"The company has raised more than $900 million to date from Amazon, J.P. Morgan and Lightspeed Venture Partners."
That's the biggest red flag for me. General rule of thumb is that your VCs won't approve an exit unless it's for at least 10x the funding you've taken, which means they need a minimum exit of about 10 billion.
That's a tough spot to be in, and really changes your thinking. I know of at least one company that had an exit opportunity but it was only 2x funding, so the investors wouldn't allow it. They then slogged along for 8 more years until they finally had an exit that was 0.2x and it all went to the series A investors with their preference. Founders got nothing, angels got nothing, employees got nothing, and series B and beyond (the ones who blocked the 2x exit) got nothing.
Edit to clarify: I'm not saying the VCs are doing anything wrong here or being irrational or anything like that. I'm saying as a founder you need to watch out for this because the VC has a diversified portfolio and the founder doesn't.
I don't see it ever happening. I would not even call LivingSocial a "startup" at this point, they've been around a few years at least. Their new strategy (discounts linked to credit card) seems uninteresting, hard to scale, and something that dozens of others have been doing for a while now (none of whom I can name, because who cares?)
Yes. For me, a startup is a new business formed to discover a new product or business model. Then once they've found that, they enter a phase of very rapid scaling. I'm ok with calling those startups as well, as they're still very learning-focused. But once they have a reasonably stable product and revenue stream, I think it's a mistake to call them startups any more. Their values and behaviors become much more like typical companies.
LivingSocial is not a startup, it's just a company that isn't doing very well right now. It's not in a "growth period", in fact it's already gone through this kind of firing before.
In my opinion, at the point LivingSocial copied Groupon's business model, they weren't a startup anymore; before that they were a social app on Facebook.
Southwest Airlines has one that gets you Rapid Rewards points for registering a credit card and eating at certain places: https://www.rapidrewardsdining.com/
I registered, because why not, but most of the restaurants in it are pretty crap.
The company was founded with VC money right off the bat (Will Wright, although a central figure, wasn't the "real" founder, the investors that found him and convinced him to start the company, not the other way around).
When they release SimCity 2000, they were right on track as VC expect... the problem is that game cycle is long, they expected to release SimCity 3000 or TheSims in at least 2 years, meaning 1 year without a big release, VCs weren't happy with this, they wanted exponential growth every year, not a "staircase" growth, so the VCs kept bugging them and the result was a premature exit (where they were sold to EA for a amount of money that I think undervalued them).
Now they are mostly dead :/ (after the massive failure that was SimCity 5, almost everyone was fired, including EA CEO).
some of the "weirder" games they released because they wanted to.
In fact SimCity 2k they made because they "had" to, they didn't wanted to make it, but it was their obvious cash cow.
SimAnt, was a prototype for "The Sims" (then named "Project Dollhouse") that ended becoming what was released instead (they made the "house" and the human and the dog in SimAnt before the ant farm simulator part).
After they released SimCity2k, the CEO quit (I dunno why), the VCs then started to meddle directly, and demanded they released 4 games by the end of 1996, they ended making SimCopter (that started as a 3D engine and AI prototype for The Sims again... later when they released the actual The Sims, they used the actual engine from Sim Copter, but "converted" back to 2D), SimPark (that also had parts of its engine used in The Sims and SimCity 3k and 4), Sim Tunes and FullTilt Pinball
It didn't went fully well, although SimCopter people liked it, the rushed release was problematic, for example with the buggy bimbo easter-egg (one of the programmers introduced without permission an easter-egg where men in speedos and nipples that glowed would run around named "himbos", a bug, not caught due to rushed released, made the easter-egg trigger in a frightening pace, spawning hundreds of "himbos", that would run toward the helicopter, get sliced by the blades and killed, heavy PR fallout ensued).
