A lot of our ability to monetize this user base came down to the ability of the sales team to basically sell the user base, sell it to merchants. So that variability was a big challenge. In some of our more successful markets, we had really great sales teams, and in some of our less successful markets, maybe less competitive sales teams, less quality deals, and it cycles and you get a reputation within the market LivingSocial is not that good in Calgary but it’s actually really great in Dallas. If you’ve already created that perception in Calgary, nobody cares about anything else. That’s all that matters. It’s a local business.

Managing different metrics across different towns

Facebook users have a predicted one year value of X and we’re acquiring for Y that is within or outside of our payback period targets. I don’t think we could afford to, or at least weren’t smart enough to think like, actually, it’s Facebook users in Buffalo versus Facebook users in Albany, or Facebook users in Buffalo, who are men, or the ones of a certain age, the number of permutations, would it be manageable? It was a relatively straightforward approach once the business got to that scale. Obviously, when we weren’t at that scale, we were running things more locally. But you know, at our peak, we did stuff which probably in hindsight, didn’t really make a ton of sense but, we ran a Superbowl ad.

Expanding into different markets

We took an approach where in most markets, we acquired an existing company. They had a built-in team in a couple markets, we launched organically. The goal was to create a separate team in the market. But a lot of the services were shared, the core technology, the tools, budgets even were shared. I worked closely with my colleague in the UK and guys in Southeast Asia, to try to share best practices and try to support them, to the extent they were reliant on what we were creating in the US, like from a technology standpoint. That’s how it worked.

Using predictive modelling to calculate the pay back period

We used predictive models. Say we acquired 100,000 emails yesterday, as a practical example, we’re going to observe their behavior for seven days. See how many of those people are purchasing, then based on our historical data, we’re going to extrapolate out for that cohort of people. How many of them are going to be purchasing within a year’s time, that gives us a one year value, maybe even a two year value, or even a lifetime value. And we’re going to do a payback period calculation off of that. We’re always doing these predictive analytics that allow us to make decisions more quickly than having to wait a year to see how something went. But periodically, usually on a quarterly basis, or maybe bi annually, we would back test our predictive models. So our predictive model a year ago said, this cohort of people should be worth $10, on average, today, let’s see what they’re actually worth. So we’re back testing the model. And every time we back tested the model, our predictions were high. 

So that basically means that we were using historical data, always overstating how people were purchasing, obviously, we would keep adjusting the models down. But that was pretty telling to me in the user acquisition role. I was like, this is a problem. The whole point of the payback period is the part where it pays back. And if you take this to the logical extreme, these payback periods are infinite, we’re never going to have payback. So that was a warning sign to me for sure at a personal level. As I think back, that should have been a bigger red flag to me. I wish I had made every executive get in a room and be like, let me show you these graphs. We’ve got to do something. Anecdotally, this the second thing that I started to notice, I felt like the quality of the deals was going down. That I think speaks to some of the challenges in the model, like merchant retention.

When things started slowing down

You’ve got a different product, you’re playing into this nationwide trend. So if you think about things in a blended basis, we spent a million dollars in advertising, but we signed up 5 million users. That’s amazing. And if you say, well, the million dollars of advertising must be directly related to the 5 million users, but then a year or two later, you’re like, “Oh, we spent a million dollars on advertising, we got a million users.” 

Because we’re not on Good Morning America every day, or because everybody’s heard of LivingSocial that’s a very different dynamic. And your ability, the whole payback period, math looks very different. That was a less fun time, I can assure you.

Problem solving becomes challenging when the company grows fast

The company went from four founders to 5000 employees in the span of three or four years. It’s difficult, even in a perfect scenario, in an amazing business model to get that perfectly right, you know, see Uber. But why, especially when you have a really fundamental challenge, like it was very difficult to solve. And I think in hindsight you could have gone about it in a different way. Maybe a better business would have been just focusing on the verticals where the economics were the most favorable for the merchants. And I remember, we had these conversations, hey, spa and beauty accounts for 40% of our revenue. And the spa and beauty merchants retain a lot better. They have high fixed costs, low variable costs, and they have more built-in retention.

We had conversations like, Oh, hey, maybe this should be a spa and beauty deals, business and spa. And beauty is a huge category. In hindsight, that might have been the right call, but, we’re trying to be huge. And so you got to go for it if you’re trying to be used. That was the thesis.

The idea behind Grow.co

My main thesis around the conference business was, I felt like there was a new part of the marketing industry that was self identifying as growth, like this podcast. You didn’t see people with growth titles five years ago, then you started to see it, and what does that mean? I think it means just a more cross functional marketer, more understanding of the technologies, more understanding of design, more understanding of product in particular, in addition to marketing and branding. So I thought, there’s people who are self-selecting into this new job title. There probably should be an in person community around these types of people. And that was our motivator, we’ve ultimately ended up focusing primarily on two spaces, mobile app space, and just e-commerce.

