LivingSocial CEO Takes Unusual Low-Tech Path

Business-savvy Tim O'Shaughnessy isn't your typical tech-startup founder, which hasn't kept him from challenging Groupon, the leader in daily online deals Founder Tim O'Shaughnessy waited tables at Ruby Tuesday in college—not a typical background in a field whose entrepreneurs often spend their formative years crafting software code.

O'Shaughnessy says he learned much about running a business from serving demanding customers in an overbooked restaurant. "It was like this game to figure out what's the best way to manage nine tables all by yourself," he says in an interview in Washington, where LivingSocial is based.

O'Shaughnessy, 29, has used his unconventional pedigree to transform the startup into the second-biggest provider of digital deals. The four-year-old company has more than 1,500 employees, up from 33 in early 2010, and expects to generate $1 billion in sales this year, double the forecast in January.

LivingSocial must tackle bigger challenges now. The company lags behind Groupon in the U.S. daily-deal market, which BIA/Kelsey predicts will more than quadruple from last year, to $3.9 billion by 2015. Chicago-based Groupon boasts a staff of more than 7,000 and its 2011 sales are projected to surge to a range of $3 billion to $4 billion, people familiar with the matter said in March.

Another pressing need for LivingSocial is to stand out in a field that has lured more than 480 competitors, including Facebook, the No. 1 social network, and Google (GOOG), the top search engine. "If two years ago—or even a year ago—you had said that 'your competitive set could in a very real way include Facebook and Google,' first I probably would have jumped for joy and then I probably have told you that I don't believe you," O'Shaughnessy says in an office above a Fuddruckers in Washington's Chinatown district, one of three in the capital.

Special Packages and Exclusive Events

LivingSocial, like Groupon, has raised venture funding to add sales employees, who persuade local merchants to offer discounts on such products as meals and weekend getaways. LivingSocial operates in 12 countries and has 29 million users, while Groupon operates in more than 44 countries with a base of more than 50 million people. O'Shaughnessy aims to help his company stand out with hard-to-copy offerings. These include deals tailored for families: vacation packages, which often include a variety of activities for a flat price; and exclusive events such as the recent "Become a Canadian For a Night," which featured broom ball, curling lessons, Canadian beer, and ice dancing to music from artists like Bryan Adams.

A graduate of Georgetown University with degrees in information management and in marketing and operations, O'Shaughnessy sports carefully parted hair and a uniform of khakis and button-up shirts that make him look at home on Capitol Hill. He oversaw product launches at AOL when it was owned by Time Warner (TWX) and led the consumer products team at Revolution Health, which helps users find doctors, check symptoms, and get tips for staying healthy. Such business chops are uncommon among startup founders, who typically specialize in building technology products and setting strategy, but often must lean on a deputy to handle day-to-day operations—the way Facebook Chief Executive Officer Mark Zuckerberg depends on Sheryl Sandberg, or Groupon CEO Andrew Mason until recently relied on Rob Solomon.

O'Shaughnessy is a skilled manager who stresses culture, company processes, and performance reviews, said Jeremy Liew, managing partner at Menlo Park (Calif.)-based Lightspeed Venture Partners, a LivingSocial investor. "He's a bit of a boy wonder," Liew said. "He's more focused on the 'soft stuff' things that a lot of twentysomethings don't really appreciate."

No. 1 Issue: "How to Scale"

The CEO needs those skills as he navigates growth at a company that's hiring six people a day to keep up with surging demand, while stewarding the more than $600 million LivingSocial has raised from venture capitalists. O'Shaughnessy's also considering whether to hold an initial public offering as rival Groupon picks banks to handle a share sale that may give it a valuation of as high as $25 billion. "The No. 1 thing that we're figuring out is how to scale," O'Shaughnessy says.

LivingSocial is already expanding quickly, with the fastest phase following a January 2010 meeting with Steve Case, the one-time CEO of AOL (AOL) who is a mentor to O'Shaughnessy and an investor in his company. At that time, LivingSocial had 120,000 members and the two were discussing ways to position the business as an alternative to Groupon. They realized they had to move fast. "It was clear it was time to slam down the accelerator," Case says.

In the months following that meeting, LivingSocial raised more than $30 million, using the capital to hire staff and expand into more cities. "We had a model and we knew that if we put $1 in an engine we could turn it into $2, and we wanted to have the capital to be able to scale that out as fast as we possibly could," O'Shaughnessy says.

In December, the company raised another $175 million from (AMZN). Investors, including Institutional Venture Partners, added a further $400 million earlier this year.

At First, a Facebook Readers' App

LivingSocial began in 2007 as a startup called Hungry Machine that made such Facebook applications as Visual Bookshelf, which let users showcase favorite books. The company later changed tack, drawn by the popularity of Groupon. The new service took off and has been adding 1.5 million customers a week.

O'Shaughnessy is using specialized offerings to keep the growth coming. The "Escapes" vacation packages alone will contribute more than $100 million in sales this year, he says. "If that were its own business in and of itself, it'd probably be one of those stories that people would be writing about to say: 'Oh my gosh, this company has come out of nowhere and is growing so fast,"' O'Shaughnessy says.

More targeted coupons such as these are helping the company stand out, said Peter Krasilovsky, vice-president and program director at Chantilly (Va.)-based researcher BIA/Kelsey. "LivingSocial has really branded itself as a lifestyle company," he says. "That's really helped LivingSocial not only be a good place for people who want to save money but also save money in ways that relate to their own lifestyles."

O'Shaughnessy's mentor, Case, says mounting competition won't hinder LivingSocial. "It's not a winner-take-all business," Case says. "But it's a winners-take-most."

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