Then the VC demanded that they dropped everything (including The Sims) and started doing the next SimCity, but they wanted it in the SimCopter engine, despite the dev protests, knowing it would never work... Indeed, it didn't, SimCity 3k in SimCopter engine was throughly bashed at E3, with journalists extremely disappointed, and the team morally dropped like a rock, being forced to work in a product they knew it would never work.
So they ended needing the early exit to EA to save them, it was EA, or risk the entire team quitting.
Ah, I quite liked SimCopter. I would love to see a modern SimEarth, too, especially given how the threat of climate change which seemed abstract when the first came out has gotten a lot more tangible.
A new SimEarth would be cool, but if they made it now it would be the size of a tiny asteroid and you'd have to deal with everyone else on other asteroids in the asteroid belt.
Surely the VCs have the data on how often they get burned by blocking a profitable exit. How often do they block a 2x return and later get 10x? Is it really enough the compensate for the (sure more common) result of getting 0.2x or 0?
I worked at a .com era startup that went through something similar. Biggish acquisition offers came in circa 2001, but much smaller than the theoretical enterprise value if the product worked out.
Company finally sold in 2005, preferred shareholders got everything but still lost money. Founders got nothing, employees got nothing. But everyone got to keep their jobs which was better than just going out of business.
This seems to happen pretty often. Also common is founders turning down acquisitions because they are sure they can make more if they keep at it. You wouldn't start a company if you didn't believe it.
I "lost" well over a half million dollars because founders turned down a $50-$60mm acquisition offer to try to hit a home run. The problem was the ceo had been previously acquired and left before he fully vested in order to start the company I worked at, and had walked away from $5m in the process. (Which is crazy, right? That's a $5m bird in hand if he just didn't get fired for 2 years.) Anyway, he was really attached to the idea of building a company worth $300m plus so instead he built a company worth a handful of millions.
There are so many of these stories of wealthy founders turning down bird in the hand offers and then losing it all X years later even though the company got 'big'. I too got burned by one myself.
I advise friends now to avoid those companies as employees, because an exit that would be very good for you might be turned down by wealthy founders. Joining a startup with a wealthy founder means they will go huge or bust, and nothing in between. Great if you want to do that yourself, but you usually want to be wealthy already.
As all the FTC standard warnings say, past performance is not a guarantee of future performance.
A wealthy founder has already past the point of "fuck you money" and financial independence. Adding another $10 million to his current $10 million isn't going to have a very meaningful effect on their life. Another $+100 million will, which why they go big or die trying, because cashing out with a $10 million payoff is the same thing in their lives as failing. Also running your own company is fun in itself.
You as an employee do not have financial independence most likely, and independence will be a huge change to your life. It's the incentive conflict of interest that is the fundamental issue here. Non-wealthy founders will probably have a cash out point in their heads and will take bird in the hand offers that would give them financial independence.
Also I say wealthy founders, not successful founders. A founder can become wealthy via many means. He could of been an early employee of a successful company (like BeOS and Jean Louis Gasse). Had a relatively minor success after a decade of struggle and made it super big (uber). Cashed out halfway through and is now wealthy (evernote, twitter and many others), etc.
Wealthy founders will do things like reject $400m offers when a company has existed for a year and only has $10m in series A funding because they want to be the next superstar / 'unicorn'.
counterpoint: I worked at a different startup in the last couple of years that got acquired for around $400 million (after I left) and the found was a very wealthy serial entrepreneur. Basically, you never know. Basically don't treat a job at a startup as a way to get rich.
In hindsight, there were definite revenue challenges -- customers would try the product, like it, but not sign purchase contracts very often. How much of that is me being grumpy and how much is normal growing pains I don't know, but customers definitely weren't jumping up and down throwing money at us. Had the company been earning even millions of dollars, it would have been a different story. We made like $40k the first full year of attempting to charge money for the product. That, to me, augurs towards a poor outcome and supports selling.