FULL TRANSCRIPT BELOW

Shamanth Rao

I am very excited to have Adam Lovallo on the first episode of How Things Grow. Adam, welcome to the show.

Adam 

Thank you

Shamanth Rao

You came into LivingSocial as an intern, you started in 2007, the year they were founded. How did you end up working there?

Adam  

I was in my sophomore year at college, I had a job to pay off my student loans where I had to make copies of things at a hospital. I found that was unpleasant. I was looking for an internship that would pay me the same amount of money but would not involve a photocopier. A professor with whom I’m still friendly, introduced me to Tim, who was one of the co-founders of LivingSocial and was himself a Georgetown guy. I started working for them. I started as a 19 year old working one or two days a week. It very quickly became a full time job for all good reasons. 

Shamanth Rao

And it ended up being not bad for a job that involved no photocopying.

Adam  I couldn’t have asked for a better experience. As a 19 year old, I had no intention of even going into this area of growth or marketing or whatever. So that was all exposed to me by this very random opportunity. 

Shamanth Rao

An opportunity you absolutely took and capitalized on over the next couple of years. And when you joined, LivingSocial was not in the daily deals space. Can you tell us about what they were doing?

Adam 

They had four co-founders. I was working with them and a couple of guys they hired early on. The original business was two-fold. One was building Facebook applications: canvas apps, some people may know them: the third party apps that ran on Facebook, many of them were used to customize your profile page. So we were building those on behalf of brands. We built games for Breaking Bad and for ESPN. They were building viral apps on the Facebook platform and the core insight, which I think was a very good insight, was that this platform had a lot of potential. And they were early developers on it, there have been a bunch of successful companies that also started in that same space, I think Zynga was one of them. 

We built a lot of viral apps, really low quality, aggressive in terms of how spammy they were. And we built some products that were actually pretty cool and had more utility. So, in the early days, things grew quickly and it was a great viral platform at the time. It was multiple years before we ever got to the Daily Deals model.

Shamanth Rao

I do remember seeing some of your apps at the time, the visual bookshelf was definitely one of them. And I remember reading that you guys will probably be the top Facebook app developer in the world at some point of time.

Adam

Yeah, there was a particular moment in time when we had an app called Pick Your Five, which was extremely viral. It’s an extremely simple premise. But that blew up. That was the peak in terms of usage. Visual Bookshelf on its own was kind of an interesting business. The app was a book cataloging app. It was a Goodreads competitor. I’m a Goodreads user today.. So you can keep track of books you want to read, get recommendations, read reviews etc. Before I read anything, I look at Goodreads reviews, and that’s what Visual Bookshelf was.

At the time, customizing your Facebook profile page required using these apps. So what we were allowing people to do was show book covers of books they’ve read on their Facebook page. It took advantage of a lot of the social elements of a platform like Facebook. And even as a business, it obviously was never going to be huge. But it was viable. That was an interesting side business that was fully abandoned when we went all in on the daily deals model.

Shamanth Rao

You know, all of this makes me nostalgic for the older days of Facebook, when it still felt like a new discovery, just to see friends’ updates, or to see what they were reading on their feed. We spoke about how incredibly viral a platform Facebook was at the time. What were some of the key things you guys did to make some of these products viral?

Adam 

Some of them were inherently social. “I’ve read this book, can you give me a recommendation?” There were some really core tenets of the products that made them social.

But at the end of the day, a lot of what we were doing was exploiting opportunities that Facebook presented to us. I don’t think anyone involved with the company would be ashamed of that or think it was the greatest achievement of their career. For instance, Facebook lets you send push notifications under these circumstances to your friends. How can we get the average user to send more push notifications? Facebook lets you send invites to your friends to apps, how can we get more invites? Facebook lets you do a contact import of emails and then send out emails everybody, how do we do that? It was constantly cat and mouse. That’s why it was so unsustainable. 

But we were always trying to take advantage of these opportunities and always seeing them choked off by Facebook because they were always getting abused by somebody. It was honestly, somewhat gimmicky at times, and really speaks to the longevity being unclear. You’re predicating a lot or basing a lot of your growth on these like tricks essentially. And so you’re always at risk. So a lot of companies that were in that space either are dead today, or they pivoted out into something that they thought was more sustainable.

Shamanth Rao 

Nearly every company at the time had to rely on these mechanisms to be able to grow. Some would argue that Facebook itself grew because of a lot of these mechanisms.

Adam

Having an active app ecosystem clearly can be beneficial to a big platform. They’ve clearly gone well beyond that today. It certainly contributed to making them more viral.

Shamanth Rao

Your team was basically looking at these opportunities within the Facebook ecosystem. What were some of the things you were working on personally?

