Belly dance: Can Lightbank and Chicago's hot new company avoid Groupon's missteps?
The two conversations I've had with Silicon Valley insiders where loyalty company Belly has come up have both been effusive. But oddly enough, both have invoked the disaster that is Groupon.
The first one was an off the record conversation months ago about how Groupon's inexperience, arrogance and sloppiness tainted the promise of bringing the local retailers into the Internet age-- and in the process siphoning off all those ad dollars going to antiquated things like the Yellow Pages now. This person ended the conversation by saying Belly could be the dark horse that rises from the daily deal ashes.
My conversation this week-- with Belly investor Jeff Jordan of Andreessen Horowitz-- invoked Groupon more directly. In explaining why he lead the company's $10 million series B last year, Jordan said, "It was incubated inside the Lightbank offices with Brad (Keywell) and Eric (Lefkofsky) and we like that team. They have proven the model for something that is a land grab." And then the cherry on top: He described founder Logan LaHive as "quirky." (Disclosure: Jordan is a personal investor in PandoDaily as well.)
Whoa. Whoa. Whoa.
Wait a minute.
We're positive on something that was developed under the tutelage of Eric "If we get whacked on the ride down who gives a shit?" Lefkovsky? And the land grab that was Groupon's wild, frenetic international expansion is now something to emulate? And with the dust hardly settled on Andrew Mason's ouster, we like "quirky" Lightbank-funded entrepreneurs again? There's just a lot of deja vu here given the multi-billion implosion we just witnessed. (And are still witnessing?)
Says Jordan of my concern: "Groupon is only a couple billion dollar business, and their non-public investment portfolio is pretty damn interesting. I have a lot of time for Eric and Brad personally. Groupon has done some things extremely well, including a rapid roll out of a concept using a local sales force."
When we sat down in San Francisco yesterday, LaHive had a more compelling response to my concerns: "I understand who they are and what their DNA is. If I were new to this space or easily influenced, they might push or divert me in ways that I'm not comfortable with. They're investors. [Me and my team] are the ones growing and scaling this business."
Put another way: This is LaHive's baby.
LaHive might be quirky, from Chicago, selling to mom and pop retailers, growing quickly, and backed by Lefkofsky. But I didn't come away from the hour-plus meeting feeling like I was looking at the next Andrew Mason. For one thing, he's spent years as the road warrior trying to sell to new digital offerings to small businesses, and he's worked in startups long enough to understand the value of humility.
Perhaps because of that experience, Belly is growing fast in a space glutted with players. Its customer-facing iPads that allow customers to earn rewards are in 5,000 shops and restaurants. More than 1 million customers have checked in on those iPads over seven million times and redeemed some 200,000 rewards.
Belly is in the news today, because it is launching a new enterprise platform to bring more robust analytics to national retail chains, with several pilot programs already in place. The way Belly has secured these pilots is similar to the grass roots way in which software as a service grows inside offices: One off deals with individual franchises who don't get permission from corporate, love the service, and evangelize it within the company. It's the fastest growing part of Belly's business right now, with some 100 chains having Belly's iPads in 600 locations. If Belly proves its value, there's a big opportunity there: Those 100 chains have 200,000 stores globally, LaHive says.
Right now, Belly is focused on quirky and creative loyalty programs that give rewards highly tailored to the personality of a local small business-- the first was a local Chicago comic book owner who allowed you to punch him in the stomach after a certain amount of points. But LaHive sees loyalty programs as a Trojan Horse of sorts.
Those thousands of iPads on counter tops could allow the company to do all kinds of things in the future. It's already bringing in new customers through its free-sampling Belly Bites program, and can use points and discounts to encourage customers to like a merchant's Facebook page or write a favorable Yelp review. It gives small merchants robust analytics and email addresses, that can be used to compete with larger chains.
And Jordan says the company is even looking at the payments space. As the man who took OpenTable public, Jordan knows the power of having your system inside the stores-- and having the stores actually pay a monthly subscription fee for that system. "Once he sells it, it's pretty darn sticky and the value goes up over time," Jordan says.
This is LaHive's first company he's founded. His first startup job was as an early employee at a biometric payment company called Pay By Touch that flamed out, burning through more than $300 million in capital. "Most people who've heard of it go 'Ughhhh' when I mention them," he says.
It may not be the best calling card for Valley investors, but it gave LaHive the experience of two years traveling the country and pitching the service to merchants. He ended up in Chicago where he met "a girl much prettier than [him] who wasn't going anywhere." When it was clear that Pay By Touch's days were numbered, he became the second employee of Redbox, the maker of retail DVD kiosks. Unlike a lot of first-time entrepreneurs in the Valley, LaHive knows selling to middle American customers and retailers.
He also always knew he wanted to start something. So he quit Redbox after four years and in 2011, he went to pitch Lightbank on an idea that tied loyalty with mobile games and they told him the idea was awful. They pitched him on an idea called "BellyFlop" that would help merchants collect email addresses via mobile. He told them that was awful. Or as LaHive puts it: "They shit all over me, and I shit all over them." He took a job a founder in residence with the firm and Belly emerged out of the brainstorming and shitting on ideas that took place over the next few months.
One of the knocks on Groupon was that it focused too much on hyper growth and less on solving real problems for small businesses in a sustainable way. So I was impressed that LaHive spent so much time in small businesses grilling mom and pops on what they'd want. "I think Eric and Brad were pretty close to firing me because I never showed up for meetings and was never in the office," LaHive says.
The take aways were that purely iPhone solutions were a no-go because only 40% of customers had them. And merchants weren't keen to give away substantial value based on a lazy geo-location check in, because they wanted to make sure customers were really customers. So Belly offers tangible cards along with an iPhone app and came up with the iPads as a way to control check-ins and control its own user experience.
LaHive's other insight was particularly interesting: That he needed to launch this company far away from San Francisco. Because of the glut of capital and entrepreneur talent here, San Francisco's small businesses are inundated with different marketing, discovery, payment and loyalty solutions. Walk around the Mission District and each coffee shop has a different one-- with no guarantees any will be around in six months. Few of them charge merchants a monthly fee for their product, and he even had a competing loyalty startup offer a Belly merchant an envelope containing $1,000 in cash to stop switch vendors. "It's not reflective of the rest of the country," he says. "We may not get as much press on tech blogs, but I'm building this for the mom in Milwaukee who buys her kids ice cream after the soccer game."
That competitive landscape is hard to distill. In the loyalty space alone, there've been dozens of entrants. Meanwhile Belly isn't direct competition with players like Yelp or fellow Andreessen Horowitz bet Foursquare, but all of them are chasing the same limited local merchant marketing budget, and it's hard to believe they won't overlap in features eventually. Case in point: The distinction Jordan made between Foursquare and Belly is that one is focused on discovery and the other is on loyalty-- two opposite ends of a marketing spend. But something like Belly Bites that pulls in new customers already telegraphs that LaHive isn't going to be content with just loyalty.
LaHive doesn't deny that someday these players may all converge and compete with one another, but he says that's a long way down the road and many things could fell all of these companies well before that point. "You said it yourself: For years people have been pitching this vision to be the merchant's operating system and no one has pulled it off yet," he says. "You're talking about a potential vision that's still years away."