There may not have been enough situations to give good data, but even if there were, my point was that it changes the thinking of the company leaders, who are now forced to "swing for the fences", which is great for the VCs with their diversified portfolios, but not so great for the founders who have all their eggs in one basket (who admittedly put themselves in this situation).
To be clear, I'm not talking badly about the VCs, I think they are making the right decision for their situation.
I'm saying it's a bad place for the founders to be.
The main reason not to block deals is that 1) this should not be a single-round game for VCs 2) people talk.
If you block an exit in a way which angers founders/employees, even if you have a higher expected return on that particular deal in doing that, you're now going to be "that fucking asshole VC who blocked our sale" every day until the company gets a 100x return above what the deal would have been (which is probably...never).
Not only will the founders hate you forever (both your firm and you personally, the partner); employees of that firm will hate you, and anyone those founders/employees talk to. Also earlier-stage investors/angels in the deal will also likely hate you for being "that asshole late stage investor who tanked our deal."
As a professional investor managing a large pool of other people's money, you probably have the greatest risk tolerance and most diversification of anyone involved in the deal. For employees, founders, and even angel investors, even a 2-5x exit, if it's the best/most likely thing, is probably going to be life-changing in a positive way.
People do not bite the hand that feeds. How many stories have you read where the VCs get lambasted by founders and employees? Not many right?
Remember it's a two way street. Sure maybe there is some incentive for VCs not to be ass holes. But there is equal incentive for founders (many of whom are serial entrepreneurs) to stay liked by the VC community at large.
Final point: people with "fuck you money" as mentioned elsewhere in this thread, commonly don't give a fuck.
It's important for founders and employees to appreciate how often that happens – a VC might have a dozen bets going but everyone else is committing their future to just one. A great deal of casual conversation treats investment as unambiguously good rather than a real risk to be balanced.
Don't know the details of LivingSocial, but in general liquidation preferences can complicate it. Instead of 1x or 2x return for all investors it is often 5x for the last investor and 0x for the rest. So it not all investors have a reason vote "yes" at a given total.
You are assuming this is just a profit maximization problem for the VC firm. There is also a reputation problem for the people that are involved in a suboptimal exit. They may be motivated to kick the can down the road to avoid acknowledging an underperforming investment.
I've seen it more like they're aiming for 10X the last round. (Though in most cases the last round is by far the largest) I think the reasoning is that 2X vs 0.2X barely registers a difference for the VC. The home runs are what moves the needle on their returns. Founders need to be aware of this when they ask for the check. I think we'll see a lot of situations like the one you've observed.
In this case I think "The CEO told Re/code that the cuts are not an attempt to dress the company up for a sale, but said he “might be open” to those conversations if they arose during the process of trying to secure new investments" means "We'll sell out at the first opportunity, rather than go through a painful down round"
Doing the math, it sounds like they're down to 200 and change employees from a high of over 1000.
> I think the reasoning is that 2X vs 0.2X barely registers a difference for the VC.
I thought this was worth calling out. This is more believable than the reputation/pride argument for holding out. The business model is built around homeruns and busts. Middling exits are essentially busts.
That's insane, and highlights the unreal expectations around the VC investment model. A draw is not a huge win but it's still a draw, and that means you get to play again.
AFAIK, a typical fund is structured to close within 10 years. If the exit is, say, 6-7 years into the fund's life, there won't be material time to "play again" and still honor the agreement with the fund's limited partners (read: institutional investors) of getting their money back in time.
>They often sit on the board, and also often control enough shares to outvote the founders.
I guess the better question is, "Why would workers give up control to investors?"
>I'm not certain but that would probably be illegal? At least immoral.
I guess it would depend on the specifics of the relevant contracts, however I don't really see the immoral aspect of it. If anything, it would be the investors who were acting immorally in this situation. Slavery has been abolished and everyone is free to dissociate with whomever they'd like. Investors have no claim to force you to only work for them, for their ends, yet that is exactly what happened in the situation you described.