Adam 

So this has stuck with me in my career, using apps from other developers. I would go to the App Store and I would use stuff. I would take screenshots of anything that I thought was interesting, like, “Oh, this is an interesting email, capture funnel that they’re doing”.There was this old business publication, an industry blog inside facebook.com. I would write articles on that. The writing was abysmal but that’s what I was doing all day. I don’t know how useful it was for the company. But I thought it was really interesting, like, oh this is the first dating app I’ve seen on the Facebook platform. So that’s a lot of what I was doing. We tried to internationalize all of the apps. I tried helping with that, a lot of content, moderation etc. 

One thing that was notable. Facebook ads platform was super early and so I was trying to get more ad impressions on our visual bookshelf product. We would go to an advertiser, a book publisher and say, “Hey, we’re gonna get a million page views”, and maybe we didn’t have enough impressions to fill those deals. So I would buy Facebook ads, and I would do really long tail targeting. Add Lord of the Rings to your visual bookshelf. I’m not exaggerating, I was getting .001 cent CPC is like the least expensive traffic you could ever imagine. Because I think for a lot of those users, not to say it was the first super targeted creative they ever saw, but I bet it was one of the first they received. So that’s how I actually got into doing online marketing, specifically I was managing these campaigns and not huge budgets, but not insignificant, trying to buy traffic to fill like needs that we had for pageviews. 

That’s how I first got exposed to Facebook ads, which put me in a good position when we ultimately pivoted the business. But yeah, it was very early, not the day after Facebook started. In terms of scale I can remember when they first created the bulk import tool on the Facebook ads platform. I was like, this is amazing. And now they have a billion different tools for advertisers.

Shamanth Rao 

It was quite the wild west in the world of Facebook apps. What were some of the common mistakes that developers made at the time in taking advantage of an opportunity like this?

Adam 

At the end of the day, you were just playing a virality game by and large. And that was not sustainable in the long term. I’m sure a lot of developers tried to play the same games and maybe just didn’t understand the viral hooks. So what does the app look like? If you’re just trying to force a bunch of people to send app invites when they sign up, you probably should test a couple different funnels for that. 

There were a lot of apps that were very viral, and there are very few of those companies remaining today. So I think the whole ecosystem was flawed. So even though we were successful in that business, the guys running the company were trying to get out of it as quickly as possible. Maybe being super successful in virality terms ultimately wasn’t even a good thing.

Shamanth Rao

So it sounds like you guys kind of saw the writing on the wall for a lot of Facebook apps.

Adam 

I think they did. 

Shamanth Rao 

You guys had apps on not only Facebook, but also Hi5, Bebo and MySpace. For listeners who may not know, these were Facebook competitors. At the time, I was in India and I only knew of MySpace because they were these bands that would put up pages. HiFi and Bebo never took off in India.

Did you try these platforms? And at the time, was it kind of evident that Facebook would be the one that would be prevailing?

Adam 

Even at that point, it was pretty clear that Facebook was the winner. They were already way out ahead. There was still a question that Hi5 had really good penetration in Brazil. And we thought, maybe that’s the player in Latin countries. There was also Orkut, which was a Google Network, maybe Orkut had that Brazilian penetration. In Russia, there is a Facebook clone that is the Facebook of Russia. And so that’s one that survived, at least to some extent. It was pretty obvious. You deploy these apps on other platforms and there’s just nothing there. 

Shamanth Rao

But when you say there was nothing, what does that mean?

Adam 

There were no insights, no activity. The viral features that the core platform teams were building weren’t as good, it was difficult to grow. I don’t think anyone grew a large Facebook app on any one of those other platforms that I know of.

Shamanth Rao 

This is even though these platforms had users.

Adam 

I think ultimately, the tools that Facebook was building with respect to virality, were just a lot more powerful. You could leverage them more aggressively. We never saw any growth curves on other apps like we saw on Facebook. And I suspect it’s because they were being more cagey about those ads on channels. 

Shamanth Rao

Speaks to the point I was making that perhaps this was a strategy that served Facebook really well.

Adam

Someone who’s at Facebook, our ads would consider and it was significant.

Shamanth Rao 

I would imagine for sure. You guys decided to exit the Facebook app space. How did LivingSocial enter the daily deal space?

Adam

So the short version is, we have this product that allows you to catalog things, starting with books, but then also movies and other things, so we’re adding verticals. And the idea was, you could just keep track of the stuff that you tried or wanted to try. I think if we had kept iterating on that business, it would be pretty interesting today, like it was useful to keep track of movies that you wanted to see or had seen, and whether or not you’d liked him. I still think there’s an opportunity there as an aside. 

So we have this product, and we added wine and beer, so you could keep track of the beers you tried, rate and review them, etc. As part of the beer products. We acquired a company that kind of had an online to offline product intended for bars, it was called Buy your friend a drink. 

