The LivingSocial Story

Talks

Aaron Batalion

The LivingSocial Story

by Aaron Batalion

The video titled "The LivingSocial Story" features Aaron Batalion discussing the growth trajectory of LivingSocial, detailing how the company expanded from four to 1,400 employees in just 18 months. Batalion recounts his motivational journey as a programmer transitioning from Java to Ruby and eventually co-founding LivingSocial after starting Hungry Machine, a consulting firm. He emphasizes the importance of leveraging the Facebook platform for user acquisition and shares challenges faced in monetizing their applications.

Key Points:
- Initial Journey: Batalion’s introduction to Ruby at a conference and his transition from a Java developer to a Ruby programmer.
- Founding of Hungry Machine: Batalion and his colleagues created Hungry Machine, focusing on building applications for the Facebook platform while executing projects for clients like Animoto and ESPN.
- Product Development: Their successful product, Visual Bookshelf, was a platform for users to share and collect their reading interests, leading to significant user engagement but insufficient revenue generation.
- Rapid Growth: The team developed a Facebook app that gained 35 million users in three weeks, showcasing the need for effective monetization strategies despite massive traffic.
- Challenges with Revenue: The lack of a scalable revenue model forced the team to explore advertising and partnerships, noting their struggles in competing with companies like Farmville.
- Innovative Solutions: In response to these challenges, they launched a social commerce platform, quickly capturing significant market share and revenue.
- Technology and Culture: Batalion emphasizes a strong technology foundation and a supportive internal culture, advocating for a focused, cohesive team over a larger, less unified group.
- Adaptability and Metrics: The significance of metrics in tracking user behavior and business performance was highlighted as a learning experience from their Facebook application endeavors.
- Calculated Risks: Batalion describes the inherent risks in entrepreneurship, sharing a story about shifting company funding from a 12-month to a five-week runway, which ultimately led to considerable success.
- Continuous Improvement: He advocates for a mindset of continual reassessment and improvement, aspiring for ever-greater achievements beyond initial successes.

The presentation concludes with a strong message about leveraging technology, understanding metrics, fostering a supportive culture, and never settling for achievements, encouraging innovation and evolution in the startup space.

00:00:03.879 Hey guys, I'm going to talk today a little bit about our story—how we started and how we grew from four to 1,400 employees over the past year and a half. So I'm Aaron, and I'm an R programmer. I started here at the Lone Star 'No Fluff Just Stuff' conference in 2005, where I heard this guy speak—some of you know him, Dave Thomas—talk about this language called Ruby.

00:00:16.960 At that time, I was a Java developer and not really thrilled with my situation. I was kind of looking around for what I might do next. I bought the book that night, started cranking out code, and then got a job at Revolution Health, where I was hired as a Java architect.

00:00:28.840 After a few months of arguing about SOAP, WSDL, and Enterprise SOA, I took a couple of people into a back room on nights and weekends and built a prototype in Rails. A few weeks later, I went to the CTO at the time and said, 'I think we should take your team of 80 developers and make them all learn Ruby.' It didn't go over well, but we did manage to launch the product on time.

00:00:49.120 In 2007, we had a healthcare startup that took Rails mainstream fairly early by switching a big team entirely to Rails. We were kind of happy with what we had accomplished. A couple of the folks who had worked on that tiger team began thinking about leaving, and later that summer, we left the company and started Hungry Machine, a name that still means a lot to me.

00:01:06.280 Hungry Machine was a consulting firm at the time, and it included myself, Val, Eddie, and Tim on the business side. We three tech folks left first, thinking we could create something on the Facebook platform, which had just launched. We knew it was the cheapest way to acquire users that had ever existed on the internet, and we were intrigued by the social graph and the interesting applications we could build.

00:01:27.199 We made money building apps for clients like Animoto, ESPN, and JibJab, but we also worked on our own products. One of these was called Visual Bookshelf, a simple idea that allowed users to collect the things they cared about—books they wanted to read, books they were currently reading. It quickly attracted millions of reviews and members. We then expanded from books to movies and eventually to restaurants, moving into the local space, which became our focal point.

00:01:48.160 We developed a business model based on lengthy reviews and great content, thinking it would drive fantastic SEO and attract tons of free traffic. But there was one problem: there was no revenue. So we decided to add buttons on our site; if people clicked on these buttons to buy books on Amazon, we received a small commission—80 cents for a $10 book, which was not enough to support salaries for our team of five.

00:02:01.040 Next, we tried making custom advertising deals. We approached marketing companies and book publishers to skin our site like MySpace to generate revenue—despite not liking that idea. Unfortunately, that approach failed to be scalable; sales cycles were three to four months long, and finding consistent business was challenging. Eventually, we launched an app based on a simple concept, built on the platform we had created. The idea was to condense our entire product into one page, requesting users to pick five things they cared about; for example, they could choose five songs, which would then post a feed item into their Facebook profile with comments and pictures.

00:02:37.560 This app quickly became the number one Facebook application, growing from zero to 35 million users in just three weeks—the fastest organic growth in Facebook's history. At that time, we had about six billion hits a month and a very lean engineering team of only four people. It was exciting, but we still had no way to monetize our traffic effectively.