They gave the company millions of dollars. They only paid my salary as they were legally obligated to do, 'at will'.
Loyalty is a two way street, and can be earned or taken away... "what would the company do in the opposite situation, say 'we will look after you', or 'you are on your own'?" - if the latter you should know about how much loyalty you have if you choose to walk away.
I think you just said it yourself. They gave the company millions of dollars, and now the company is more loyal to them than you. The job of the company is to serve it's shareholders. At first, as a founder, you are the only shareholder. When you take investment, you are bringing in more shareholders. Sometimes you have to bring in enough shareholders that you aren't the majority anymore. But if your choice is to do that or have the company die, then you choose to give up control.
Workers are rarely given any form of control to give up when looking at investors, is my point. Really, the only relationship between investors and workers (as opposed to founders) is that whatever equity the company might give workers is eeked away by investors.
Mayharm says "the reason the workers give up control to investors is to get hundreds of millions of dollars".
The workers "give up" (if they have any say in it) control so that the company gets that money, not them.
I'm just saying that's not really the case, and it shouldn't be seen as any real quid pro quo.
I think you two are mixing up founders and employees.
It would be immoral for a founder to leave the company to start another one after taking in investors money promising them he will work hard.
It would be immoral for an employee to agree not to take commercial and technological secrets when leaving the company and sign non-compete agreements, and then do exactly that and found a competing company.
It would not be immoral for the employees to leave with a few colleagues to start their own company, but it would be immoral for the founder if the founder were to join them.
It would be immoral for employees to stop attending the office and stay home to work on their own startup while accepting a pay check.
Workers give up control to investors when the investors can give them the certainty of a pay check next month - because having control yourself means you must forgo the certainty of income in the short to medium term. This is valuable to people with debt and no savings (graduates and people with mortgages and families).
Workers don't like to give up control if they don't have to, that's why there is a proliferation of startups in Silicon Valley, and wages for software engineers are very high compared to many other professions.
> Why would investors have veto power? Did the founders and employees give up complete control over the company?
Likely. Sometimes you'll do anything for the investment to keep your company afloat. I know of companies who gave up board control in their seed round.
Having had friends on the inside, it also just seemed like a terrible place to work. Grew quickly and they never paid down the organizational and technical debt. I think there were a lot of troubling signs for this business from the start, including the business model.
Offtopic: Will we see tech workers demanding higher salaries with valuations coming into question? (ie your lottery ticket has much lower odds of success than you first assumed)
SV tech wages at post-Series-B companies are generally close to Google/Apple/Facebook/Microsoft, anyway, at least in engineering. (Early stage, up through some Series A, are definitely lower)
There are big/public companies which underpay people, too, of course.
I think wages for a 5-10y experience "good" engineer are probably around 200-350k all-in in SF right now (cash, bonus, reasonable equity calculation, etc.). At an early startup it might be that you get a more advanced role than you would in a larger company, but in general there is close to parity now. It might be $25k more cash at a big company, and the stock being more liquid in RSUs vs. options, but the total compensation based on what I'd consider fairly reasonable valuation of equity is probably roughly the same.
(I don't really know the 0-2y experience market/college hires, or non-technical roles, though.)
Funny, typing "livingsocial layoffs" in google gives me these suggestions "livingsocial layoffs 2015", "livingsocial layoffs 2014", "livingsocial layoffs 2013"
I was bummed. They had an amazing bunch of developers, but there was just great talent all around. It was also nice because it was a great change of pace here in DC. It was by far the biggest player in the startup scene in DC in 2011 and 2012. I think just having it around encouraged others to try to build "the next LivingSocial". There's plenty of smaller startups here today, but nothing fills the same role. We need more fun companies in DC, even if it's Office of Company Culture-mandated-dusty-Xbox-fun.