The idea was, I could give you Shamanth a gift card that you could redeem at a bar in your city. So I could send you a gift to go to a bar. We acquired this business and the idea was, well, we have this online thing where you could keep track of restaurants and bars you’ve been to online where you can keep track of beers you’ve tried maybe there’s like integrated sponsorships we could do for alcohol companies where there’s like the, the offline component, online component, and it was a small team. There were a few sales guys and the founder. So they started selling deals to sell some advertising products, and eventually came to the realization that there’s an interesting opportunity to do discounting with some of these offers to drive people. 

So if you go to this bar, you’ll get a free drink if you show this app. And then it was like, Well, if that’s the case, then why can’t you do it for restaurants? And then I was like, Well, if that’s the case, then why can you do it for other things, and I would be lying to you if I didn’t point out that Groupon was out there. There were even starting to be other daily deals, businesses in other geographies. We were in DC and we were like, maybe this is interesting. And very quickly, that became the focal point of the whole business.

Shamanth Rao

You guys stumbled upon this very accidentally. Also sounds like you started off with a variation as the visual bookshelf model. And the catalog is pretty much an adaptation of the visual bookshelf. And then it’s like, wow, this could potentially be a good business model. Yeah,

Adam

I think it was very, very iterative. That’s for sure. Having the sales team associated with this drink business made it easy to test this local deals concept. I suspect if that acquisition never happened, then none of the daily deal stuff would’ve ever happened.

Shamanth Rao

Do you remember what the first daily deal was?

Adam 

There was a sushi place in downtown DC. I want to say that was the first.

Shamanth Rao

My research on the internet says it was a sushi place. I imagine the sales team would recruit the restaurant. How did you guys get word out to the customers for the first couple of deals?

Adam

So it was mostly friends and family, leveraging our user bases on Visual Bookshelf and these other apps to the extent we still had them. But it was pretty scrappy. There was nothing. For the first couple of months, even there wasn’t that much concerted effort to push it because it was kind of a side project as an experiment. But it became very clear very quickly that the numbers were actually pretty interesting. The founders began to shut stuff down or sell off. They increasingly spent more and more time focused on the deals model.

Shamanth Rao

It sounds like it was a very local operation. What was it like to shift from a business that had millions of active users to a local business that had so much more in common with mom and pop shops than the Facebooks and Googles of the world?

Adam 

It was bizarre. The business was very human. You have a sales part, you have customer service. It’s not like you’re an e-commerce business where you make a product and you sell it, you’re selling all of these small businesses. So if any of the small businesses have problems, those problems come back to you, because you’re the merchant. The focus on human capital versus a product like tumblr with 10 employees and worth a billion dollars and have a zillion users, to build a business like Groupon or LivingSocial, you needed a ton of people, not just in sales, but in account management and operations, and even on the back end, like developers and stuff. 

Shamanth Rao  

You used to work on Facebook ads driving traffic, how did your role shift as the company started to change direction?

Adam 

So we wanted to drive email capture. It’s a daily email model. What’s the best way to do that? Facebook ads. It’s still probably the case today. I started running them. We started spending 50 to 100k a day plus, uploading ads during class and stuff like that. It was insane. Not that many people were even at that scale at that time. Zynga is another company that was there at scale, but there weren’t that many large scale advertisers really. My big focus was primarily on Facebook and some search. And I worked on that for some time. We hired a great guy to lead that team. At some point along the way, I got pulled into other areas of the business just to help out. I helped scale our sales recruiting effort for 6 to 12 months, hiring recruiters, instituting a process through which we would screen applicants. Eventually, I came back to growth or head of user acquisition. 

Shamanth Rao 

In order for a company like LivingSocial to grow, you want to grow both sides of the market- merchants and users. The sales team goes after merchants, you would acquire users. How did you guys think about maintaining that balance? Did you take your budgets based on how many merchants are in an area? 

Adam 

There was some logic in terms of what markets we launched in, how many users on an email list, do we think we needed to then sell enough volume so that our initial merchants would be happy, because you don’t want to waste someone’s time. Run a deal and two people show up? That sucks. The whole point of group buying is that there’s a group. 

You’re going after obvious markets. And our strategy was pretty uniform. In that we would buy traffic in that locality, we’d have customized landing pages, nothing fancy just, “hey, sign up for daily deals in Raleigh”, we’d get 10,000 20,000 people on a waitlist. And then we’d start the sales process going in parallel, and we would just start emailing them. So we tried to scale very, very quickly, because we were trying to catch up to Groupon.

Shamanth Rao 

You would set up these landing pages, almost as a way of validating if a town was worth entering into?