00:02:58.720 Afterward, we decided to go back to selling advertising, similar to the previous approach we'd tried. We partnered with brands like Coca-Cola, Target, Green Day, and American Idol. However, as we began to struggle, I realized we needed a new way to differentiate ourselves. Then came along Farmville, which became the number one application on Facebook, surpassing us in users and profit with a model that attracted paying customers—a model we still hadn’t figured out.

00:03:19.840 We had 80 million users but lacked a scalable path for revenue. Despite millions of dollars earned every month, there was no clear transition from our current revenue to hitting ten or even a hundred million. We needed a fresh idea, which led to the creation of our first social commerce platform, launched after only a week of development. We sold sushi deals on the first day and quickly gained traction.

00:03:41.360 There have since been hundreds of clones of this concept, with many believing the idea is easy to replicate. However, to genuinely succeed, you must out-execute and out-innovate in this space. Living Social had the fastest market and revenue growth within the first twenty months, gaining 2-3% market share every month for the last 18 months. Let me share some of the ways we believe we achieved this.

00:04:02.720 I like to describe our business as an iceberg; you only see 10% above water—the consumer-facing apps we all engage with daily on devices like iPhones, iPads, and the web. Everything else we constructed to support this business is underneath the surface. We’ve always held a belief in the importance of strong technology; three of the four co-founders are technical, and we built a range of internal tools to scale our operations, recruiting process, customer care, and merchant relations.

00:04:24.719 We've developed custom iPad apps used by our massive field sales team—over a thousand people in cities globally. They personally visit local merchants to build relationships. These native apps interface with our data to ensure effective sales strategies while simplifying processes such as contract signatures. This is not just about sending emails; this is real local e-commerce.

00:04:50.640 For context, consider a local skydiving business we collaborated with, which sold $500,000 in skydiving trips in a single morning. Remarkably, 98% of these customers had no prior plan to go skydiving that day. We're focused on building bigger businesses; being a successful startup means more than simply generating revenue and accumulating users—it's about making an impact on the GDP of the country by elevating local companies.

00:05:18.560 Recently, we've launched Living Social Escapes, which is like a weekend in a box encompassing bed and breakfasts, fine restaurants, farmers' markets, and winery tours—all curated and editorially controlled by our team. We quickly became the largest flash travel site on the web upon launch, working with strategic partners such as Amazon, which even invested in us.

00:05:46.720 In one notable deal, we sold $20 Amazon gift cards for just $1, generating over a million purchases in a single day. This was one of the largest single product sales online in history. Our Amazon day resulted in us constituting 6% of total e-commerce for that day—a substantial figure.

00:06:13.480 Another successful product we launched is Living Social Adventures, where we throw events across the country with our dedicated teams in 30 cities. For example, we recently organized a 'Canadian Night' at an ice rink, complete with curling and serving poutine, creating an unforgettable experience that transforms attendees into brand ambassadors for Living Social.

00:06:30.480 Additionally, we were first to the market with a real-time e-commerce solution that allows users to find offers nearby. For instance, imagine you’re walking down the street and want lunch. If Chipotle is on one side and California Tortilla is on the other, our product enables them to compete for your business in real time.

00:06:53.160 As I continue sharing lessons learned, one key takeaway is that execution is essential and ideas alone do not guarantee success. For instance, the first social network—was it SixDegrees.com, Friendster, or MySpace? The value lies in taking an idea, executing, building, and expanding upon it.

00:07:19.239 Culture matters too; it’s vital to foster a supportive environment. For instance, our team embraces the values expressed in our t-shirts: 'Live Hungry,' 'Strong Moves in the Middle,' and 'Surprise and Delight Your Customers and Merchants.' This culture underpins our approach to technology and teamwork.

00:07:35.960 While building technology teams, I firmly believe that a smaller number of the right people can achieve more than a larger team that lacks cohesion. Having a core group of talented individuals who share a passion for their work matters greatly. Just a few months ago, our team was just ten people, but we’ve since acquired some amazing talent to improve our capabilities significantly.

00:08:02.120 Understanding metrics is also crucial. Metrics life cycle includes acquisition, activation, retention, referral, and revenue. Many of our accomplishments as a company stemmed from our early experiences with the Facebook application model, emphasizing metrics that inform user behavior and engagement.

00:08:29.860 You should embrace the uncertainties of entrepreneurship. If you are not making decisions that cause anxiety, perhaps it is best to work elsewhere. Life in a startup involves making hard choices; for instance, in late 2009, our company had enough funding for a twelve-month runway. We chose to gamble and cut that runway to just five weeks.

00:08:55.080 That calculated risk led to significant rewards, and since then we've raised about $630 million. Leveraging the opportunity, we created products such as Living Social Instant and Living Social Escapes. Our platform was flexible and scalable, leading to the successful development of applications capable of handling considerable traffic.

00:09:16.600 Building successful software requires iterative processes and persistent improvement. Don't throw anything away—if your project is in its early stages, get it online and start testing. Engaging with users is what truly matters, and early experimentation can inform future direction.

00:09:39.120 Furthermore, as a company, we have been through various plateaus, but it is essential to maintain dissatisfaction with your achievements. As a founder, it is my instinct to continually search for ways to improve. Each day, I reassess everything I’ve built and seek avenues for enhancement.

00:10:12.640 For instance, reaching one million in monthly revenue is remarkable, but what if you could achieve ten million? Or one hundred million? The key is never to settle; there are always new heights to conquer.

00:10:25.080 Thank you, and I appreciate your attention.

RailsConf 2011