I'm surprised these sites are still around. To me, offering your services at 50% off screams desperation or that your business is going under. I bought a deal once from Groupon and couldn't even bring myself to use it at the restaurant. It was a high-end establishment and the thought of pulling out the crumpled paper voucher, which I printed when the ink cartridge levels were low, cheapened the whole experience.
The businesses that Groupon works well for have a) unused capacity to service additional marginal customers, and b) good retention/ongoing business once people try them. Good examples: gyms, salons, masseuses, adventure sports, skydiving, concerts, travel packages, overstock goods, etc. Bad examples: popular, crowded restaurants. Unfortunately, people eat out a lot more than anything else, so a lot of people bought Groupons for businesses whose business model didn't match Groupon's value proposition.
This was not well understood in 2012 (well, maybe it was to leaders of Groupon/Living Social/etc that had the numbers) and so the market size was not clear. But everyone knew that the returns would go to the biggest player, hence the intense competition for funding, advertising, customers, and merchants.
I suspect that Groupon's competitive landscape is one reason why Uber has been so aggressive in fundraising and expanding - to win at lower cost than having to battle every every market, and correctly size fundraising to the actual market.
Groupon's "deal" is very different these days. The restaurant (or service provider) sets the particular offering - usually it's a specific menu item, which they can produce at low cost for all the Groupon customers. And it's not always 50% off, or often times they'll offer something like "dinner for two for the price of one". The last couple times we've used Groupons it amounted to maybe 10-15% off the total bill - enough to get us into the restaurant when we wouldn't otherwise go, but still quite profitable for the restaurant.
It's basically the same as getting coupons in the mail, but with a lower cost of distribution and a channel that people actually pay attention to.
The major problem with the flash sales sites is they provided very little upside to the business offering the deal. Taking a small hit in a 50% off deal could be considered part of the cost of customer aquisition if the customer comes back. However a very large segment of the flash sale demographic are not desirable repeatable customers. The deal is clear, they're there for the large discount, and probably will only be back if you give it to them again.
They work best when you have a very inexpensive product where you can still make a profit by doubling your MSRP then selling for "80% off". Doesn't do wonders for your brand though, which is part of why the company I work for which has been doing this for the better part of a decade is trying to move away from the model.
Are you including Groupon in "these sites"? What they offer are essentially promotional deals, just like sales or coupons you get in the mail or from a newspaper or, these days, from online websites. Why not? It draws in new customers who might have been on the fence about trying your product/service, puts butts in seats at restaurants, boosts the sales figures, and gets your name out there. If it didn't work, Groupon would go under.
I suspect Living Social's main problem is that it's a me-too service that doesn't offer much of an advantage over Groupon. Google ended their Offers a year or two ago; also a me-too effort, and I think Amazon Local also shut down.
It is not, but it's still relevant. It created a lot of FUD for business owners. I was working on a startup in that industry at the time; I can't tell how many times we got the question from prospective customers: "how are you different from Groupon/LivingSocial, because I have friends who got screwed by them."
In the end I decided it wasn't worth the effort trying to build a startup that required hours of our time to convince/train each customer for a meager (<$100 monthly) amount. Way too much overhead.
It was a good thought too. I've known about Groupon and Living Social for years, but have heard too many stories about the businesses they supposedly work for frowning upon customers that attempt to use the coupons. Restaurants putting patrons in the back or in some side room, giving them limited options on the menu etc...
Seems counter-intuitive that restaurants would treat them poorly. If you're savvy enough to use Groupon, you're probably savvy enough to leave a Yelp review.
It's interesting how one's perspective on something differs, one sees it as "cheap" while another sees it as "thrifty". Related to upbringing, perhaps? I love it when I can get two $60 meals for one $60 price.