Adam 

Yeah, if you were clear it was much more efficient in a market, maybe we would focus on that market more. But at the end of the day, we were in pretty much every major DMA that you would expect to be in. So it was really more a question of prioritization.

Shamanth Rao 

You guys went from a handful of cities to possibly like hundreds of cities very quickly and then countries.

Adam 

We started internationally too. It was a market share game, and it was a growth game. At the time, daily deals were the fad. So every day on Good Morning America everything is about daily deals, people are stoked to get offers. So we had a zillion competitors. A part of what we were trying to do was, we were trying to catch Groupon, our biggest competitor, but at a minimum, we were trying to be the clear number two, because

it was evident that this model could not support 10 competitors doing daily deals in Pittsburgh, that was never going to be viable. 

You had traditional players, newspapers, magazines, etc. who were trying to get in the game too. At the time, we thought maybe they’ve got leverage. Ultimately, none of those worked. But, we were trying to outlive a zillion other guys that were in the space. And we did, but to do so we got really aggressive in terms of growth and investment. Obviously, there were a lot of inefficiencies that came with that. But even though the ultimate outcome for the business wasn’t what I think everybody had hoped for, you still point to it and say, Well, but how many of those other companies even exist other than Groupon and LivingSocial, none, right? So that’s telling that at least part of the strategy wasn’t wrong.

Shamanth Rao

Given the circumstances of the time you guys had to be growing. That was the imperative almost from the start. And I would imagine both internally and your investors have your back.

Adam 

Absolutely. And that was the whole game, because you’re trying to not get pushed out of the market.

Shamanth Rao 

Why do you think there was no room for 10 competitors?

Adam 

Well, fundamentally, it’s a group buying model. So you’ve got a sales team, you’re calling merchants, and at the end of the day, the point is that you’re driving customers to the merchants. So if Groupon drives 100 people and LivingSocial drives 50 people and then everybody else drives a few people, it’s not going to work.

Just from a merchant adoption standpoint, there was a maximum number. Even from a customer standpoint it’s confusing. People would say, I bought a Groupon/LivingSocial. If you think about it, if you’re an E-commerce business, let’s say you’re manufacturing a product, you know what the product is, the quality of the product, you get reviews on the product, and you can refine your strategy over time. When you’re a local deals business, the product changes every single day. So if you have a great restaurant on Monday, you’re probably going to sell a lot. If you have a terrible restaurant on Tuesday, you’re probably going to sell nothing. 

A lot of our ability to monetize this user base came down to the ability of the sales team to basically sell the user base, sell it to merchants. So that variability was a big challenge. In some of our more successful markets, we had really great sales teams, and in some of our less successful markets, maybe less competitive sales teams, less quality deals, and it cycles and you get a reputation within the market LivingSocial is not that good in Calgary but it’s actually really great in Dallas. If you’ve already created that perception in Calgary, nobody cares about anything else. That’s all that matters. It’s a local business.

Shamanth Rao  

I know you grew your team to 15 people, you ended up managing a nine figure budget, was that monthly? 

Adam

That definitely was peak annually.

Shamanth Rao

This was distributed across hundreds of towns? I would imagine each of these towns had very, very different customer behavior, hundreds of different retention curves, hundreds of different lifetime values. How did you go about managing this complexity?

Adam 

As you know, if you’re doing a large scale, mostly direct response media buying, I don’t think you have the luxury of being super geographically targeted. For instance, let’s say you’re buying a TV. Ads are a lot more efficient nationally than it is to do it on a local basis. So a lot of our efforts ultimately were national. And it was more about, can we get the business into all of the major DMAs. We don’t want to only be in half the market and the best half of spend is utterly wasted. So, we really thought more about paid user acquisition in the context of the channel. 

Facebook users have a predicted one year value of X we’re acquiring for Y that is within or outside of our payback period targets. I don’t think we could afford to, or at least weren’t smart enough to think like, actually, it’s Facebook users in Buffalo versus Facebook users in Albany, are Facebook users in Buffalo, who are men, or the ones of a certain age, the number of permutations, would it be manageable? It was a relatively straightforward approach once the business got to that scale. Obviously, when we weren’t at that scale, we were running things more locally. But you know, at our peak, we did stuff which probably in hindsight, didn’t really make a ton of sense but, we ran a Superbowl ad.

Shamanth Rao 

I would think through all of this, there would have been an element of offline local advertising as well?

Adam 

We tried doing street teams, we tried doing some out of home stuff. But at the end of the day, Facebook in particular, and to a lesser extent, AdWords for long tail search terms, were just an amazing lever, so much less competitive than they are today. So much scale, very clear economics based on what we thought was going to happen. We thought LTV curves are going to be a retention curve. So that’s ultimately where most of the spend was. However, we made a huge investment in marketing to merchants in the form of inside sales, outside sales. I was less involved in that part of the business. But honestly, I think it was more important. I would consider local advertising just to a different side of the marketplace.

