
"therefore, starting now, waffles are now $450.00 each" - danso
http://backalleywaffles.com/notice-groupon.html
======
staunch
I wouldn't blame Groupon if my business was so fragile that a single Groupon
campaign (that I setup!) could kill it. Little restaurants like this go out of
business every single day. They probably turned to Groupon hoping it would
save them and instead it hastened their demise. It feels better to blame
someone than take personal responsibility for a failure.

~~~
chris_wot
There is this thing that small businesses rely on. It's called "cash flow".
You may have read about it. If Groupon waits for several months to issue a
_cheque_ (who the hell pays with cheques?) and then you have to wait for 10
days for the cheque to clear, then you have a cash flow problem.

Groupon knows this. Your cash flow problem is their business. Hope this helps
clarify the issue somewhat.

~~~
rdtsc
Presumably money in the bank = interest. Groupon, it seems, wants to also be a
bank. Shouldn't the restaurant owner collect interest as well perhaps. In
reality though, can't all this be spelled out in the contract, that would have
made it un-ambiguous.

~~~
chris_wot
The following is from a hellbanned user, but damned good info so I'm reposting
it:

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

------
damian2000
I agree that Groupon's practices here may be beneath contempt, but noone
forced this business owner to sell his products via Groupon. A tiny bit of
research on the net will tell you what to expect.

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).

~~~
elmuchoprez
I couldn't tell from this site if the owner is under the impression that he
was never informed it would take that long to get the money, or if he signed
the contract knowing full well what the reimbursement policy was and just
thinks it's unfair now that he's had to live it.

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.

~~~
veyron
Closing business for a day: labor cost = 0. That means less burn. He must be
bleeding for cash given the timing (3 months). At this point, business owner
has to amortize the labor cost across fewer waffles.

~~~
runako
Agree 100%. Also, based on his menu, he made another critical error in using
promotions like Groupon: no room to upsell. He's charging $8 for waffles
(which may not even be that high in his DC neighborhood), but undercharging
for coffee and doesn't appear to have any further upsells.

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.

~~~
tomkarlo
Selling mimosas requires a liquor license, which isn't easy to get. It's
unlikely that a hole-in-the wall waffle joint would have one.

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.

~~~
rdtsc
Maybe, offer a basic cup of joe for $1 and a fancy organic, gourmet, free-
trade coffee for $3.50 in a nice coffee press. It really depends on the part
of town and the typical type of clients.

------
Echo117
Response from Groupon: “Mr. Nels[e]n initially approached Groupon and our
merchant advisors structured a deal to best encourage overspend and help his
business grow. We also required Back Alley to cap the number of Groupons sold
to ensure the feature was in the best interest of both consumers and the
merchant. We scheduled his feature on his terms, on a date he selected, under
a contract he reviewed and signed. According to our records, only 132
Groupons, or 18% sold, have been redeemed since Back Alley ran two months ago,
and Mr. Nels[e]n has received 2/3 of his share of the revenue to date. We
always hate to hear that a local business has decided to close, but the math
does not point to Groupon as the cause.”

Source: [http://www.washingtonpost.com/blogs/going-out-
gurus/post/bac...](http://www.washingtonpost.com/blogs/going-out-
gurus/post/back-alley-waffles-owner-on-groupon-i-might-have-jumped-without-
checking-very-well/2012/07/23/gJQAHbie4W_blog.html)

------
CamperBob2
Update August 14, 2012: _Turns out waffles are a Veblen good. Who knew? Also,
it turns out that it takes way too long to order a new Ferrari._

~~~
voltagex_
Thank you for teaching me a new term!
<http://en.wikipedia.org/wiki/Veblen_good>

~~~
makmanalp
Read also: <http://en.wikipedia.org/wiki/The_Theory_of_the_Leisure_Class>

------
thechut
I get that groupon is shitty. But I'm very confused about the mosaic part...
Can anybody provide more context?

~~~
astrodust
Sounds like you get some nice artwork with a free waffle.

------
cypherpunks01
Does it _actually_ take three months to get groupons fully reimbursed, or is
this some kind of anomaly?

~~~
toomuchtodo
Yes.

[http://online.wsj.com/article/SB1000142405297020435800457702...](http://online.wsj.com/article/SB10001424052970204358004577027992169046500.html)

~~~
chris_wot
Should Groupon try this in Australia, then this could quite possibly be seen
as using unfair contract terms.[1] The ACCC could get it invalidated.

1\. <http://www.accc.gov.au/content/index.phtml/itemId/930021>

------
dbecker
He hates groupon. We get it.

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.

~~~
MichaelApproved
Customers are not screwed at all, Groupon will give them a full refund.

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.

------
dangrover
I thought this was a satire on the app store/Sparrow discussion when I read
it, until I got to the bottom.

------
jack-r-abbit
If only he could have gotten a bunch of the free waffles the Young Pirates in
Sweden were just giving away. He could have made a killing!

<http://news.ycombinator.com/item?id=4279118>

Who would have thought... two waffle stories so close together.

------
Quizzy
And this is why Groupon's business model is unsustainable - bad news travels
faster and is more vocal than good news. Any business owner on the fence about
using Groupon walks away after reading this post.

------
rodglez
Does it even matter that it takes three months? Most groupons are valid for
more than three months. Even though I assume most are used within the first
month, its still not all of them.

~~~
tedunangst
groupons not redeemed don't cost the business owner anything. The ones that
are redeemed require him to front the cash. This is cash flow management 101
(and one of the things that enrages some people about Apple and Amazon. Apple
sells you a new iPad, but buys its suppliers 90 days later. Those suppliers,
just like groupon merchants, are making 90 day loans out of pocket).

------
Dylan16807
Oh well, more business for the free waffle stands.
<http://news.ycombinator.com/item?id=4279118>

------
Gotperl
So the owner didn't understand cashflow?

~~~
chris_wot
Probably not, which Groupon exploited to the fullest.

------
spitx
On Andrew Mason and Eric Lefkosky :

"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...](http://articles.businessinsider.com/2012-04-03/tech/31279229_1_eric-
lefkofsky-groupon-conspiracy-theory#ixzz21W67Enqu)

~~~
pedrolll
Business Insider... A great source for wild Apple rumors.

Also, funny top 10 lists like: [http://www.businessinsider.com/10-things-
science-can-teach-u...](http://www.businessinsider.com/10-things-science-can-
teach-us-about-being-sexy-as-hell-2012-7)

Not much credibility there.

~~~
spitx
"The history of Groupon’s chairman, Eric Lefkofsky, was also unearthed,
showing a lawsuit-prone entrepreneur who flipped a dot-com company in 1999
only to have it lead to bankruptcy a year later for the firm he had sold it
to. And Groupon’s filing shows that when the company privately raised $950
million in a pre-I.P.O. round in January, it paid out $810 million of that to
its investors and employees, a red flag for any investor. (Mr. Lefkofsky and
his wife took home about $319 million of the total.)"

Source: [http://dealbook.nytimes.com/2011/10/17/the-missed-red-
flags-...](http://dealbook.nytimes.com/2011/10/17/the-missed-red-flags-on-
groupon/)