Your point about Yelp reviews is good, but I'd say that reviews from people with Groupons, Living Social deals, going on Restaurant Week, etc. are generally worthless, and I've often wished for a way to filter them out. And it's really for much the same reason that I think restaurants tend to not value those customers a lot. First, if they'll only come in with a really great deal, they're not likely to become repeat customers at full price. And it's not profitable to nurture a customer base who only buys when there is a sale (just ask JC Penney). And since they've already demonstrated themslves to be "thrifty," they're also less likely to buy extras like alcohol, dessert, etc. that make the visit profitable. There are few businesses that want to attract people who care only about price, but that's the behavior that Living Social and Groupon encourage.
Secondly, and admittedly on a much more anecdotal note, it seems that these customers are prone to acting entitled and complaining loudly about things that are non-issues compared to the regular clientele. Most people who don't like Thai food simply don't go to Thai restaurants. But there's a pretty decent Thai place near my house that tried Groupon, and got a handful of really bad Yelp reviews from people who seriously seemed to just hate Thai food. A couple of them explicitly mentioned Groupon, and the owner told me that she believes that all of those reviews were Grouponers (and the deal didn't restrict what they could buy, so they got the same food as everyone else). Their complaints had nothing to do about the specifics of the restaurant (which has almost universally good reviews). This serves no one. The diners get a meal they didn't like. The restaurant takes a ratings hit. And Yelp users see artifically low ratings for a good restaurant. If I'm looking for a Thai restaurant, I don't care what people who dislike Thai food think -- I already know they'll hate it.
It was mine, too. Any time I was eating with someone who pulled out a Groupon, I wanted to pick up the tab just so as not to be so gauche as to use a coupon to pay for food. It was just a terrible user experience.
Why is that gauche?
The way I understand it (I've never actually used Groupon myself), the restaurant chose to offer its service at the deal, already at a cost to your host. It's not like your host was falsely claiming there was a hair in their food to get it for free.
Are you also against using restaurants.com type services?
A new business or a business expanding their current menu always has an issue with distribution. It used to be solved with ads in the newspaper, Yellow Pages, fliers under windshield wipers.
Groupon and LivingSocial's value-add is allowing a small business to gain distribution relatively on the cheap compared to other methods.
It's even worse than that if you include recent past job cuts too:
> LivingSocial will employ around 200 to 225 people after the cuts.
> [...]
> The Washington, D.C.-based company has now cut nearly 900 jobs over three rounds of layoffs since Thakar took over for founder Tim O’Shaughnessy 18 months ago.
If you had your savings in this company as a shareholder, and if you knew that the company could survive and maybe prosper (unlikely in case of LS) by reducing its cost of customer service by outsourcing it, then would you not support this move?
This is not very different from when you decided to buy a decent quality product made in China when you could have bought a slightly better quality product made in USA for 2X or 3X the price. I'm obviously guessing here to be more dramatic, but the point is true in general.
Cost has always been a major factor in many decisions we make as individuals or organizations. And for a company (which has fiduciary duty to its shareholders), cost is definitely a more important factor than being able to hire Americans.
There's no legal concept of that oft-asserted “fiduciary duty to maximize shareholder profits” and for a very good reason: it's almost never clear what the correct decision is until afterwards.
In this case, what are the odds that an overseas call center would cost more than anticipated (often the case), lower the quality of service and thus the company's reputation, or actually be enough to stop the downwards spiral rather than just signaling that you're in a low value-add commodity business?
That's a specialized edge-case and both of your links make the same point that I was making as the default rule for normal operations. There is usually considerable deference to business judgement but when a company is being sold you have an unusually simple situation where the timeframe is fixed and the value is precise. Notice how the situation is recognized as different from the normal operations we were talking about:
> Accordingly, the board's actions are evaluated in a different frame of reference. In such a context, that conduct can not be judicially reviewed pursuant to the traditional business judgment rule, but instead will be scrutinized for reasonableness in relation to this discrete obligation.
> what are the odds that an overseas call center would cost more than anticipated (often the case), lower the quality of service and thus the company's reputation, or actually be enough to stop the downwards spiral rather than just signaling that you're in a low value-add commodity business?