Shamanth Rao 

Like you said, a lot of expansion also happens internationally. You guys acquired some companies, or you just went directly into some markets. How did addition of a new country or a region impact what you were doing day to day?

Adam

We took an approach where in most markets, we acquired an existing company. They had a built-in team in a couple markets, we launched organically. The goal was to create a separate team in the market. But a lot of the services were shared, the core technology, the tools, budgets even were shared. I worked closely with my colleague in the UK and guys in Southeast Asia, to try to share best practices and try to support them, to the extent they were reliant on what we were creating in the US, like from a technology standpoint. That’s how it worked.

Many of the international markets were not as successful as we had hoped. Many of the acquisitions were not as successful as we’d hoped. And some of them were really successful, specifically in South Korea. That’s another point of hindsight, try and focus on perfecting the model and one market before getting too aggressive and pushing into a ton of countries simultaneously.

Shamanth Rao

When you saw data coming back from these multiple other countries in markets, were there things that surprised you about how things happened in other parts of the world?

Adam 

The core team at LivingSocial in the US had very little to do other than identifying it as a good opportunity. The guys acquired in South Korea were called Ticket Monster and they mostly operated independently. It was fascinating to me, the user behaviors were totally different, business models were totally different. So much of the economy is concentrated and sold for the whole country, that was basically the game. They were selling deals on the business as it still exists today. It’s a multi billion dollar company. But it grew into e-commerce and all of these other things that we’d never would even have considered going into in the US. That was fascinating. The behavior in most of the other markets were we stuck to daily deals and understood the model. 

There were nuances as you might imagine, running a daily deals company in Indonesia was very different from one in the US and on a lot of levels. But a lot of the offers were the same. A lot of the deals were the same sort of stuff. People are interested in going to restaurants and getting massages, I think that’s relatively universal. We never launched in China, we never launched in India, we never launched in a massive market, which I think would have required a much different approach. Groupon did. But the UK behavior, Ireland behavior was pretty consistent with the US and Canada.

Shamanth Rao 

Most people basically want the same things worldwide. This was the boom period. And things started to slow down. What were some of the first times that you saw that things were starting to slow down?

Adam 

We used predictive models. Say we acquired 100,000 emails yesterday, as a practical example, we’re going to observe their behavior for seven days. See how many of those people are purchasing, then based on our historical data, we’re going to extrapolate out for that cohort of people. How many of them are going to be purchasing within a year’s time, that gives us a one year value, maybe even a two year value, or even a lifetime value. And we’re going to do a payback period calculation off of that. We’re always doing these predictive analytics that allow us to make decisions more quickly than having to wait a year to see how something went. But periodically, usually on a quarterly basis, or maybe bi annually, we would back test our predictive models. So our predictive model a year ago said, this cohort of people should be worth $10, on average, today, let’s see what they’re actually worth. So we’re back testing the model. And every time we back tested the model, our predictions were high. 

So that basically means that we were using historical data, always overstating how people were purchasing, obviously, we would keep adjusting the models down. But that was pretty telling to me in the user acquisition role. I was like, this is a problem. The whole point of the payback period is the part where it pays back. And if you take this to the logical extreme, these payback periods are infinite, we’re never going to have payback. So that was a warning sign to me for sure at a personal level. As I think back, that should have been a bigger red flag to me. I wish I had made every executive get in a room and be like, let me show you these graphs. We’ve got to do something. Anecdotally, this the second thing that I started to notice, I felt like the quality of the deals was going down. That I think speaks to some of the challenges in the model, like merchant retention. 

Shamanth Rao 

So it’s almost like the models were built when growth was super high.

Adam  

Growth and activation. And the product was different.

You’ve got a different product, you’re playing into this nationwide trend. So if you think about things in a blended basis, we spent a million dollars in advertising, but we signed up 5 million users. That’s amazing. And if you say, well, the million dollars of advertising must be directly related to the 5 million users, but then a year or two later, you’re like, “Oh, we spent a million dollars on advertising, we got a million users.” 

Because we’re not on Good Morning America every day, or because everybody’s heard of LivingSocial that’s a very different dynamic. And your ability, the whole payback period, math looks very different. That was a less fun time, I can assure you.

Shamanth Rao

The business model itself, even though it’s ended up not being as huge as it was predicted to be, Groupon still has a $5 billion business?

