How Grouponomics Makes the Case for Business Intelligence

There's been a lot of talk about Groupon lately in advance of its Initial Public Offering (IPO). This recent post by Felix Salmon on "Grouponomics" led me to think about how small businesses who use Groupon are prime examples of the need for some form of business intelligence. Small businesses have a reputation of being run by people who are very good at making pizza, driving limos, or frosting cupcakes.

1. How Grouponomics is used to smooth out demand cycles:

Groupons can very good at driving traffic during slow periods: I spoke to Will Sanders, of Giorgio’s of Gramercy, and he told me that he timed its Groupon “to create a surge of business in an otherwise soft couple of months after the holidays.” For any kind of business which needs a certain amount of volume to keep ticking over in fallow times, Groupons can be exactly what the doctor ordered.

If you were running your business with analytics (even of the spreadsheet or QuickBooks kind) would you really ever need Groupon to drive traffic during slow periods? 

2. Understanding the important metrics in your business model:

According to one Groupon survey, diners spending their Groupon at a restaurant averaged a check 80% greater than the face value of the Groupon itself. That’s no coincidence: the value of a Groupon is — or should be — carefully calibrated so that it’s hard to spend just the Groupon with no extra cash on top.

Merchants who get that calculation wrong can suffer greatly as a result: if you sell goods for $40, and you send out a Groupon offering $40 of goods for $20, then you’re likely to lose a lot of money very quickly. On the other hand, if your goods cost $100 on average, then you can make money on every redemption.

There's been a lot of discussion about this last point and horror stories of Groupon nearly bankrupting unsuspecting small businesses because they did not understand the key metrics of their business model. Is it revenue per employee? per square foot? Is it the number of times a table turns over in an evening?

A good example of a business owner applying rudimentary business intelligence to understand their key metrics comes from a friend of mine here in Chicago that runs a food truck/catering business. He's been marketing his business through a combination of traditional PR, word-of-mouth, and social media. The business was growing so fast that he routinely would run out of food on his truck during busy lunch periods, which like being overwhelmed by the demand generated by Groupon, could have spelt death to his business. Now during lunch, he keeps track of the number of each of his offerings on a whiteboard next to the cash register in the truck. That way, he can analyze the demand for each of the varieties he serves (which happen to be empanadas) at each of the different stops he makes during the week. I talked to him about this after waiting in line for 40 minutes only to have him run out just as I got to the head of the line. The guys in the NorthBound office still visit the truck every week, but we know to get there early. What other business do you know in which you can turn away customers and still have them come back week after week?