I would imagine that a company as large as LS would have used some analysis and external/internal data to estimate the overall costs of such a move (which would include the cost of lower quality of service etc). And they must have still found the move cost-effective.
It's slightly insulting to LS employees to think that they would know less about the cost-effectiveness of this move than us. Moreover, this move seems drastic. When you're making such drastic moves, you're likely doing so to be able to survive. In such cases, lower quality of customer service and poor signals etc take a back seat.
The argument isn't that LS management knows less but rather that they're trying to balance multiple demands. An investor's interests end when they cash out, so it's very common for CEOs to face pressure to make decisions which are likely to be profitable in the short-term, but unless they're planning to leave at the same time rhey have to consider the risks to long-term sustainability. Things like customer support and R&D are classic targets for that because they tend to involve many jobs which don't directly generate revenue, and the negative effects often aren't visible for years but the savings show up in the next quarterly report.
Sorry, yes, that could have been more precise. There's a common trope that executives have a fiduciary duty to maximize shareholder value, but that's not actually written into any sort of law for the reasons I mentioned — business is all about judgement calls trying to balance risks and trying to balance short and long-term prospects. I'll edit that to clarify.
That doesn't mean that cost shouldn't be considered, only that there's no support for the assertion that “cost is definitely a more important factor” because reasonable people can quite legitimately come to different conclusions. I might think the overseas call center is reasonable, you might think that you'll be able to offer a better customer experience by keeping it in-house or with staff who work for you rather than contractors, etc. and only time will tell how true those predictions are.
If you have savings in this company as a shareholder, you're going to lose your savings. The only people who will make money at this point are the VCs, who by law can't have their "savings" invested in the company. If you're not a VC holding shares at the company you're going to be wiped out via dilution or multipliers in the event of an exit, and god forbid they raise MORE money, because the terms on that deal are going to be pretty rough.
Even if the company manages to turn itself around, older existing shares will probably be wiped out just due to dilution in retaining its executives and share-backed loans, or, again, if it has to raise more money, terms on new money.
Whether a shareholder will get any returns in Living Social is not what I'm talking about. As a company, their job is to do whatever they legally can to protect (and grow) a shareholder's investment. If hiring Americans goes against that, then they should not hire Americans.
I was just responding to the first part of your post, specifically around a shareholder had their savings invested in the company. Management has a legal responsibility to do what's best for the company, yes, but that often is at odds with an investor who got in before the company turned sour.
I hope the jobs stay here. I worked in an IT call center during my time in college in Northern California. I was hourly, but everyone earned around 45-55k which is way cheaper than what they were paying for the same employee in the Bay Area. We were able to drive down for on site training and we all speak English without accents. Really made me believe more companies need to try outsourcing to college towns and rural cities.
You realize that you can cut those salaries by 75% by outsourcing them, right? It's really a simple equation of how much you stand to lose from customers having to deal with foreign call center employees vs how much you save. How many people ever have to deal with LS support in the first place, and then, over an issue that is not relatively easy to handle? I bet this was a very easy decision to make.
Agree - I worked in a call center for several years and it paid the bills, and improved 'soft skills' while letting me develop more technical knowledge on the side. Since I wasn't standing on my feet all day making sandwiches or waiting tables, I could come home after solving problems for angry people all day (thankfully I worked for a place that gave their support people the ability to actually resolve the problems), I would still have the energy and mindspace to be able to work on side projects and learn on my own time.
As much as companies try to automate things, I really hope that localized support makes a comeback.
Ive had both a call center job and a job making sandwiches all day while teaching myself programming on the side. I progressed way further during the sandwich-making years. It was hard to come home after being on a computer all day dealing with real problems (call center) and sit down to program, whereas after working in a restaurant I was physically exhausted but desperate for a cognitive outlet.