Adam

That’s no joke is that and they’re starting to push into other categories. I still think the jury’s out on whether they can make that a very profitable business. If you look at the historicals today, as a public company, I don’t think they’ve had a ton of quarters throwing off a ton of profit. But that’s not to say they can’t in the future. And it’s a big opportunity. There are a lot of local businesses that need to interact with the Internet. Like that’s fundamentally what they’re doing. Yes, it didn’t work out but LivingSocial was doing billions of dollars of top line sales. That’s not an accident. Groupon does a multiple of that. I still think there’s a place for the model. I think the historical daily deals model works better for certain verticals than it does for others, I think it works a lot better for businesses that have really low variable costs and really high fixed costs. Because I can bring someone in on a discounted basis and it’s not really costing me anything. I don’t think it works as well in contexts where you have really high variable costs, like a restaurant or something like that. So those are things I’m sure they’re continuing to learn and refine.

Shamanth Rao

You spoke of businesses that have high fixed costs, what would be some examples?

Adam 

A yoga studio. I pay rent for the studio, I pay my teachers, I have room for 20 students, my lesson tomorrow is going to have 10 in it. So I’m eating the fixed costs. But if I have 10 other people sitting in the back of the room, that’s no problem that doesn’t impact anything. Quality of the experience might even be better. That’s what I mean that if you think about live events, and a great example is I’ve got 1000 seats to fill, 200 of them are empty. It wouldn’t take much to fill those seats, so there are certain categories that’s just a better fit economically.

Shamanth Rao 

The merchant doesn’t have to spend anything extra for these people. The narrative that people like me read was around merchant retention problems. Did the company notice these?

Adam  

That was a huge focus, that merchant retention, and just merchant quality in general. So we had an unbelievable number of initiatives to try to improve that, including tweaking the model, how much in terms of revenue share we were taking, trying to change up how we presented offers, how we interacted with the merchants, how we incentivize the sales teams. As many levers as there were the team tried to pull again. 

Shamanth Rao

I think, what a lot of the media narratives can tend to miss is that it is so much harder to solve that problem, when you’re operating in 500 cities? 

Adam 

The company went from four founders to 5000 employees in the span of three or four years. It’s difficult, even in a perfect scenario, in an amazing business model to get that perfectly right, you know, see Uber. But why, especially when you have a really fundamental challenge, like it was very difficult to solve. And I think in hindsight you could have gone about it in a different way. Maybe a better business would have been just focusing on the verticals where the economics were the most favorable for the merchants. And I remember, we had these conversations, hey, spa and beauty accounts for 40% of our revenue. And the spa and beauty merchants retain a lot better. They have high fixed costs, low variable costs, and they have more built-in retention.

We had conversations like, Oh, hey, maybe this should be a spa and beauty deals, business and spa. And beauty is a huge category. In hindsight, that might have been the right call, but, we’re trying to be huge. And so you got to go for it if you’re trying to be used. That was the thesis.

Shamanth Rao 

Eventually, there was downsizing.What was that like for you when people had to be leaving? 

Adam

The tone in the whole place changed. It became a lot less fun, there was a lot more pressure to deliver on daily, weekly, monthly, quarterly revenue.

That was my only job. That was my first, I started at a company that had four people and at a peak had 5000. I didn’t realize that occasionally you have to fire hundreds of people at a time. It’s horrible. I didn’t know how to do that or deal with that. So that was not a fun experience. It was crazy to me how quickly that changed the feel and tone of the environment overnight.

Shamanth Rao

Everyone’s morale can change. 

Groupon was your biggest competitor. How closely were you watching those numbers? How closely were the teams watching those numbers?

Adam

If they did X million, I think for the sales teams, it was more directly competitive, because they’re going to the same small businesses and say let’s do an offer. And if I sign with Groupon, maybe I don’t want to run a LivingSocial till next year. So I feel like they felt the battle on a daily basis, and much more so than we did back in at the headquarters in DC, running Facebook ads or doing affiliate marketing. But we tried to understand what their revenue was. Yes, we were trying to catch them, we celebrated passing them in certain markets on special days. But we never got closer. 

I don’t think we ever got closer than maybe, a third of their size in terms of revenue. I could be wrong about that. I feel like I remember that being kind of a high watermark. And most of the time we were maybe in the lower 20s or teens. And then with, the third biggest player being .5% of the market.

Adam 

The day I quit, I personally thought that the only possible outcome is to sell to Groupon. And the thesis at the time was, maybe we could contract to just the domestic markets where we’re strongest. So eliminating a lot of international, maybe we could push into other categories, other small business verticals, not a crazy idea. There was a project to do stuff around payment processing for this massive billion dollar market. There was an effort to do CRM marketing for small businesses, all these random ideas, many of which were decent. 

And the idea was, could we push into these other things? We actually think the company raised a bunch of money by divesting some of the foreign subsidiaries. Local businesses, particularly in South Korea were sold to private equity. And a lot of that cash was used to fund the ongoing operations, they brought in a new executive team. Tim was my boss for a long time, he left the company, the other founders left the company. I think it was asking too much of the organization. You build a big company in Washington, DC, around a local sales model, heavy customer service model, and then you try to become innovative about local business, credit card processing, I just don’t think it was the right fit for the DNA of what the company was good at. 

Some of those efforts showed promise, but I don’t think they showed enough promise to make it a multibillion dollar company, which was the amount of money the company had raised. I would assume ultimately, the investors and board said, You know what, we don’t think these other bats are ever going to pay off in the way we want. And we’ve got to throw in the towel.

Shamanth Rao

But not before you guys had a hell of a ride.

Adam

An amazing outcome. Different decisions are made at different points to sell the company or merge. But it doesn’t take away the fundamentals. The fundamentals of the model were flawed with respect to merchant retention. No matter what the outcome would have been for me personally, or my colleagues doesn’t necessarily mean that it would be a thriving business today.

Shamanth Rao

After that, you moved on. You started Grow.co. 

For those listeners who don’t know, grow.co organizes some of the most impressive conferences I’ve been to. I’ve seen you guys grow from a tiny room into a massive multiple halls of Vegas over the last couple of years. It’s been very, very cool watching you guys grow. What inspired you to get into the conference space?

Adam 

To be honest, I didn’t know what I wanted to do after LivingSocial. Imagine you’re 19 and you work at one place, your whole life is this place, my friends work there, my fiance works there, my mentors work there, like it was all that I knew. I’m still friends with lots of those people. But what I also knew was, I don’t want to just do the same job at another place. I would rather try something different. What if, I could try being more entrepreneurial? My friend, Jay, my co-founder at Grow.co, he understood local events, conferences model. And he said, “Hey, this is how it works. This is how we can do it.” And I said, Alright, let’s give it a try. 

So I started this conference business, I started another side project, an SEO business that still operates. And I’ve been working on those for the last four years. But

my main thesis around the conference business was, I felt like there was a new part of the marketing industry that was self identifying as growth, like this podcast. You didn’t see people with growth titles five years ago, then you started to see it, and what does that mean? I think it means just a more cross functional marketer, more understanding of the technologies, more understanding of design, more understanding of product in particular, in addition to marketing and branding. So I thought, there’s people who are self-selecting into this new job title. There probably should be an in person community around these types of people. And that was our motivator, we’ve ultimately ended up focusing primarily on two spaces, mobile app space, and just e-commerce. 

Generally speaking, I think we’ve been most successful in the mobile app space. And yeah, it’s been fun. I get an opportunity to meet a lot of people. Even though I stumbled into this whole world, I genuinely find it interesting. And I like talking to other people that work in this space. So from that perspective, running an events business has a lot of personal interaction. 

Shamanth Rao 

I’ve met some very cool people at your events. Even if it may never become a billion dollar company, just the satisfaction of meeting cool, interesting people. That’s oftentimes enough. Last question I would want to ask is, what are some of the influences that you learned from? Who do you look up to?

Adam 

I think there are some really well regarded people like Andrew Chen and Brian Balfour, who I’ve always learned a lot from in the growth space. I think the growth discipline is really about the cross functional nature. There are others like Neil Patel, who’s going after the same ethos. In the growth marketing space I look up to a lot of those guys, and I continue to learn from them. 

Brian has a business now where he’s basically teaching what I would consider to be MBA level classes, but on growth marketing. General Assembly, which is a coding bootcamp, they now offer a bootcamp for growth marketing that’s insane. So I think there are a lot of great resources like that I learned more through sort of random doing, as most people do that, to the extent someone wants to get into this space, they can level up a lot faster. 

Shamanth Rao 

I’ve taken Brian and Andrew’s courses, a great curriculum, even for experienced people. For listeners who might want to check that out, that’s at reforge.com. I will put the correct link in the show notes for you. Could you tell us more about where people can find out more about you?

Adam

If you go to Grow.co I send a weekly newsletter. It’s a list of links and articles and also updates about our events.

Shamanth Rao

By the way, it’s been advertised as having one of the highest open rates in the industry.

Adam 

If you reply to that email, the email goes to me. So I’m very easy to find. And obviously, our big events, if anyone’s interested, they’re welcome to ask me questions about those. 

Shamanth Rao

I’m definitely one of the regulars. They always have great content, great lengths. I always look forward to reading the weekly email from Adam.

We can conclude, Adam. I hope to see you again soon.

A REQUEST BEFORE YOU GO

I have a very important favor to ask, which as those of you who know me know I don’t do often. If you get any pleasure or inspiration from this episode, could you PLEASE leave a review on your favorite podcasting platform – be it iTunes, Overcast, Spotify, Google Podcasts or wherever you get your podcast fix. This podcast is very much a labor of love – and each episode takes many many hours to put together. When you write a review, it will not only be a great deal of encouragement to us, but it will also support getting the word out about the Mobile User Acquisition Show.

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