To clarify - the stress of the restaurant job was as much the lack of a distinct schedule combined with minimum wage pay as it was the physical work of the job. The call center gave me a regular 8-6 window, full time work at double the minimum wage at the time.
eh, unless you are hiring your buddy who lives in india, there are usually a lot of other not so obvious costs involved. unless you know someone who is working from home, you usually go through middlemen who take a pretty big cut. And part of that is doing business in other places is weird and different from doing business here in America.
All that aside, wages in India aren't 1/15th of what they are in the less economically developed parts of the USA, at least not for reliable people capable of working remote for American companies.
It depends a lot what you are after as well. Do you want someone who is able to rigidly enact a customer service manual and is hopefully understandable on the phone to your customers? Or do you want someone who is easily understandable and is able to make complex decisions based on individual customers cases?
There is going to be a pretty big difference in cost between the 2.
Also in our limited experience hiring in India you are going to want to pay a bit of a premium if you want low turnover.
but those things are both true in America, too. My point was just that the minimum bar for "can work with Americans remotely" puts your Indian labor way above 1/10th what you'd pay for the same thing in low labor cost parts of the US. From what I've seen, a 2x savings is... optimistic.
I'm just trying to make the point that this myth that you can get someone who speaks English and has enough knowledge of American customs to deal with customer support for under $1/hr is just a myth.
So what? Would you rather have the company scale and have a chance to do well or let it fail given their current cost structure. Think long term. If the company does well, they will hire more Americans workers in roles which do require more application and intellect.
Unfortunately, this is the perception that ensures customer service experiences stay horrible. It actually takes a lot of skill (including and especially personal skills) to satisfy an angry customer. If you can do it you'll win a loyal customer. But most people don't bother.
I actually think customer service require more skills than it may appear straight away - you have to learn to make angry people like you, or at least think they have been treated fairly.
And I have never seen a successful startup that didn't listen to its users - which you can't do if the people who are supposed to talk with them are in a different continent and don't understand the language really well.
I agree. Customer Service needs to be an equal partner on the team with Sales and Development. Growth is great, but it means nothing if you're bleeding yourself dry by not serving those customers you're obtaining.
I think its a bit disingenuous to phrase that part like they are just "replacing" those jobs locally. They are lost to the local community, and will never come back. Plus, I wouldn't expect the same level of service (change in stake and incentive), and there is now another possible data breach target.
Companies come and go. It's a fact of life. And it's a lot better that way than keeping crappy companies around because they provide jobs. Source: I lived in Italy for 15 years.
Tech startups are a pretty lousy plan for general job growth considering they tend to employ far fewer people, relative to their revenue, than most businesses.
If their new plan (restaurant discounts linked to credit cards) is going to go anywhere, it's going to take a TON of sales staff cold-calling resturants all across the country. Unless they are content to just go with national franchises.
> If the company does well, they will hire more Americans workers in roles which do require more application and intellect.
Leaving aside the implication that customer service doesn't require either application or intellect, why would they do this if their experience teaches them that outsourcing gets the job done at a fraction of the cost?
Do not ever let an HR respresentative make you feel like it is greedy or disloyal for you to ask for fair severance pay to protect you in the event of unexpected job loss.
That's the biggest red flag for me. General rule of thumb is that your VCs won't approve an exit unless it's for at least 10x the funding you've taken, which means they need a minimum exit of about 10 billion.
That's a tough spot to be in, and really changes your thinking. I know of at least one company that had an exit opportunity but it was only 2x funding, so the investors wouldn't allow it. They then slogged along for 8 more years until they finally had an exit that was 0.2x and it all went to the series A investors with their preference. Founders got nothing, angels got nothing, employees got nothing, and series B and beyond (the ones who blocked the 2x exit) got nothing.
Edit to clarify: I'm not saying the VCs are doing anything wrong here or being irrational or anything like that. I'm saying as a founder you need to watch out for this because the VC has a diversified portfolio and the founder doesn't.